Insurance

Which of the following riders waives the cost of insurance from being deducted from a universal life insurance policy's cash value in the event the insured becomes disabled?

universal life waiver of cost of insurance rider. The universal life waiver of cost of insurance waives the cost of insurance deducted monthly from the policy's cash value.

When a person dies, the survivors often immediately need a certain amount of money to cover costs. The survivors will need an immediate lump sum to pay for all of the following EXCEPT

utilities and clothing: In addition to lump sum amounts that are needed immediately at an insured's death, the surviving family will also typically need income to cover ongoing needs such as utilities, food, clothing, and transportation.

An equity-indexed annuity (EIA) is purchased at $10,000 and the S&P 500 increased 10 percent during the contract's term. The contract's participation rate is 75 percent. How much did the contract earn for that period?

$750: For that period the contract earned $750 ($10,000 X .075).

Any after-tax contributions Tom makes toward the cost of his group life coverage are treated in which of the following ways?

They are subtracted from his imputed income on the employer's contributions on a dollar-for-dollar basis. Any after-tax contributions Tom made toward the cost of his group life coverage are subtracted from Tom's imputed income on a dollar-for-dollar basis.

A qualified plan under which each participating employee has an individual account is called a ______________ plan.

defined contribution: A defined contribution plan is a qualified plan under which each participant has an individual account.

If the annuitant dies after annuitization begins, who has primary rights to the funds in the annuity?

depends on the income payout option the owner selected at annuitization: The person who has primary rights to the funds in an annuity during the payout period depends on the income payout option the owner selected at annuitization.

If an annuity requires only that each premium deposit be above a certain minimum, this is most likely which type of annuity?

flexible premium deferred annuity. Flexible premium deferred annuities allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required.

The mathematical concept of probability that helps insurers estimate the statistical likelihood of mortality or morbidity losses at any given age is called the

law of large numbers. Based on the idea that predictions become more accurate as the number of exposures increase, the law of large numbers is the mathematical principle of probability that insurance is based on.

Which of the following doubles or triples the benefits if the insured dies from a specific accident?

multiple indemnity riders. A multiple indemnity rider offers double or triple benefits if the insured dies accidentally, becomes dismembered, or loses a limb because of an accident.

Which type of insurer is incorporated, owned by its policyholders, but does not have capital stock?

mutual insurer

When reviewing applications and applying underwriting standards, insurance companies must use the same selection criteria with all applicants. State laws prohibit discrimination against specific groups of people in all of the following, EXCEPT

setting premiums: Premiums are determined on the basis of the applicant's risk. If a specific group, by its nature, constitutes a higher risk, the insurer has the right to set premiums generally higher for that group.

Under standard exclusions, most insurers would deny coverage of which of the following?

someone serving as an aircraft crew member. Depending on the insurer, aviation and hazardous occupations and hobbies may or may not be excluded. If the policy has an aviation exclusion, then it excludes paying a death claim if the insured was serving as an aircraft crew member.

Who normally owns life insurance used to meet business insurance needs?

the business. Life insurance used to meet business insurance needs is normally owned by the business rather than the insured.

Under group insurance coverage, one policy covers a number of people. Who owns these group polices?

the organization that represents the group and which sponsors the coverage

In a third-party life insurance contract, the parties to the contract are the

the owner, the insured and the insurance company. The two parties in a standard two-party insurance contract are the owner and the insurance company. In a third-party contract, the owner and the insured are different people.

Which of the following is NOT a use of an annuity?

to provide monthly payments to the child whose parent has died: An annuity would not be used to pay income to a child who has lost a parent.

Which of the following statements about utmost good faith in insurance contracts is correct?

Both the insured and insurer must act in utmost good faith. An insurance contract requires that both the insured and the insurer act in utmost good faith. Under this concept, both parties can expect complete, relevant, and accurate information. If one party fails to disclose critical information, the other party usually can void the contract.

A producer has a fiduciary responsibility to

Both the insurer and the customer. Producers have a fiduciary duty to their customers as well as their insurance company, and must act in good faith and with integrity in their dealings with both.

Under variable life insurance plans, policy loans can be as high as what percent of the cash value?

75 to 90 percent: Loans taken from variable life policies are typically limited to 75 to 90 percent of the cash value.

Anne turned 70 this year on March 15. By what date does she have to begin taking distributions from her retirement plan?

April 1 next year. Anne is not required to take her first minimum distribution by April 1 in the year in which she turns age 70 1/2.

In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to do all the following EXCEPT

Seek opportunities to replace existing policies with newer products. While policy replacement is not prohibited, it is discouraged and most states have rules in place to identify unsuitable replacement.

Jon buys a $100,000 straight whole life policy. His twin brother, Ted, buys a $100,000 ten-pay life policy. All other factors being equal, which of the following statements is most correct?

Ted will pay higher premiums than Jon. Under a limited pay life insurance policy, premiums are paid for a shorter period of time. As a result, the premiums are higher than those charged for an ordinary straight life policy. Ted will pay higher premiums for a shorter time period than Jon.

Dan owns a fixed whole life insurance policy. What type of death benefit is Dan guaranteed?

The policy guarantees a fixed death benefit amount. Under a fixed life insurance policy, the insurer guarantees a fixed death benefit.

Which of the following statements about credit life insurance is correct?

The type of insurance used for credit life is usually decreasing term insurance. The type of insurance used for credit life insurance is usually decreasing term insurance.

After Bob and Karen won the lottery, their state lottery board offered them a choice in how to receive their winnings. Instead of a lump sum, Bob and Karen chose to receive the funds in installment payments over a 10- to 20-year period. In this case, what is the state lottery board most likely to do?

buy a structured settlement annuity from an insurance company to pay a stream of income to the lottery winners over the specified period. The board would most likely buy a structured settlement annuity from an insurance company. This type of annuity pays streams of income payments to lottery winners over specified periods.

A customer has purchased over a dozen life insurance and annuity contracts over the past year, using cashier's checks to pay the premiums. If this action is part of a money laundering operation, what stage does it represent?

layering stage: Money laundering is a process that moves illegal money through three stages on its way to apparent legitimacy: placement, layering, and integration. The second stage, layering, is achieved by using cash or cash equivalents to purchase multiple financial instruments that can subsequently be converted into clean money.

Which annuity settlement option guarantees that income is paid for the length of the annuitant's life, but no less than a specified number of years?

life income with period certain: The life with period (or term) certain option guarantees that income is paid for the length of the annuitant's life. However, the income is paid for no less than a certain number of years. If the annuitant dies before the chosen period ends, income payments continue to the beneficiary for the balance of the period.

How long is the typical permanent life insurance policy's free-look period?

10 days

For any given amount of coverage, how does the cost of group life insurance generally compare to the cost of individual life insurance?

Group life is less expensive.

Who is the primary beneficiary in the following beneficiary designation: "Sally Grant, wife of the insured, if she survives the insured; otherwise in equal shares to surviving children of the insured, if any; otherwise to Frank Grant, brother of the insured."

Sally Grant

Sally's $750,000 life insurance policy was payable to her son when she died. Her son, the executor of Sally's estate, receives the $750,000 in death proceeds income tax-free. How are those funds handled in Sally's estate?

Sally's estate must include $750,000 for the purpose of determining any estate tax liability.

Which one of the following statements most correctly describes a universal life insurance feature that is NOT available with traditional whole life insurance?

The policyowner can withdraw part of the policy's cash value. A policyowner can take partial withdrawals from a universal life policy's cash value. Under a traditional whole life policy, the policyowner has access to cash values only through policy loans or full surrender of the contract.

What is the term for deliberately withholding material facts when applying for insurance?

concealment. Concealment is deliberately withholding material facts when applying for insurance. If the concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer can void the insurance contract.

An insurance company is developing a new product. Which one of the following is the actuaries' most important responsibility?

deciding the premium for the new product: The actuaries' most important input in the process is determining the premium.

Tracy, the CEO of HML Data, Inc., is insured under an executive bonus plan. All the following statements regarding this are correct EXCEPT

HML Data must pay all of the premiums for the policy.

Which of the following features is TRUE about the automatic premium loan (APL) provision?

If a premium is not paid, the APL is applied on the last day of the premium payment's grace period. The APL directs the insurer to deduct an unpaid premium from the policy's cash value on the last day of the premium payment's grace period.

Two or more employers from the same industry who form a trust to buy group insurance for their employees is known by its acronym, _________.

MET: Two or more employers who form a trust to buy group insurance for their employees is known by its acronym, MET (Multiple Employer Trust).

White Insurance Company is a domestic insurer in Florida. By what date must it file an annual statement regarding its financial condition each year?

March 1. Insurers are required to file an annual statement regarding their financial condition, transactions, and affairs with the Office of Insurance Regulation by March 1. Quarterly statements must also be filed.

An actuary is setting life insurance rates. What affect will it have on a policy if higher interest assumptions are used?

Premiums will be lower: In making life insurance rates, higher assumed interest earnings reduce premiums.

A policyowner chooses death benefit option 1 for a universal life policy. What is the death benefit?

The death benefit generally remains level.

Which of the following statements about equity-indexed life insurance is NOT correct?

The insured bears all of the investment risk with an equity-indexed life insurance policy.

The Department cannot suspend or revoke an agent's license for which of the following reasons?

failing to meet projected sales goals. The Department can suspend or revoke an agent's license for all of the reasons listed except for failing to meet his or her projected sales goals.

Which of the following is NOT an unfair claims settlement practice if committed by an insurance company in Florida?

failing to promptly settle a claim for which liability is uncertain. An insurer is not obligated to settle a claim for which it is not clearly liable.

Settlement options with life contingencies involve income payments the payee cannot outlive. These settlement options are called which of the following?

life income options.

Billy's parents purchase life insurance for their son. To ensure that the insurance stays in force by waiving the premium payment if a designated parent dies or becomes disabled, they could buy which of the following?

payor benefit rider

With interest-sensitive whole life insurance policies, insurers may change interest and premium rates after reviewing their investment experience. What is the process that insurers use to make these changes called?

redetermination.

Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums?

reduced paid-up option. A paid-up policy under the reduced paid-up option requires no further premiums (nor can any be paid). The paid-up policy retains a cash value that will continue to grow throughout the life of the policy. However, it will grow much more slowly than during the period that premiums were being paid.

Transacting insurance includes all of the following EXCEPT:

underwriting insurance contracts

Alex owns a "home service" life insurance policy, which means he most likely pays his premiums in which of the following ways?

weekly or monthly, often personally to the agent who comes to the policy owner's home.

What is the only part of an annuity's death proceeds that is taxable?

the amount that exceeds the amount the owner paid into the contract.

George's wife, Ellen, will receive income payments from George's annuity when he dies. Under the annuity contract, what is Ellen?

the annuitant

The suicide exclusion provision of a typical life insurance policy excludes coverage if death is the result of suicide within

2 years following policy issue. The standard suicide provision denies payment of the death benefit if, during the first two years following policy issue, the insured commits suicide.

Sue's annual premium is $1,500 and the declared dividend was $200. If Sue chooses the premium reduction dividend option, she will receive a premium notice for which of the following?

$1,300. Under the premium reduction option, the insurance company keeps the dividend and uses it to reduce the next premium due. Sue's next premium notice will be for $1,300.

Paul dies with a $50,000 unpaid loan (including interest) against his $150,000 life insurance policy. What death benefit would the insurance company pay his beneficiary?

$100,000

Al is a 60-year-old male. His $100,000 fixed annuity can provide $5.50 per $1,000 of accumulated value under a straight life payout option. How much income can Al expect and for how long?

$550 a month for life. Fixed annuitized amounts do not change over the term of the annuitization period. Under a straight life payout option, Al's $100,000 annuity fund would generate $550 a month for as long as he lives.

Emily, age 48, withdrew $8,000 from her SIMPLE plan to buy a car. How much penalty tax will she owe?

$800, 10%

According to FCRA, an insurer who requests an MIB, inspection, or consumer report, is responsible for which of these follow-up actions with the applicant?

...

All the following statements about ordinary whole life insurance are correct EXCEPT

1)The cash value decreases as the insured gets older. Under an ordinary life policy, the cash value increases and reaches the policy's face amount when the insured reaches age 120. 2) The death benefit increases during the early policy years and then levels off.Under an ordinary life policy, death benefits are level. An ordinary life policy gives permanent protection for the insured's lifetime.

When a surviving spouse reaches age 65, how much of the deceased worker's PIA is he or she entitled to in benefits?

100%: When a surviving spouse reaches age 65, he or she is entitled to 100 percent of the deceased worker's PIA in benefits.

What is the minimum number of people that a group must cover to be eligible to provide group life insurance according to the NAIC?

10: A group must cover at least ten persons under one master policy.

Four business partners each agree to buy the others' business interests in case a partner dies or leaves the partnership. What is the total number of life insurance policies needed to fund this cross-purchase buy-sell agreement?

12

An insurer must notify its current customers of its privacy policies or practices at least once every how often?

12 months

George bought a 25-year family income policy that will provide $2,000 per month income for his survivors. If George died after ten years, how many years of income would they receive?

15: Under a family income policy if the insured dies within a specified period, the family will receive a stated amount of income from the date of death until the end of the period. Because George bought a 25-year family income policy that will provide $2,000 per month income for his survivors, and he died after 10 years, the surviving family would receive 15 years of income.

A child of a totally disabled worker is eligible to receive a monthly social security benefit until what age?

18: A child of a totally disabled worker is eligible to receive a monthly social security benefit until age 18.

Group life insurance policies must include a grace period of how long for paying any premium except the first?

31 days. After the group policyholder has paid the initial premium, it has a grace period of 31 days within which to pay every subsequent premium. The policy remains in force during the grace period.

What is a typical life insurance policy's grace period?

31 days: Although the premium is due on its due date, the policyowner has 31 days after this date to pay the premium before the policy lapses.

Which qualified plan allows catch-up contributions yearly for participants 50 years or older?

457 plans: 457 plans allow catch-up contributions for those age 50 and older.

BBX Insurers terminated Henry's appointment as its life insurance agent on December 1. How long will Henry remain eligible to be appointed as a life insurance agent by another insurer?

48 months. If an agent's appointment for a particular class of insurance has been terminated or not renewed, the agent remains eligible to be appointed as an agent for that line of business for 48 months. If the agent does not obtain an appointment during the 48-month period, then his or her qualification for that line of authority will expire.

Alice's annuity imposes a declining surrender charge that begins at 7 percent during the first year of the contract and declines 1 percentage point each year. What would the surrender charge rate be for a full withdrawal in the third year of the same contract?

5 percent

Under a disability waiver of premium rider, an insured most commonly must be totally disabled for how long before the waiver begins?

6 months: Most waiver of premium riders require that the insured be totally disabled for six months before the waiver begins.

If a person receives funds directly from a qualified pension plan and intends to roll them over to an IRA, within how many days must the rollover be completed?

60 days. If a person receives funds directly from a qualified plan and plans to transfer them to an IRA rollover account, he or she has 60 days to complete the rollover transaction. If the funds are not deposited within 60 days, they are subject to income tax and a penalty tax.

Which one of the following statements regarding simplified employee pension (SEP) plans is most correct?

A SEP plan is the most common type of qualified plan sponsored by small employers. Because of the lower administrative, reporting, and compliance costs, SEP plans are the most common type of qualified plan sponsored by small employers.

Which of the following statements is TRUE about a legal contract?

A contract is enforceable at law. A contract is enforceable by law. Once all of the elements of the contract have been met then the contract is binding on all parties.

Which of the following statements about cross-purchase buy-sell agreements is correct?

A cross-purchase buy-sell agreement is a contract between individual partners or shareholders. In this agreement, the partners or shareholders agree to buy the interest of the other(s) in the event that one of them dies or withdraws from the business.

In accordance with Section 1035 of the Tax Code, which of the following exchanges is permitted on a tax-free basis?

A deferred market-value adjusted annuity for an immediate variable annuity.

Which of the following statements about the disability income benefit rider is correct?

A disability income benefit rider pays a certain sum of monthly income to the insured if he or she becomes disabled. A disability income benefit rider pays a certain sum of monthly income to the insured if he or she becomes disabled.

Which one of the following insurance sales arrangements is not affiliated with a single insurance company but instead represents multiple companies?

A sales office that is managed by a Personal Producing General Agent (PPGA). PPGAs manage independent agencies that are not affiliated with a single insurer but instead have sales agreements with multiple insurers.

Which statement about term life insurance is NOT correct?

A small cash value gradually accumulates while the policy is in force.

Robert is suffering from a terminal illness. He wants to keep his life insurance out of his taxable gross estate. Which of the following arrangements would help him meet that goal?

A third party (such as an irrevocable trust) can apply for and own the policy from the beginning. To keep death benefits out of the insured's federal gross estate, a third-party trust can apply for and own the policy from the beginning.

The terms of an insurance policy must be accepted or rejected as presented; they are not open to negotiation. Which term describes this characteristic of insurance policies?

Adhesion: An insurance contract is a contract of adhesion. This means it is drafted by the insurer and offered to the prospective policyowner on a take-it-or-leave-it basis.

Which of the following statements about annuity units is correct?

After the first payment under a variable annuity is made, the payment is converted into annuity units by dividing the initial payment by the contract's current accumulation unit values.

In an insurance transaction, the insurance salesperson in the agency system who legally represents the insurer is known as the __________.

Agent: In an insurance transaction, the insurance salesperson in the agency system who legally represents the insurer is known as the agent. (A broker, on the other hand, has traditionally and legally been viewed as a representative of the applicant rather than of the insurer.)

Which of the following statements about equity-indexed annuities (EIAs) is correct?

An EIA participation rate is the percentage of the index increase that is actually credited to the annuity.

Which one of the following statements regarding life insurance accelerated benefits is most correct?

An accelerated benefit rider pays out part or all of the policy's face value while the insured is still living. An accelerated benefits rider pays out part or all of the policy's face value while the insured is still living. Some portion of the death benefit payment is accelerated and paid while the insured is still alive.

Which of the following best describes an agent's responsibilities?

An agent has to act in the best interests of insureds, applicants, and insurers. In addition to the duties an agent owes to the insurer, the agent also must act only in the best interests of the applicant or insured.

Which of the following statements is TRUE regarding insurable interest?

An applicant can take out a policy on a business partner in a small business. Business partners have a legitimate insurable interest in one another since the death of one would be very harmful to the business.

Modern accidental death benefit (ADB) riders provide an additional death benefit that is__________________.

Any multiple of the policy's face amount Although many ADB riders are for double or triple the policy's face amount, modern ADB riders are available for any mutiple of the policy's face amount that the policyowner chooses.

Who can make contributions to IRA qualified plans?

Anyone younger than 70½ with earned income can contribute to an IRA. Earned income can consist of wages, salary and tips, commission income, self-employment income, or taxable alimony and maintenance.

Which of the following statements describes the insurance aspects of annuity products?

As an insurance product, annuities provide protection in the form of guaranteed death benefits; and if the product is annuitized, it can provide a payout of lifelong income.

If Ken becomes eligible (by a medical reason) for payments under his life insurance long-term care rider, he must be certified as unable to perform which of the following?

At least two activities of daily living for at least 90 days: To become eligible for payments under a long-term care rider for a medical reason, the insured must be certified as unable to perform at least two activities of daily living for at least 90 days.

Bill owns an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is most correct?

Bill's premium will never be higher than the maximum level that the insurer guaranteed when it issued his policy.

Which of the following is/are directly involved in the regulation of variable insurance products?

Both FINRA and state insurance departments

In what way are variable annuities and fixed annuities alike?

Both can be bought as either immediate or deferred annuities: Both the fixed annuity and variable annuity can be bought as either immediate or deferred annuities.

Both mutual insurance companies and stock insurance companies have which of the following features in common?

Both can issue dividends:The stock company can issue dividends to its stockholders; the mutual company can issue dividends to its policyowners.

Which of the following is an example of an unauthorized insurance company in Illinois?

Company B, an Illinois company that does not hold a certificate of authority and sells products that are not approved by the Illinois insurance department. An unauthorized company is one that is presenting the products it sells as 'insurance' when in fact it is not an admitted company and its product are not approved by the state insurance department.

The main purpose for errors and omissions insurance (E&O) is to

Cover damages that arise due to services a producer non-willfully failed to render. E&O insurance covers injuries and damages that occur due to professional services a producer rendered or failed to render without the willful intent to injure the customer.

The purpose for the Buyer's Guide, which must be given to every insurance prospect, is to

Explain the general features, benefits, and conditions of the type of insurance being considered. Provided to a prospective buyer when he or she is first solicited, the Buyer's Guide explains the general features, benefits, and conditions of the type of insurance being considered.

The contract between the producer and insurer, setting forth certain acts and duties the producer is specifically authorized to perform, is an example of

Express authority. Express authority is described, in writing, in contracts and related agreements.

All the following are federal laws or related rulings that have a direct impact on anti-money laundering requirements EXCEPT the:

Fair Credit Reporting Act: The USA PATRIOT Act expands the AML directives of the Bank Secrecy Act, and FinCEN's final rules amended the USA PATRIOT Act to address the insurance company needs. The FCRA does not directly relate to money laundering.

With regard to an insurance contract, which of the following would constitute grounds to void the contract?

Fraud: Fraud is the act of deceiving with the intent to gain something of value. It is grounds to void a contract.

Sam is planning to buy a deferred annuity. When will he select a settlement option?

He can choose the settlement option when the deferred contract annuitizes or when he buys the annuity.

Gloria chooses to take her life insurance policy dividends in cash. The insurance company sends a check for the amount of the declared dividend on the anniversary date of the policy. What is the tax consequence to Gloria for receiving cash dividends?

Her dividends are not income taxable.

Which one of the following best describes the restrictions an insurer must operate under when using information from the Medical Information Bureau (MIB)?

Insurers cannot rate or decline a life insurance risk based solely on MIB information.

What does a viatical settlement allow?

It allows a chronically or terminally ill insured to gain a sum of money that is needed to pay medical expenses or to enhance the quality of life. A viatical settlement allows a chronically or terminally ill insured to gain a sum of money that might be needed to pay medical expenses or to enhance quality of life.

What two features of whole life insurance distinguish it from term insurance?

It provides permanent protection for the insured's whole life and it includes a cash value feature. Whole life provides permanent protection for the insured's whole life and it includes a cash value feature.

The insurer has approved the policy, with conditions that the applicant must meet before delivery is official. The type of policy delivery that the agent should make in this situation is called ________.

Legal: If any conditions are attached to delivery of a policy then legal delivery is preferred. Legal delivery requires personal delivery of the policy to the client, along with an explanation.

In an ordinary life policy, death benefits and premiums are always_________.

Level: In an ordinary life policy, death benefits and premiums are always level.

A policyowner can access the cash value of many life insurance policies through withdrawals, loans, or policy surrender. Which of the following terms describes the ability to easily convert life insurance into cash?

Liquidity: An investment with liquidity is easy to convert into cash. Life insurance policies with cash accumulation features offer important liquidity options such as loans or withdrawals.

In a modified premium whole life policy, premiums in the earlier policy years are generally ________ than they are in later years.

Lower: In a modified premium whole life policy, premiums in the earlier policy years are generally lower than they are in later years.

All the following statements regarding Simplified Employee Pension (SEP) plans are correct EXCEPT

Only large employers use SEP plans. Because of the lowered administrative, reporting and compliance costs, smaller employers often use SEP plans.

Convertible term life insurance allows the policyowner to exchange the coverage for a ________ life insurance policy without proving insurability.

Permanent: Convertible term life insurance allows the policyowner to exchange the coverage for a permanent life insurance policy without proving insurability.

Under the rules of agency, the party for whom the agent acts is called the ______.

Principal: Under the rules of agency, the party for whom the agent acts is called the principal. An agent and principal are the two parties involved in the agency relationship.

Laura has selected the paid-up additions dividend option with her participating whole life insurance policy. Which of the following best describes the type of life insurance that will be purchased with policy dividends in Laura's case?

Single premium whole life insurance

Which one of the following statements regarding Social Security disability benefits is most correct?

Social Security disability benefits are available to eligible workers at any age.

Which of the following statements is TRUE regarding the terms of a typical cost-of-living (COL) rider?

The COL rider rate of increase is tied to an inflation index, such as the Consumer Price Index: The COL rider rate of increase is tied to an inflation index, such as the Consumer Price Index.

Which of the following statements is correct if a group offers non-contributory group life insurance?

The plan must cover 100 percent of eligible group members.

Which of the following is considered an element of insurable risk?

The risk of loss must be measurable with a dollar value defined.

Which one of the following statements about non-qualified deferred compensation plans is most correct?

When an executive receives the deferred compensation, he or she will generally be in a lower tax bracket and will pay lower taxes. A non-qualified deferred compensation plan lets an employee delay receiving current compensation until a future date, usually retirement. At retirement, he or she will generally be in a reduced tax bracket and will pay lower taxes.

Insurers will decline applicants with very high substandard risk ratings. What percentage of applicants do insurers reject?

about 2 percent. Life insurers are in the business of selling life insurance policies. The percentage of applicants that are rejected for coverage at any rate is about 2 percent of total applicants.

Jessica, age 25, buys a $100,000 life insurance policy. The initial premium is lower than straight whole life rates and increases each year for the first ten years of the policy period. After that, the premium levels off and stays at that amount for the life of the policy. What type of policy does Jessica own?

graded premium whole life

Which of the following is NOT one of an agent's responsibilities to an applicant?

helping write an applicant's insurance policy. Agents must act in the applicant's or insured's best interests at all times. This means that agents must disclose all important information about a proposed policy. They cannot misrepresent the terms or conditions of a policy, and must avoid replacing policies unless it is in the applicant's best interests. Agents do not help write the actual insurance policy.

Which one of the following can be funded only with a single lump-sum premium payment, but it distributes income payments over time beginning soon after purchase?

immediate annuity: Immediate annuities are funded and can only be bought with a single lump-sum premium payment. They then regularly distribute a given sum of money over time soon after purchase.

A worker who is considered fully insured is entitled to all of the following benefits under Social Security EXCEPT:

medical care benefits

Annuity income payments are most commonly paid on what schedule?

monthly.

What type of life insurance company is owned by the policyowners?

mutual company. Mutual companies are owned by the policyowners.

A group insurance plan that is paid entirely by the group sponsor is known as a

non-contributory plan: A non-contributory plan is one in which the group sponsor pays the entire premium amount.

The FICA tax is split between an employee and employer, with the employee paying how much?

one-half (50 percent) of the total tax.

Most of the combination, or "5th," dividend options involve which of the following?

one-year term life insurance

The typical settlement options involving life contingencies generally include all of the following, EXCEPT

period certain option

Under the pre-paid state tuition plan, ________________.

parents can lock in the future cost of college for a child at current prices. Under the pre-paid state tuition plan parents can lock in the future cost of college for a child at current prices.

The fact that a health insurance contract generally cannot be transferred to a third party without the insurer's consent makes it what type of contract?

personal. Most insurance policies are personal contracts between the insurer and the policyowner. This means that the policyowner cannot transfer the agreement without the insurer's consent. Life insurance is an exception. The owner of a life insurance policy can do what he or she wants with the policy, such as using it as collateral on a loan or transferring it to a third party.

Nine out of ten people fall into which two risk classifications based on the underwriter's evaluation process?

preferred and standard: Nine out of ten people fall into the preferred and standard risk classifications based on the underwriter's evaluation process.

For which of the following purposes are annuities most often used?

retirement planning. People use annuities most often for retirement planning purposes: to accumulate retirement savings and/or to pay out retirement funds on a periodic basis for a period that can be guaranteed to last as long as they do.

Jane is stopped at a traffic light when thieves carjack her vehicle. She refuses to own another car, saying that she never wants to be subjected to this type of trauma again. Which of the following is Jane using as a means of risk management?

risk avoidance. By refusing to own a car, Jane is avoiding the risk of a future carjacking.

Under which of the following insurance plans does the employer agree to keep on paying a portion of the employee's salary after he or she retires?

salary continuation plan: Under a salary continuation plan the employer agrees to keep on paying a portion of the employee's salary after he or she retires.

An underwriter must keep application information confidential to comply with the Fair Credit Reporting Act (FCRA) of 1971. The FCRA does which of the following?

sets procedures requesting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information. The FCRA sets procedures that requesting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information.

An annuity owner has many options for receiving annuity income payments. What are these payout options generally called?

settlement options: An annuity owner has many options for receiving annuity income payments. These payout options are called "settlement options."

What type of life insurance company is owned by its stockholders?

stock company. Stock companies are owned by stockholders, just like other public companies.

Variable life and variable universal life insurance policies are regulated by whom?

the Office of Insurance Regulation and the Securities and Exchange Commission. As insurance products, variable life and variable universal life insurance policies are regulated by the Office of Insurance Regulation. Because variable life insurance policies are also considered securities, they are governed by the Securities and Exchange Commission.

What does the length of an annuity's surrender charge period depend on?

the contract design and the insurer issuing the contract. The contract design and the insurer issuing the contract will decide the surrender charge period.

Variable life insurers generally charge an annual maintenance fee that is primarily intended to cover which one of the following?

the cost of collecting and processing premiums. The fee covers the cost of collecting and processing premiums.

Which of the following parties makes an enforceable promise in an insurance contract?

the insurance company

Settlement options with a life contingency are most correctly based on which of the following?

the lifespan of the payee

To determine how much life insurance a person needs, an agent will examine the individual's current income, assets and liabilities, goals, current expenses, and risk profile. What is this approach to determining the right amount of life insurance called?

the needs approach: Under the needs approach, an agent will collect information about a person's income, assets and liabilities, goals, expenses, and risk tolerance.

What is another name for the annuitization phase of an annuity contract?

the payout stage

From an insurance perspective, underwriting is best defined as

the process of determining if an applicant is an insurable risk. Through the underwriting process, insurance company underwriters determine if the risk proposed for insurance should be accepted or rejected. That is, it seeks to determine if the applicant represents an insurable risk.

Depending on a person's individual needs, life insurance can provide both death benefits and living benefits. People commonly purchase life insurance for all of the following reasons EXCEPT

to save money to purchase a first home. While the cash value can meet a variety of living expense needs, saving for a first home (generally regarded as a short-term goal) is usually not an appropriate use of life insurance.

Some types of transfers are not "transfers for value" and therefore are not taxable. Which of the following transfers is taxable?

transfers to the beneficiary.

When comparing her insurance company's policies to those of Zenith Insurance, Melanie makes a misleading statement to convince an insurance prospect to terminate a policy with Zenith and buy one from Melanie's company. What has Melanie engaged in?

twisting

Deferred annuities accumulate funds for future distribution. Under what circumstances are these funds forfeitable to the insurer?

under no circumstances. Accumulated funds in a deferred annuity always belong to the owner. They are not forfeitable, even if the owner stops making premium payments.

The insurance company function that is responsible for evaluating the insurable risks and assigning appropriate premium rates.

underwriting division. The underwriting division is responsible for evaluating insurable risks and assigning appropriate premium rates.

What is another name for the insured in a viatical settlement?

viator

A life insurance policyowner who sells his or her life insurance policy through a viatical settlement is known as the:

viator. A viator is a person who owns a life insurance policy and is seeking to enter into a viatical settlement contract.

What is the term for voluntarily giving up a known right?

waiver. Waiver is voluntarily giving up a known right. If an insurer voluntarily gives up a legal right that it has under an insurance contract, it cannot deny a claim based on a violation of that right. Estoppel is similar to the idea of waiver but involves giving up a right without intending to do so. The difference is the lack of intent to give up the right.

Under a joint life insurance policy, when does the insurer pay the death benefit?

when the first insured dies

Which of the following statements about spousal benefits is correct?

Once the youngest child reaches age 16, spousal benefits stop until the spouse turns age 60: Once the youngest child reaches age 16, these spousal benefits then stop until the spouse turns age 65. (This period is called the black-out period.)

A two-tiered fixed annuity will pay a higher level of interest than the standard declared rate fixed annuity under which of the following conditions?

Only if the annuity owner annuitizes the contract.

From an insurance perspective, all the following statements regarding risk and loss are correct EXCEPT:

Only speculative risk is insurable. Only pure risks (representing the chance of loss but not gain) are insurable. Speculative risks, which involve the chance of gain as well as loss, are not insurable.

Which of the following statements about the taxation of partial or full withdrawals of policy's cash values during the insured's life is correct?

Only the amount that exceeds the premiums paid is subject to income tax.

What information about the proposed insured is available from the Medical Information Bureau to assist the underwriter in making a decision?

Only the applicant's medical impairments reported by other insurers are available. The Medical Information Bureau maintains a database of confidential information on applicants for life and health insurance that have been underwritten by member insurers and found to possess a medical impairment. While all impairments must be reported, the insurer does not report its underwriting decision, therefore this decision is not available to the next insurance underwriter.

In which of the following cases would the insured not be covered, based on standard exclusion or suicide provisions?

death while on active military duty in a war zone: Death while on active military duty in a war zone is a common exclusion; the policy's death benefit will NOT be paid if death results during this activity.

Agent Monroe helped her client Brian enter into a viatical settlement agreement with Best Insurers. Which of the following parties will receive the life insurance proceeds at Brian's death?

Best Insurers. A viatical settlement contract is a written agreement between a viatical settlement provider and a life insurance policyowner. At the policyowner's death, the provider receives the death benefit.

Which of the following employees of ABC Computers could NOT convert their group life coverage to an individual policy?

Bill, who switched to part-time status: Group term life insurance normally ends when a person leaves the group. With an employee group, insurance ends when a person retires or decides to work for another employer. Regardless of the reason for leaving the group, the employee can convert coverage to an individual policy. Bill could not convert his policy because he is still an employee.

Bob bought a $100,000 ten-year level term insurance policy on March 1, 2002. What will happen if he dies on March 10, 2012?

Bob's beneficiary will not get any benefits. Bob's $100,000 ten-year level term policy gives him a level $100,000 of coverage during the ten-year period. If Bob dies after the ten-year period, the policy will have expired and no benefits will be payable.

At annuitization, the portion of each annuitized income payment that is not taxed is determined by the _____________________ ratio.

Exclusion: At annuitization, the portion of each annuitized income payment that is not taxed is determined by the exclusion ratio.

Which statement about credit life insurance is NOT correct?

It is only offered on a group basis. Credit life insurance may be offered as group or individual insurance.

A deferred annuity would be a suitable recommendation for all the following needs EXCEPT

Joe, age 23, wants to save money to buy a first home within 10 years. While deferred annuities have important long-term tax deferral benefits, penalty taxes and withdrawal charges on early withdrawals make deferred annuities unsuitable for short-term savings goals.

Justine leaves her position with her employer on March 1. She wants to convert her employer's group life insurance coverage to an individual policy. In order to convert her group coverage, she must apply for an individual policy no later than what date?

March 31. In order to convert group coverage to an individual policy, a person must apply for the individual policy and pay its first premium within 31 days of leaving the group.

All the following statements regarding the career agency distribution system are correct EXCEPT

Personal producing general agents (PPGAs) are commonly hired to manage career agencies.

Which of the following sections of the Tax Code deals with the exchange of life insurance policies and annuities?

Section 1035

Gerry selected a settlement option for her policy that makes payments to her for life but stops immediately when she dies, if she dies after receiving at least one income payment. No further payments are made to a contingent payee. Under the settlement options with life contingencies, which of the following lifetime income options has Gerry selected?

Straight life income: Under the straight life income option, payments are made for the life of the payee. However, payments stop when the payee dies, if he or she dies after receiving at least one income payment. No payment is made to any contingent payees.

Which of the following statements about Social Security retirement benefits is correct?

The age at which full retirement benefits are payable is called the full retirement age, or FRA.

Which statement about life insurance settlement options is NOT correct?

The beneficiary's choice of settlement option always takes precedence over the policyowner's choice. Unless the policyowner specifically ruled out such a change, the beneficiary can choose any settlement option he or she wants.

Which of the following statements is TRUE regarding fixed annuities?

The contract's current declared rate can never be less than the minimum rate of interest.

If an employer sets up a profit-sharing plan for its employees, which one of the following statements is most correct?

The employer must make substantial and recurring contributions for the plan to maintain its qualified status.

Which of the following is an insurable risk?

The possibility of becoming disabled and unable to earn an income. Only pure risks (representing the chance of loss but not gain) are insurable. Speculative risks, which involve the chance of gain as well as loss, are not insurable.

Which of the following statements about children's term riders is CORRECT?

The same premium applies to all of the insured's children, no matter how many are covered. Under a children's term rider, the same premium applies to all of the insured's children whether a child is covered or 20 are covered.

Which of the following types of life insurance is best suited for mortgage protection purposes?

decreasing term insurance. Decreasing term life insurance is most commonly used to cover financial needs that decline over time. With a decreasing term policy that matches the declining mortgage balance, a homeowner is assured that funds will be available to let survivors pay off the mortgage should the homeowner die prematurely.

Policyowners can buy additional permanent life insurance without proof of insurability under which type of rider?

guaranteed insurability rider: The guaranteed insurability rider guarantees that the policyowner can buy additional permanent life insurance on the insured's life without proving insurability.

To be considered currently insured, a worker must have earned how many quarters of coverage in the 13-quarter period before he or she dies?

six

At the end of an equity-indexed annuity (EIA) contract's term, what can the owner or annuitant do?

take the accumulated values free of surrender charge or leaves them in the contract to continue for another term

Which statement about universal life insurance policies is NOT correct?

They are regulated by the Securities and Exchange Commission. Universal life insurance policies are regulated by the Office of Insurance Regulation and not the Securities and Exchange Commission.

Which of the following penalties may the Office of Insurance Regulation impose if an agent intentionally represents an unauthorized insurer in Florida?

a fine of up to $10,000. Agents who intentionally represent an unauthorized insurer commit a felony of the third degree. The Office may impose a fine of up to $10,000 for each willful violation.

Based on the provisions reviewed, if a policyowner fails to pay a premium on its due date, generally how long does he or she have to pay the premium before the policy lapses?

31 days: The policyowner generally has 31 days to pay a premium after its due date before the policy lapses.

From an insurance perspective, the term exposure means

The extent to which an insurer is subject to a possible losses. Also called loss exposure, exposure is the state of being subject to a possible loss. The extent of loss exposure facing an insurer has a direct bearing on the premium it charges.

When a state bars the sale of a particular coverage within its boundaries, a typical insurance company cannot cover it. In this case, an insurer not licensed in the state can underwrite this insurance through a third party broker. What type of insurer can underwrite the coverage in this case?

a surplus lines insurer: A surplus lines insurer is not licensed to do business in the state. However, it must be eligible to provide unique coverage when requested through the surplus lines market.

In which of the following situations would the nonforfeiture option generally apply?

a whole life policy that has lapsed: Nonforfeiture options are available only under permanent life insurance policies, such as whole life, that have lapsed. They also must contain cash value. Universal life and term insurance do not contain nonforfeiture options.

Where are the premiums a policyowner pays for a universal life policy credited?

cash value. When the policyowner pays premiums for a universal life insurance policy, the premiums are credited to the policy's cash value.

A variable annuity's purchase rate is the amount of ongoing income that can be provided by $1,000 of the contract's accumulated value. The purchase rate is based on which one of the following?

assumed interest rate (AIR)

In an ordinary life insurance policy, which of the following features increases over the policy's lifetime?

cash value: Under an ordinary life insurance policy, the net amount at risk decreases while the cash value increases.

Which type of annuity guarantees both the annuity's principal and a specified rate of interest to be credited to the contract?

fixed annuity

Sue, an applicant who is a preferred risk, can expect to pay a premium that is best described as which of the following?

generally lower premiums than for standard risks. An applicant who presents a very low risk of loss to the insurer is a preferred risk. A person who is a preferred risk presents a low risk of loss to the insurer so he or she will usually pay lower premiums.

Because actuaries really don't know the mortality when determining the gross premium for the future of a life insurance policy, they typically

intentionally underestimate expected future earnings and overestimate expected future mortality and expenses. Actuaries really don't know the mortality when determining the gross premium for the future of a life insurance policy. So, they intentionally underestimate expected future earnings and overestimate expected future mortality and expenses. This provides a margin of financial safety that ensures benefits payments due 100 years in the future will be paid.

Under which of the following settlement options does the insurer distribute all the proceeds upon the death of the insured or surrender of the policy, with none held by the insurer?

lump-sum cash payment. A cash payment of policy proceeds is often called a lump-sum cash payment. Under this payment method, the person receives the death benefit proceeds or the cash value surrender amount in the form of a single payment. The insurer distributes all proceeds at once upon the death of the insured or surrender of the policy.

Jack, the policyowner, recorded his age as 35 when he bought a life insurance policy five years ago. At this point the insurer finds out his actual age at the time of application was 36. Which provision describes the actions the insurer can take to adjust the policy's benefits?

misstatement of age or sex: The misstatement of age or sex provision describes what recourse the insurer has to adjust the policy's benefits and recover premiums owed if the insured's age is misstated on the application.

The life insurance Buyer's Guide helps prospective buyers determine all of the following EXCEPT:

most qualified insurer

When a producer determines that the sale of a life insurance policy will replace an existing policy, the producer must do all of the following EXCEPT

notify the state insurance department: A producer is not required to notify the state insurance department of a transaction that involves the replacement of a life insurance policy.

Which of the following is a requirement to operate as an insurance agency in Florida?

obtaining a license or registration from the state. In Florida, insurance agencies must be licensed or registered. A full-time licensed general lines agent or life or health agent must be appointed to manage each agency.

For policyowners who do not pay premiums annually, insurance companies increase premiums to do which of the following?

offset the insurer's increased billing costs and lost interest: The additional premiums do offset the insurer's increased billing costs and lost interest.

Under the re-entry method, an insured can renew a level term insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing what?

proving insurability. An insured can renew a level term insurance policy at a lower re-entry renewal rate if he or she first proves insurability.

Agent Johns falsely told a prospective client that she is legally required to purchase a long-term care rider if she purchases a whole life insurance policy. Which ethical sales practice has Agent Johns violated?

sliding. Telling applicants that they are required to purchase a specific ancillary coverage or product along with another insurance product, when it is not required by law, is considered sliding and is illegal.

Jack bought a life insurance policy to make sure his surviving family members would have an income for ten years if he died prematurely. Five years after purchasing the policy, Jack died. Beginning with the date of his death, the policy began paying a level monthly benefit to his family for ten years. What type of policy did Jack buy?

ten-year family maintenance policy

Which of the following riders is NOT available with any type of life insurance policy?

the guaranteed dividend rider. Policy dividends can never be guaranteed, by rider or otherwise.

Adjustable life insurance lets the policyowner change all of the following elements of a life insurance policy EXCEPT

the policy type. Adjustable life insurance does not let the policyowner change the policy so that it functions as universal life insurance. However, the policy can function at any one time as a term life insurance policy, an ordinary whole life insurance policy, or a limited payment life insurance policy.

The insurance company can require a medical exam or lab tests based on information found in the application. The insurance company may request a medical exam based on any of the following criteria, EXCEPT

the sex of the applicant: Insurers do not ask for medical exams based on the sex of applicants.

The death benefit in most life insurance policies is called the policy's face amount. In universal life insurance policies, the amount of death benefit the policyowner initially buys is called

the specified amount: In universal life insurance policies, the amount of death benefit the policyowner initially buys is called the "specified amount."

Four business partners enter into a cross-purchase buy-sell agreement. How many life insurance policies are bought to fund the purchase of an owner's interest when he or she leaves the company or dies?

twelve—each partner buys life insurance on each of the other three partners' lives: Each of the four partners buys life insurance on each of the other three partners' lives (4 x 3 = 12).

To protect his family in case he died prematurely, John applied for a $1 million life insurance policy. When he died two years later, the insurer paid $1 million in benefits, even though John was unemployed when he died. What is this type of insurance contract?

valued contract. Life insurance policies are valued contracts, which means they pay a stated amount in the event of a loss. Life insurance contracts, unlike contracts of indemnity, do not try to judge the actual amount of the loss. Because John bought a life insurance policy insuring his life for $1 million, that is the amount the policy paid when he died, regardless of the fact that he was unemployed at the time. A contract of indemnity, on the other hand, limits the benefit to the amount of the insured's actual loss.

A producer must be licensed by the Financial Industry Regulatory Authority (FINRA) to sell which one of the following types of life insurance?

variable life insurance: Producers who sell variable life products must hold both a life insurance license and a NASD Series 6 or 7 securities license.

The name of the agreement under which a terminally ill or chronically ill person sells his or her interest to a third party for a percentage of the death benefit is called ________________.

viatical settlement: The name of the agreement under which a terminally ill or chronically ill person sells his or her interest to a third party for a percentage of the death benefit is called a viatical settlement.

Alpha Industries has a non-contributory group life insurance plan. What happens if Alex joins the company on March 1?

He must be allowed to participate in the plan (after a probationary period, if applicable). Alpha Industries' group life insurance is non-contributory, which means that the employer pays the entire premium. The plan must cover all eligible members, and new employees will be immediately eligible after a probationary period.

Karen purchased an individual life insurance policy at an early age because of her family's history of cancer, and now that she has reached the age where her mother died of cancer she is seeking to purchase more coverage. Which of the following describes Karen's tendency to buy and maintain life insurance?

adverse selection. The tendency of persons to buy and keep insurance if they perceive themselves to be at a greater risk of a loss is called adverse selection.

To receive favorable tax benefits, a life insurance policy must meet the definition of life insurance as defined in Section 7702 of the Tax Code. When was this section added to the Code?

after flexible premium payment policies were introduced: Section 7702 was added to the Tax Code after flexible premium payment policies were introduced.

Under a family term rider to a life insurance policy, children who are covered under the rider can typically convert their coverage to permanent coverage as early as

age 21, without having to provide evidence of insurability.

A "jumping juvenile" whole life insurance policy typically increases its face amount when the insured turns

age 21.

What is the term for the money that builds within a whole life insurance policy over the policy's life?

cash value. Cash value is the money that accumulates and builds within the policy over the policy's life.

ABC Insurance Company wants to become licensed in Florida to sell insurance products. Which of the following must it receive in order to transact insurance?

certificate of authority. The Director issues certificates of authority to qualified insurers, which permits them to transact insurance business in Florida. The certificate specifies the kinds of insurance that the insurer is authorized to transact.

Which type of life insurance policy would most likely be used to insure the declining balance of a home mortgage?

decreasing term. People often buy decreasing term insurance to cover needs that decline over time. For example, decreasing term insurance may be used to cover the declining balance of an insured's mortgage.

Which of the following types of insurance is typically used for credit life insurance?

decreasing term. The type of insurance typically used in credit life insurance is decreasing term insurance. The coverage matches the declining balance on the loan. As the insured's loan balance decreases, so does the coverage.

In a universal life insurance policy, an insurer will make all of the following monthly adjustments EXCEPT

deducting future premium payments from the policy's cash value, if agreed to by the policyowner. Universal life policies have monthly adjustments and interest crediting tasks. Each month, on the monthly deduction day, the insurer will credit to the policy any premiums received since the last month as well as the interest on the cash value for the previous month. The insurer also will deduct from the policy the cost of insurance (the mortality charge) and an expense charge. Premium payments are not deducted from the policy's cash value.

Acme Insurance Company wants to employ Anthony as an agent. To do so, what must Acme must do?

file an appointment application with the Department of Financial Services. To appoint an agent, an insurer must file an application with the Department of Financial Services and pay the appointment taxes and fees.

To qualify for Social Security disability benefits, a worker must satisfy a waiting period of how many months?

five months: To qualify for Social Security disability benefits, a worker must be totally disabled, which means that he or she is unable to engage in any substantial gainful employment. The disability must be expected to last at least 12 months (or result in an earlier death). Benefits will begin only after the worker has satisfied a waiting period of five consecutive months, during which he or she must remain disabled.

Mark and Mary are preparing to annuitize their deferred annuity. They want a settlement option that will continue making payments for as long as either is alive, no matter which of them dies first. Which of the following settlement options best suits their need?

joint and survivor life income. Under a joint and survivor life income option, an income is paid until the second of the two annuitants dies. When the second annuitant dies, no further payments are made to anyone. Joint life income options are common for married couples who want to assure a continued income stream for both lives.

Most insurance policies are personal contracts between the insurer and the policyowner. Which of the following is NOT a personal contract?

life insurance policy. Most insurance policies are personal contracts between the insurer and the policyowner. This means that the policyowner cannot transfer the agreement without the insurer's consent. Life insurance is an exception. The owner of a life insurance policy can do what he or she wants with the policy, such as using it as collateral for a loan or transferring it to a third party.

Frank intends to use his life insurance to make the down payment on a vacation home. In so doing, Frank is using which of the following?

living benefits. Depending on the type of policy, life insurance can also provide funds out of cash values for use during the insured's lifetime. This feature is called living benefits. Frank can use his policy's "living benefits" for such purposes as making a down payment on a vacation home or meeting a financial emergency.

Which type of annuity pays a fixed rate on payments paid in during each contract period combined with an interest rate adjustment feature tied to early withdrawals?

market-value adjusted annuity: The market-value adjusted annuity pays a fixed rate on payments paid in during each contract period combined with an interest rate adjustment feature tied to early withdrawals. Payments paid in are fixed at the market rate for that contract period; withdrawals are subject to a market value adjustment that affects how much the owner receives.

What does a group sponsor receive under a group life insurance policy to show it is the policyowner and pays the premiums?

master policy. The group sponsor gets a master policy, which shows that it is the policyowner and premium payor.

All of the following can sponsor group life insurance plans EXCEPT:

neighborhoods. Insurable groups include single-employer groups, labor unions, and members of associations such as cities and towns. A neighborhood which forms a group to buy insurance would generally not be considered an eligible group.

Under a life insurance policy's incontestability clause, after a certain period the insurer cannot contest a claim for any reason, EXCEPT

non-payment of premiums: The incontestability clause states that after a policy has been in force for a set period, the insurer cannot contest a claim for any reason, except for non-payment of premiums.

Under the captive agency system, who employs an agent?

one insurance company. Under the captive (or career) agency system, one insurance company employs the agent. The agent works at a branch of the company and earns commissions for sales. A general agent supervises the agent.

What rule lets a policyowner return a policy for a refund of premiums paid for a certain period of time after the policy is issued?

right to examine (free look). All insurance policies require a free-look provision. Grace has a set period in which to review the policy and to decide whether to keep it. The free look begins when the agent delivers the policy.

Pamela replaces the batteries in her smoke alarms throughout the house and tests them once a year. This is an example of

risk reduction: Risk reduction is an option to lessen the possibility of loss when a risk cannot be avoided. In this case, the risk of fire that could result in severe loss is reduced through having active fire alarms.

Which term below refers to a deduction made from a VUL premium by the insurer to recover its new business acquisition costs?

sales load: The sales load allows the insurer to recover its new business acquisition costs (first year commissions, field expenses, underwriting costs, etc.)

Actuaries base traditional life insurance premiums on all of the following factors, EXCEPT:

sales projections. Actuaries do not base traditional life insurance premiums on projected sales of the.

What are variable life insurance policies considered?

securities.

What part of group life insurance—if any—is tax exempt for employees?

the cost of the first $50,000 of coverage: The cost of the first $50,000 of coverage is tax exempt for employees. In other words, the premium charged for the first $50,000 of coverage is not taxable to the employee. But the cost of any amount over that level of coverage is taxable.

Wilson buys life insurance but commits suicide three years later. Wilson's beneficiary will get which of the following from the insurer?

the full death benefit. Because Wilson's suicide occurs after the exclusion period, the insurer will pay the full death benefit. But even If the suicide had occurred during the exclusion period, the insurer would have returned the premiums paid, plus interest.

Life insurance policies are contracts of adhesion. The insurance company writes the contract, and the policyowner accepts the terms of the contract "as is." However, after the insurer issues the policy, certain changes are typically allowed. Depending on the type of policy, a policyowner may change all of the following without needing a new policy, EXCEPT

the incontestability provision. Changes to the basic contract provisions are not permitted, and producers do not have the right to endorse modifications to basic policy provisions.

With respect to the field of insurance, who are the two parties bound by common law rules of agency?

the insurer and the producer. Insurers and their producers are bound by common law rules of agency.

Which of the following would NOT be considered when using the needs approach method to determine how much life insurance to buy?

the prospect's needs for health insurance: When using the needs approach method to determine how much life insurance to buy the agent does not need to consider how much health insurance to suggest. That's a consideration for another day.

Which of the following primarily regulates life insurance?

the state in which the insurance company is licensed. The state where the insurer is domiciled regulates the business of insurance and control insurance contracts issued within their borders.

Acme Insurance and Apogee Insurance agree to offer different premium rates for persons of equal risk within a particular class. They also agree to limit benefits paid to insureds within this class if the insureds live in certain towns in Florida. What are Acme and Apogee engaging in?

unfair and prohibited business practices. Acme and Apogee are agreeing to an unreasonable restraint of trade in the insurance business of Florida. Furthermore, they are engaging in unfair discrimination by charging persons of the same class and substantially equal risk different premium rates and by paying different benefits to persons in this class.

Sandy and Cindy are healthy, 45 years old, and have similar life expectancies. Though they are insured by the same company, Sandy's life insurance premiums are considerably lower than Cindy's. What may this indicate a case of?

unfair discrimination. Unfair discrimination can arise when individuals of the same class and life expectancy are charged different premiums or rates for life insurance. However, if these differences are based on sound actuarial principles, they do not constitute unfair discrimination.

How long does a participant have to complete a rollover transaction after receiving the funds for a rollover?

60 days: The participant has 60 days to open an IRA rollover account after receiving funds before tax and penalties apply.

The earliest age that a fully insured person can begin receiving retirement benefits is __________.

62: A fully insured worker can start to receive permanently reduced benefits as early as age 62. However to receive full benefits, the worker must wait until his or her full retirement age.

Under traditional whole life insurance plans, policy loans can be as high as what percent of the cash value?

100 percent: Policy loans under traditional whole life insurance plans can be as high as 100 percent of the cash value.

Which statement about binding receipts is NOT correct?

A binding receipt guarantees coverage from the time the applicant completes the application. This does not hold true if the insured is later found to be uninsurable. A binding receipt guarantees coverage from the time the applicant completes the application. This holds true even if the insured is later found to be uninsurable.

Which statement about profit-sharing plans is NOT correct?

Both the employer and employee contribute to the plan. The employer is the sole contributor to a profit-sharing plan. Contributions are calculated using a pre-determined formula, which is usually based on a percentage of an employee's salary.

Brian earned $100,000 this year and contributed $10,000 to his 401(k) plan account. His employer contributed an additional $2,000 on his behalf. All the following statements regarding this are correct, EXCEPT

Brian's taxable income will be reduced by the amount that both he and his employer contributed to his 401(k) plan account.

Brian worked as a chemical engineer for the past 25 years until he died last month. He left behind his wife Janet, age 45, and two children, ages 12 and 14. Which one of the following statements is most correct?

Brian's two children are entitled to receive survivor benefits equal to 75 percent of his primary insurance amount until they reach age 18.

On the specified option date, what does the guaranteed insurability rider allow the policyowner to do?

Buy additional permanent insurance of a specified amount without providing evidence of insurability. On the pre-identified option date, the guaranteed insurability rider guarantees that the policyowner can buy additional permanent life insurance of a specified amount without being required to provide evidence of insurability. (Term insurance, however, is not normally available under this type of rider.)

What is the actuary's first step in determining the premium to charge for a policy?

Calculate the net single premium: The actuary will first calculate the net single premium.

Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT:

Cindy can avoid taxation if she can demonstrate to the IRS that the boat was essential to her financial well-being.

ABC Insurance reviews Henry Garrett's application for insurance and decides to insure Henry for an amount that is less than what Henry applied for. It presents Henry with a policy for $100,000 instead of the $200,000 he requested. The legal term that refers to the action taken by ABC Insurance is __________.

Counteroffer: ABC Insurance has rejected Henry's offer and made a counteroffer.

Robert has two children insured under a children's term rider attached to his whole life insurance policy. His older daughter has just turned 21, which is the limiting age on the rider. What happens to coverage under this rider now?

Coverage terminates for the older child but continues in force for his younger child. The coverage for any covered child normally terminates when the child reaches the limiting age. Depending on the insurer, that limiting age may be 18, 21 or 25. Coverage under the rider for other covered children continues in force.

All of the following distributions from a qualified plan are exempt from the 10 percent penalty tax on premature distributions, EXCEPT

Distributions made because the participant needs the funds to pay for homeowners insurance premiums. A distribution taken to pay homeowners insurance premiums would be subject to the 10 percent penalty tax on premature distributions, if taken before age 59 1/2.

All the following statements regarding life insurance policy riders that cover additional insureds are correct EXCEPT:

Each additional insured is issued his or her own separate policy. Policy riders can provide needed coverage on more than one insured at a lower premium. The policyowner buys an additional insured or other insured rider, which is added to the base policy.

Which statement about life policy riders that cover additional insureds is NOT correct?

Each additional insured is issued his or her own separate policy. Policy riders can provide needed coverage on more than one insured at a lower premium. The policyowner buys an additional insured or other insured rider, which is added to the base policy.

Fred's policy clearly states that he must send his premiums directly to the insurer's home office in Columbus, Ohio. For five years, however, Fred always paid his life insurance premiums to his agent instead. The agent then passed them on to the home office. Last month, on the 20th, Fred was hit by a truck and killed two days after receipt by the agent of Fred's latest annual premium. The insurer denied the death claim by stating the contract premium was not paid. However, the beneficiary is able to collect the death benefit based on application of which of the following legal principles?

Estoppel: Estoppel involves one party's giving up of a right, involuntarily. In this case, the insurer gives up the right to deny a claim based on the issue of where premiums are paid because he has accepted the arrangement for the prior five years.

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, all the following statements are correct, EXCEPT:

Gina must prove insurability before the insurer can renew the policy. If the insurer offers a guaranteed renewal rate, Gina can renew the coverage without proving insurability.

What is a person's alcoholism?

Hazard: A hazard is a condition that increases the frequency or severity of the loss. Therefore, a person's alcoholism is a health hazard that may cause illness or early death.

Carl decides to surrender his life insurance policy. Which of the following most correctly describes the option(s) available to him?

He may choose from all settlement options that are available with the policy's death benefit. The same settlement options that are available to pay a policy's death benefit can also be applied to paying out the policy's cash value.

Instead of a lump-sum payout, Jack chose to receive a $250,000 death benefit from his mother's life insurance policy in monthly payments over the next 10 years. How will income tax be applied?

He pays taxes on the interest only: When death benefits are paid in a form other than a lump sum, the beneficiary receiving the funds • owes taxes on any interest earned. • does not owe taxes on the principal amount of the death benefit.

Steve decides to retire this year at age 69. What will happen when he applies for Social Security retirement benefits?

His benefits will be slightly higher than if he had retired at normal retirement age. If Steve delays retirement until sometime after reaching his full retirement age, he will receive slightly greater benefits. If he instead chooses to retire as early as age 62, his benefits would be permanently reduced.

Fred, age 65, never married and has been working for more than 40 years. He provided more than 80 percent of his elderly mother's financial support. He died a year after he began caring for her. Which of the following statements is correct?

His mother is eligible to receive monthly benefits equal to 82.5 percent of Fred's primary insurance amount (PIA). Beginning at age 62, each parent of a deceased worker is eligible to receive monthly survivor benefits if the parent was at least one-half supported by the worker when the worker died. If only one parent is eligible, he or she receives 82.5 percent of the worker's PIA.

Tom bought a $100,000 adjustable life insurance policy. With respect to that policy, all the following statements are correct EXCEPT

If Tom wants to increase the amount of the death benefit by more than $50,000, he will have to buy a new policy. One advantage of adjustable life policies is that policyowners can change death benefits, premiums, or cash value without having to buy a new policy or replace the existing policy.

Which of the following statements about representations and warranties is correct?

If a warranty is false in any respect, the insurer can end the contract while if a representation is false, the insurer can end the contract only if the representation was important to the formation of the contract. A warranty is a statement guaranteed by the maker to be true in all ways. If a warranty is found to be false, the other party can end the contract, even if the statement was not material. In contrast, an insurer may end a contract if a representation is false only if the misrepresentation was important to the formation of the contract.

Julie accepts Tom's application for a life insurance policy. She also takes his premium and sends it directly to the insurance company's home office. Her agency contract does not mention the handling of premiums. Which type of authority allows Julie's actions?

Implied Authority: Julie's handling of the premium is an example of implied authority. While not specifically mentioned in her agent's contract, the contract implies Julie's authority to collect and remit premiums because it is required to carry out her duties as an agent.

What is the primary reason for the decline in popularity of endowments?

In 1984, federal legislation passed requiring that no life insurance policy can endow before age 95. In addition to inflation, the popularity of endowments among consumer was passage of federal legislation in 1984 setting a new statutory definition of life insurance on flexible premium contracts. Under tax code Section 7702, no life insurance policy can endow before age 95.

Which statement is NOT true about riders covering additional insureds?

In a family with several children, a separate rider must be bought for each child. In a family with several children, it is not necessary to buy a separate rider for each child; many children can be covered under one rider.

Which statement about group life insurance is correct?

Individual insureds are typically not required to undergo a medical exam or provide evidence of insurability. Group life insurance is provided under a master contract for members of eligible groups. Group plans typically use one-year renewable term insurance and do not require individual insureds to undergo medical examinations. The premium may be paid by the group, the members, or both.

What of the following best describes the meaning or purpose of insurable interest?

Insurable interest exists only if the person buying the contract will suffer a financial loss when the insured dies. For insurable interest to exist, the person buying the insurance must suffer a loss when the insured dies. That loss can come from close familial ties or financial ties.

In life insurance, for how long must insurable interest exist?

Insurable interest must exist only at the time the applicant enters into a life insurance contract. With life insurance, insurable interest need exist only at the time the applicant enters into the life insurance contract.

All the following statements regarding the backdating of life insurance applications are correct EXCEPT

Insurers normally allow an applicant to backdate a policy by up to 2 years. The primary purpose for backdating a policy is to lower the premium by qualifying the applicant to have the policy issued at a younger age.

Funds collect within an annuity on a tax-deferred basis. What does this mean?

Interest earnings and growth are not taxable to the owner while they accumulate in the contract.

XYZ Corporation wants to set up a qualified employer plan for its employees who wish to participate. What benefit can it expect to receive?

It can deduct all contributions it makes which lowers its income tax. A business can deduct all contributions it makes to a qualified plan as a business expense. This lowers the employer's income tax.

Which statement regarding the practice of backdating a life insurance application is NOT correct?

It effectively extends the incontestability period by adding the backdated period to the two-year incontestability period provided in the contract. The policyowner must agree to pay all premiums owed to the backdated date of issue. He or she also agrees to make this date the contract's official anniversary date, meaning the incontestability period ends two years from the backdated policy effective date.

Which of the following statements best describes an annuity payout period?

It guarantees income will be paid for any period the owner wants. One of the unique features of an annuity is that it can guarantee income will be paid for any period the owner wants. This period can be a set number of years or for the length of one's life.

What typically happens to the face amount of an indexed whole life insurance policy over time?

It increases annually to reflect increases in the Consumer Price Index.

Melissa asks to continue her lapsed universal life insurance policy under the extended term option. How will the insurance company respond?

It will tell Melissa that her policy does not have the extended term option. Universal life policies normally do not contain the standard nonforfeiture options for policy lapses.

Kyle set up a Section 529 college savings plan and named his only son, Joe, as beneficiary. Which of the following statements is correct?

Kyle controls how the funds in the account are used. With a Section 529 college savings plan, the account holder controls the account at all times. Even when Joe reaches the age of majority, he will not have control over the account.

Which of the following statements is TRUE about the tax treatment of MECs?

MEC withdrawals are always considered as withdrawals of interest first, which are taxed, and then premiums, which are not taxed.

A single premium life policy becomes a _________ because it fails the 7-Pay Test.

MEC: The 7-pay test considers the amount of premiums paid into the contract during its first 7 years. If this amount exceeds the net level premiums needed to produce future benefits (such as a paid-up policy) after seven level annual payments are made, the policy is a modified endowment contract, or MEC. It is still life insurance, but its emphasis on tax-deferred increase in cash value causes it to lose some of the favorable tax treatment otherwise given to life insurance.

Under which premium mode would the policyowner pay the highest total premium (when converted to an annualized amount)?

Monthly: A monthly premium mode includes the most in charges to cover the insurers increased expenses and lost earnings.

Which of the following factors is included in calculating the net single premium?

Mortality: Mortality and interest are the only factors considered in calculating the net single premium.

What is the standard life insurance policy suicide exclusion period?

Most states have a two-year suicide exclusion period, though some limit this period to one year.

Sri just learned that he has three months left to live. He is currently insured under a life insurance policy in which his wife and daughter are named beneficiaries. If Sri enters into a viatical settlement with ABC Insurers, which party will receive the insurance proceeds at his death?

ABC Insurers. The viatical settlement provider receives the proceeds upon the insured's death.

An insurance company that has received a certificate of authority from the state to sell insurance in that state is known as a(an) ___________ insurer.

Admitted: An insurance company that has received a certificate of authority from the state to sell insurance in that state is known as a(an) admitted insurer. Agents who, within a given state, sell insurance for a non-admitted insurance company face severe penalties.

Which one of the following most correctly describes the process that occurs when a group annuity member retires?

An individual annuity contract is issued, which states the monthly payout amount to be made. When a group annuity member retires, an individual annuity contract is issued. The contract states the monthly payout amount to be made.

Which of the following statements about the conditions for LTC payments is correct?

An insured who bought an LTC rider becomes eligible for its benefit when he or she is diagnosed as chronically ill. An insured who bought an LTC rider becomes eligible for its benefit when he or she is diagnosed as chronically ill.

Ann is beneficiary of an annuity owned by Jim. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?

Ann's right to any funds will be based on the income payout option Jim selected. If the owner/annuitant dies after annuitization begins, then the beneficiary's right to any funds will be based on the income payout option the owner selected.

Which of the following statements about annuities is NOT true?

Annuitization is the beginning of the annuity's accumulation period. Annuitization is NOT the beginning of the annuity's accumulation period; it is the beginning of the annuity's payout period.

The agent holds three types of authorities. The authority that a customer believes that an agent holds based on the agent's statements and which may make the insurer liable for the agent's acts is called _________ authority.

Apparent: The authority that a customer believes that an agent holds based on the agent's statements and which may make the insurer liable for the agent's acts is called apparent authority.

Due to a significant drop in sales this year, Agent Smith has been soliciting current clients and encouraging them to use the policy values in their existing life insurance policies to purchase new policies in order to increase his commissions. Which unfair trade practice has Agent Smith committed?

churning. Churning involves using the policy values in an existing life insurance policy to purchase another policy without having a reasonable basis for believing that the new policy will provide the policyowner with an actual benefit. This unlawful activity generally increases the amount of commission a producer will receive.

Jim, age 20, plans to withdraw $3,000 from his Section 529 college savings plan this year to pay for some of his college expenses. He can withdraw the money tax free to pay for all of the following, EXCEPT

clothes. Section 529 college savings plan assets can be withdrawn tax-free to pay for tuition, fees, room and board, and books for students at most accredited public or private colleges, universities, community colleges, graduate schools, and vocational and international colleges. If Jim uses the funds to pay for clothes, he must pay income tax on the withdrawal.

Allen wants to use his life insurance policy as security for a bank loan, using the policy's cash value as the pledge. What is this called?

collateral assignment. A collateral assignment provides security for a loan or for some other transaction between the policyowner and the collateral assignee. Using the policy's cash value as the pledge, Allen assigns a portion or the full amount of the funds that have built up in the contract.

Premium rates will vary depending on the insurer's actual experience in which one of the following types of whole life insurance?

current assumption whole life

Variable life insurance policies offer all of the following EXCEPT

flexible premium payments.

Unlike a traditional current assumption whole life policy, an interest-sensitive whole life insurance policy includes one feature that is NON-guaranteed. Which is it?

interest credited to the policy's cash value: In an interest-sensitive whole life insurance policy, only the interest to be credited to the cash value is non-guaranteed. Unlike current assumption whole life insurance, the mortality and expense charges are guaranteed.

Thomas, a licensed health insurance agent, plans to sell variable annuities. Which of the following licenses must he obtain before he can sell variable annuities?

life insurance agent's license and a license issued by the Financial Industry Regulatory Authority. To sell variable insurance products, an individual must be licensed as a life insurance agent and must also hold a license issued by the Financial Industry Regulatory Authority.

Which of the following does NOT constitute the transaction of insurance?

mailing an insurance contract.

Which of the following lets an annuity owner take advantage of interest crediting changes in response to market conditions at the time he or she withdraws funds?

market value adjusted annuities.

From an insurance risk perspective, a person who smokes heavily and drinks alcohol to excess exhibits which of the following traits?

moral hazard. Moral hazards are individual traits or habits, like smoking and excessive drinking, that increase the chance of a loss.

The life insurance Buyer's Guide helps prospective buyers determine all of the following EXCEPT:

most qualified insurer. The life insurance Buyer's Guide helps prospective buyers determine what kind of insurance they need, how much insurance they should buy, and how to find a suitable policy that best suits their needs and objectives.

The purpose of the return of premium rider is to_______________.

pay the beneficiary a sum that equals all premiums paid plus the death benefit if the insured dies within a stated period. The return of premium rider pays the beneficiary a sum that equals all premiums paid plus the death benefit if the insured dies within a stated period.

Most disability income benefit riders also include which of the following?

provision for a waiver of premium. Most disability income benefit riders also include a provision for a waiver of premium. In other words, the disability income rider waives the policy's premiums while providing monthly income payments. So when a person buys a disability income rider, he or she does not have to buy a waiver of premium rider.

Which of the following is not a dividend option?

purchase long-term care rider. Dividends can be used to reduce premium payments, purchase paid-up additions to the policy, accumulate at interest, or purchase one-year term insurance. They can also be taken in cash.

Which unfair practice is specifically prohibited by the Code of Ethics?

rebating. The Code of Ethics prohibits rebating, which involves paying or offering anything of value to induce someone to buy insurance, including a rebate of the premium, dividends, or stocks and securities. Agents also cannot pay or offer to pay anything of value that is not specified in the insurance contract.

Brenda received a $500,000 inheritance check from her Uncle Phil's estate. She wants to exchange this check for an annuity. She is not ready to retire yet, but will be in ten years. She doesn't plan to make any more payments into the annuity. What type of annuity would give her what she wants?

single premium deferred annuity: Brenda should buy a single premium deferred annuity (SPDA) with her single, lump-sum payment. Her $500,000 would earn interest within the contract until the contract annuitizes. Once she buys the SPDA, no additional premium payments are accepted.

Allen buys an annuity with a single, lump-sum payment, which grows in the contract until he accesses the funds or the contract annuitizes. No additional premium payments are accepted. What type of annuity has Allen bought?

single-premium deferred annuity: A person can buy a single-premium deferred annuity (SPDA) with a single lump-sum payment. This money grows in the contract until the owner accesses the funds or the contract annuitizes. Once a person buys an SPDA, no additional premium payments are accepted.

When selling individual life insurance, Mary tells prospects that Florida law requires them to purchase a long-term care rider, even though this is not true. Which unfair trade practice has Mary committed?

sliding. Telling applicants that they are required to purchase a specific ancillary coverage or product along with another insurance product, when it is not required by law, is considered sliding.

All the following statements regarding perils and hazards are correct EXCEPT

smoking cigarettes is an example of a peril. A peril is the event that insurance protects against. Smoking is a moral hazard that increases the chance of encountering the peril of death and illness.

Which of the following is NOT a duty of the Office of Insurance Regulation?

soliciting insurance contracts. Enforcing the insurance laws, making rules and regulations, and issuing cease and desist orders are all duties of the Office of Insurance Regulation. The Office or Commissioner does not solicit insurance contracts.

In insurance, a type of risk that involves the chance of loss or gain and which is therefore uninsurable is called

speculative risk: Speculative risk is risk that may result in loss or gain. This type of risk is generally uninsurable.

An insurer receives a "B" rating from a rating organization. Based on that rating, what is its ability to meet its contract obligations?

speculative under stressful circumstances: If an insurer receives a "B" rating, then the rating organization sees its ability to honor its insurance obligations under stressful circumstances as speculative.

What is the name of the provision that states that the death benefit to be paid to a beneficiary cannot be claimed by another party before it is paid out to the beneficiary?

spendthrift clause: The name of the provision that states that the death benefit to be paid to a beneficiary cannot be claimed by another party before it is paid out to the beneficiary is the spendthrift clause.

Which of the following business insurance policies can be owned by either the employee or the employer?

split-dollar plan: Under a split-dollar plan, either the executive or the employer owns the policy. Premiums for the policy and the death benefit proceeds are split between the employer and employee.

Which type of life insurance company pays dividends to its stockholders?

stock company. Stock companies pay dividends, when declared, to their stockholders.

In a variable whole life insurance (VLI) policy, the policyowner allocates premium payments to one or more variable _________ and/or a fixed account.

sub-accounts: In a variable whole life insurance (VLI) policy, the policyowner allocates premium payments to one or more variable sub-accounts and/or a fixed account. The VLI cash values are the sum of the balance in each variable sub-account plus the balance in the fixed account.

A worker with a currently insured status is eligible for ______________.

survivor benefits at the worker's death: A worker with a currently insured status is eligible for survivor benefits at the worker's death.

Which rider offers the policyowner the ability to increase the death benefit payable for any cause of death during a limited time period?

term rider: The term rider offers the policyowner the ability to increase the death benefit payable for any cause of death during a limited time period.

Harry is diagnosed with a mental disorder. To become eligible for payments under his policy's long-term care rider, he must prove which of the following?

that his health or safety would be at risk without supervision. The insured must be certified within the last 12 months.

What is the name of the period during which premium funds are paid into an annuity contract?

the accumulation period. The period during which premium funds are paid into the contract is the "accumulation period."

Which of the following is NOT a party to an annuity?

the agent. In addition to the insurance company that issues the contract, the parties to an annuity are the owner, the annuitant, and the beneficiary.

Under a universal life insurance policy death benefit option 2, the death benefit is equal to what amount?

the cash value plus the policy's specified amount: The death benefit is equal to the policy's specified amount plus its cash value.

What decreases under a decreasing term insurance policy or rider?

the death benefit: Under a decreasing term insurance policy or rider, the death benefit decreases. Just like level term insurance, decreasing term insurance provides temporary protection for a specified period of time. The significant difference between level term insurance and decreasing term insurance is that in decreasing term insurance the death benefit decreases monthly over the policy term until it reaches zero at the end of the term.

On what is the human life value approach to calculating the amount of life insurance an insured needs based?

the economic value of a human life. The human life value approach is based on the economic value of a human life.

Adverse selection can be described as

the fact that people in poor health are more likely to buy and keep insurance. Adverse selection is selection against an insurer. It refers to the tendency of persons who are likely to make a claim based on their circumstances to buy and keep insurance. For example, a person who is sick is more likely to buy health insurance and to keep the policy in force than a healthy person.

The basic agreement between the insured and the company, stating the company's promise to pay the policy's face amount (the death benefit) to the named beneficiary, is contained in which one of following parts of the life insurance policy?

the insuring clause

Sue, an annuity owner, names her 15-year-old son and 10-year-old daughter as joint annuitants of her contract. Upon whose life (or lives) are income payments determined?

the joint life expectancy of Sue's son and daughter: If two people are named jointly as annuitants, then their joint life expectancy is the measurement for the contract's income payments.

Which of the following is an example of pure risk?

the loss of life: The loss of a life is a good example of pure risk because there is no possible gain in this situation.

Aaron purchased a variable annuity two years ago and receives an annual report from the insurer. Which of the following pieces of information must be included in Aaron's report?

the number of units credited to the contract and the dollar value of a unit. Insurers must provide an annual report to each annuity owner, which shows the number of units credited to the contract and the dollar value of a unit. The valuation must be dated no more than two months before the date the report is mailed.

If a variable universal life policyowner chooses death benefit option 3, what will the benefit equal?

the policy's specified amount plus the total premiums paid: Death benefit option 3 under a variable universal life insurance policy pays a death benefit equal to the policy's specified amount plus the total premiums paid.

Besides select policy anniversary dates, a life insurance guaranteed insurability rider usually permits special alternative option dates that typically include all the following, EXCEPT

the policyowner's college graduation.

Agent Susan is meeting with a prospect to discuss variable annuities. Before recommending the purchase of an annuity, Agent Susan must obtain information concerning all of the following EXCEPT:

the prospect's current geographic area. Agents must make reasonable efforts to obtain information concerning a prospect's existing investments, investment objectives, and risk tolerance level before recommending the purchase or exchange of an annuity.

All of the following are insurable risks EXCEPT

the risk of one's home value decreasing due to a drop in market prices. Only pure risks (representing the chance of loss but not gain) are insurable. Speculative risks are not. Premature death, illness and disability are recognized as insurable risks.

The death benefit payable under VUL death benefit Option 3 is equal to

the specified amount plus the total premiums paid: The death benefit payable under VUL death benefit Option 3 is equal to the specified amount plus the total premiums paid.The three VUL death benefit options are Option 1: The death benefit is equal to the policy's specified amount. Option 2: The death benefit is equal to the sum of the policy's specified amount plus the cash value. Option 3: The death benefit is equal to the sum of the policy's specified amount plus the total premiums paid.

Cash value withdrawals from life insurance are generally treated on a first-in/first-out basis. If a policyowner withdraws funds from a policy, the funds withdrawn first come from what?

the total premium deposits: In a life insurance contract, the premium payments are put into the contract first (first in). When the policyowner makes a withdrawal, he or she withdraws first from the total premium deposits.

Which one of the following most typically arranges a viatical settlement agreement between the parties?

the viatical settlement broker. A viatical settlement broker arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator and must be licensed in most states.

After a viatical settlement agreement is signed, which party owns the life insurance policy?

the viatical settlement provider: A viatical settlement provider is the organization that acquires the life insurance policy from the viator. It owns the policy after the viatical settlement agreement is signed and receives the proceeds at the insured's death.

All the following are characteristics of a mutual insurance company EXCEPT

they are owned by stockholders. Mutual insurance companies are owned by their policyowners.

In most situations, the policyowner is also the insured. However, in many cases, the insured and policyowner are different people. This situation is called which of the following?

third-party ownership: This situation is called third-party ownership.

Stanley is licensed as a life insurance agent and also sells variable annuities in Florida. He is taking several continuing education courses to renew his license. How many hours must he complete in courses covering suitability in annuity and life insurance transactions?

three. Life insurance agents must complete at least three hours of continuing education on suitability in annuity and life insurance transactions. An agent may use these hours to satisfy the continuing education requirement for ethics.

Interest crediting in an indexed universal life insurance policy is

tied to an external index: Indexed universal life operates like a declared rate universal life policy except that the interest, instead of being declared by the insurer, is tied to an external index. The interest credited to the contract's values is based on the change in the associated index.

How long is the standard incontestability period?

two years from the date of issue

A life insurance policy matures or endows when its guaranteed cash value equals its face amount. With an endowment contract, when does the policy endow?

well before age 120, usually at age 65. Endowment contracts are a special form of life insurance in which cash values grow rapidly. As a result, the policy endows well before age 120.

When may life insurance dividends be taxed?

when the dividends earn interest and when excess dividends are paid. When the policyowner leaves dividends to accumulate at interest, the interest earned on the dividends is taxable. In addition, once the total dividends received exceed the total premiums paid for the policy, those excess dividends are taxable.

With respect to life insurance policy cost comparison methods, the primary difference between the traditional net cost method and the interest adjusted net cost method is

One method recognizes the interest that the insurer credits the cash value while the other does not.

Paul reached age 70 1/2 this year and has a Roth IRA worth $100,000. Which of the following statements best describes his distribution options?

Paul is not required to take any distributions from his Roth IRA.

A hurricane is an example of a(n)

Peril: A hurricane is an example of a peril. A peril is a condition that involves danger or risk and is the cause of a loss. Insurance policies are written to provide financial protection against losses from stated perils.

An insurance product characterized by whole life coverage as long as the premiums are paid in any dollar amount. It offers both a death benefit and living benefits. It is not regulated by FINRA. What is this policy called?

Permanent: Permanent insurance lasts for the entire life of the insured. It offers both a death benefit and living benefits.

The policyowner can make beneficiary changes at will as long as the beneficiary was originally named a(n) _________ beneficiary.

Revocable: The policyowner can change revocable beneficiaries at will. No notice or permission from the beneficiary or anyone else is required.

Grace owns a fixed annuity and wants to exchange it for a variable annuity. What must she use to be sure no taxes are imposed?

Section 1035 exchange. Provided the transaction complies with Section 1035 of the IRC, the exchange will avoid taxation.

Which of the following does NOT provide independent ratings of insurance companies' financial strength and claims-paying abilities?

Securities and Exchange Commission. A.M. Best, Moody's, Duff and Phelps and Standard & Poor's are all well-known insurance company rating organizations. The SEC (Securities and Exchange Commission) is not an independent insurance company rating organization.

Social Security benefits are funded through payroll taxes split between the employee and employer. Which of the following best explains the amount of tax paid by self-employed individuals?

Self-employed individuals pay a tax rate equal to the combined employer and employee rate. Self-employed individuals pay a tax that is equal to the combined employer and employee rate.

Ted is taking out a life insurance policy naming his sister Gail as the insured. Their brother Randy is the beneficiary. Ted will be responsible for paying the premiums. Who is required to sign the application?

Ted and Gail: Both the applicant and the insured must sign the application in this case.

The Smiths set up a Section 529 prepaid tuition plan for their daughter, Jenna. They invested a total of $15,000, which covers the current cost of two semesters of college at their in-state public university. However, by the time Jenna goes to college, it will cost $30,000 for two semesters. What will happen in this case?

The Smiths' prepaid tuition plan will cover two semesters of college for Jenna. The Smiths' prepaid tuition plan allows them to pre-pay the cost of their daughter's future education by locking in the cost of today's tuition. When they invested $15,000, the Smiths prepaid two semesters of college. Thus, even though the cost has now doubled, their investment will still cover two semesters of college.

What is the only restriction on naming an annuitant?

The annuitant must be a natural person.

To be eligible for participation in an employer's Simplified Employee Pension (SEP) plan, an employee must meet all the following requirements EXCEPT

The employee must own at least 5 percent or more of the business or be recognized as a key employee. Under a SEP plan, an employer sets up individual retirement accounts (IRAs) for each participating employee. All employees who are age 21 or older, have worked for the employer for three of the past five years, and earn at least $450 yearly must be included in the plan. A participant need not own any part of the business.

Which of the following statements is correct about earnings building within an individual's qualified plan account?

The employee-participant pays no income tax on the earnings until they are withdrawn.

Which statement about corporate-owned life insurance (COLI) plans is NOT correct?

The employees own the policies: Under a COLI plan, the corporation takes out and owns individual policies on individual employees. It is also the beneficiary under the policies.

What is the main difference between a traditional deferred compensation plan and a salary continuation plan?

The employer funds the future benefit under a salary continuation plan.

The feature that is unique to endowment contracts versus other life insurance policies is

The endowment pays a living benefit if the policy endows while the insured is still alive. This feature is unique to endowment contracts: The endowment pays a living benefit if the policy endows while the insured is still alive. Other life insurance policies do not offer this option.

Which of the following is a characteristic of both the true deferred compensation plan and the salary continuation plan?

The executive defers receiving income until some time in the future when he or she is likely to be in a lower marginal income tax bracket.

What will result if an insured decides to stop paying premiums for his or her insurance policy?

The insurance company is released from its promise to pay benefits and the contract expires. An insurance contract is a unilateral contract, which means that only one party-the insurer-makes a promise that can be enforced. The insured must only pay the first premium. The insurer cannot require the policyowner to pay more premiums. However, if the policyowner does not pay any required premiums, the insurer is released from its promise to pay the benefit and the contract expires.

If Lynn accidentally misstated her age on her life insurance application, what will the insurer do if this is discovered after the end of the contestability period?

The insurer will re-calculate the death benefit.

All of the following are required for a risk to be insurable EXCEPT

The loss must be catastrophic. To be insurable, a loss must be definable, measurable, uncertain, and not catastrophic.

To be considered insurable, a risk must meet all the following requirements EXCEPT

The loss must be certain to occur. To be insurable, a loss must be definable, measurable, uncertain, and not catastrophic.

Which of the following statements about key person insurance is correct?

The loss of a key person can result in the loss of key suppliers, customers, sources of credit, or other losses.

Which statement about determining the proper amount of life insurance is correct?

The needs approach takes into account family financial goals and objectives. Because the human life value approach does not take an individual's unique needs into consideration, many insurance buyers and agents today use the needs approach instead. Under the needs approach, an individual's personal financial situation is examined in detail to calculate the amount of life insurance that should be purchased.

Audrey owns a five-year non-renewable term life insurance policy. What occurs if Audrey is alive at the end of its five-year term?

The policy ends without value. If Audrey is alive at the end of her non-renewable term life insurance policy's five-year term, the policy ends without value.The essence of term life insurance is that it is coverage that continues for a specified term. If the insured dies during the term of coverage, the death benefit is paid. If the insured is alive at the end of that term, the coverage ends without value.

Which one of the following statements about term insurance is correct?

The policy pays a death benefit only if the insured dies during the term. Term insurance pays a death benefit only if the insured dies during the term.

Which of the following statements about beneficiary designations is correct?

The policyowner can choose a natural person such as a spouse, a child, or children, or a legal entity, such as a corporation, partnership, or trust.The policyowner can choose a natural person such as a spouse, a child, or children, or the beneficiary can be a legal entity, such as a corporation, partnership, or trust.

Which one of the following best describes a "level premium" payment plan?

The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period. Under a level premium payment plan, the policyowner pays the same premium amount each time it is due for the full duration of the premium paying period, possibly to age 100 with a straight whole life policy.

Which of the following statements is TRUE about government insurers?

The populace, through taxation, funds the insurance program. Government insurance is funded through taxation.

Under the Uniform Simultaneous Death Act, what is the result if the insured and the primary beneficiary of a life insurance policy die at the same time?

The proceeds will be paid as if the insured survived the beneficiary.

Which of the following statements about viatical settlements is correct?

The provider buys the policy for a percentage of the policy's face value (death benefit). The policyowner then receives anywhere from 50 to 80 percent of the death benefit. The provider becomes the policyowner, responsible for paying the premiums, and receives the death benefit when the insured dies.

All of the following statements about deferred annuity surrender charges are correct, EXCEPT:

The surrender charge is typically a fixed percentage of the contract's accumulated value. The surrender charge is typically a declining percentage of the contract's accumulated value.

A married couple is insured under a joint life policy. The first spouse dies. What can the surviving spouse do with the policy?

The surviving spouse may convert the policy without proving insurability. When the first spouse dies in a joint life policy, the surviving spouse has a conversion right that allows him or her to buy an individual policy with the same or lesser face amount. The surviving insured does not have to prove insurability.

Under the "transfer-for-value" rule, the portion of a life insurance death benefit recognized as taxable income is calculated in which of the following ways?

The taxable gain is calculated as the death benefit minus the purchase price and premiums paid by the new owner.

Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date?

They can be withdrawn, partially or in full, before the contract annuitizes. These values can be left intact in the contract for future annuitization. Or, they can be withdrawn, partially or in full, before the contract annuitizes.

Endowment contracts are not considered life insurance (for tax purposes) because

They endow before age 120. To meet the legal definition of life insurance, a policy cannot endow before age 120. However, endowment contracts build cash values quickly and endow well before age 120.

Which of the following statements about the taxation of accelerated benefits is correct?

To qualify for the tax exemption of accelerated benefits, HIPAA requires insureds to meet the definition of terminally ill or chronically ill.

Which of the following statements is TRUE about the accelerated benefits rider?

To qualify, the insured must prove that his or her injury or illness will result in death within a stated period. This period is usually two years.

Why would a large corporation choose to self-insure rather than buy an insurance policy from an insurance company?

To save insurance premiums by paying frequent but modest losses on its own. The term "self-insurer" refers to a large company that is willing and financially able to pay for low-severity losses, thus saving the cost of insurance premiums. It uses its own funds to pay claims as well as the administrative costs of running an internal insurance program.

Which of the following statements generally guides insurance companies in determining "loading"?

Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus. Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.

Which of the following statements about simplified employee pensions (SEPs) is correct?

Under a SEP plan, an employer sets up individual retirement accounts (IRAs) for each participating employee. The employer makes contributions to these accounts on behalf of the employee. These contributions into an employee's SEP are not included in the employee's gross income.

All the following statements about annuity death benefits are correct EXCEPT

Unlike a deferred annuity, If the owner or annuitant of a variable annuity dies during the accumulation period, a beneficiary does not receive as a death benefit an amount at least equal to that invested in the contract. All deferred annuities offer a guaranteed death benefit if the owner or annuitant dies during the accumulation period. In this situation, a beneficiary receives as a death benefit an amount at least equal to the amount invested in the contract. This also applies to variable annuities, which guarantee a death benefit equal to at least the premium invested.

A Social Security recipient's modified adjusted gross income exceeds the threshold level for his or her filing status. What will happen to his or her benefits?

Up to 85 percent of his or her Social Security benefits will be subject to tax.

All of the following statements about key person life insurance are correct, EXCEPT:

Upon the insured employee's death, the surviving family receives the policy's death benefit.

Which statement about variable life insurance is NOT correct?

Variable life insurance offers guaranteed cash values. Variable life insurance offers fixed, permanent premiums and a minimum guaranteed death benefit. However, it differs from traditional whole life in that it is a securities-based insurance product that does not have guaranteed cash values.

Which one of the following statements about variable life insurance is correct?

Variable life's policy values can be invested in subaccounts, which are unsecured and nonguaranteed. Variable life insurance differs from traditional whole life insurance in the way its values are invested. Variable life insurance policy values are invested in investment accounts known as subaccounts, which can consist of a variety of stock, bond, and related securities. Subaccounts are unsecured and nonguaranteed.

What is the form in which the MIB sends its reports to insurers?

Written codes: The MIB sends information to insurers in written code, which helps protect the confidentiality of the information.

Alex sold an insurance policy before his license lapsed and earned a commission on the sale. Is he entitled to a commission if the policy is renewed?

Yes, because he was licensed when the policy was sold. Commission earned on the renewal of a policy can be paid to a person for selling, soliciting, or negotiating the policy if the person was licensed to transact insurance at the time of the sale, solicitation, or negotiation of the policy.

If the employer and the employee share the premiums for a group term life insurance policy, the plan is called

a contributory plan: If the employer and the employee share the premiums of group term life insurance, the plan is called a contributory plan.

XYZ Insurance, incorporated in Texas, has agents authorized to sell life insurance in Arkansas. In Arkansas, XYZ Insurance is categorized as which of the following?

a foreign insurer: In Arkansas, XYZ Insurance is categorized as a foreign insurer.

During the early years of an ordinary life insurance policy, the premium is more than the insured's mortality costs. What does this excess create?

a reserve

As a legal contract, a life insurance requires all of the following elements, EXCEPT

basis

Jeff is a licensed insurance agent in both New York and Florida. He is was charged with embezzlement in New York, and pleaded guilty to the charge on March 1. He must notify the Florida Department of Financial Services of the charge within how many days?

30. An agent must give written notice to the Department within 30 days after being found guilty or pleading guilty or no contest to a felony or crime punishable by imprisonment of one year or more.

A person who wants to convert group life insurance coverage to an individual policy must apply for the policy and pay the first premium within how many days of leaving the group plan?

31. To convert group life insurance coverage to an individual policy, a person must apply for the policy and pay the initial premium within 31 days of leaving the group plan.

A worker can receive full retirement benefits if he or she retires at the full retirement age. However, a worker can also choose to collect permanently reduced Social Security benefits as early as what age?

62

Which statement regarding loans against life insurance policyowner Bob's cash value is NOT correct?

Bob may borrow against his policy's cash value from the moment the policy is issued and at any time thereafter. Loans against the cash value are normally only available after the policy is in force for a specified time, typically three years. Usually the policyowner can borrow the entire cash surrender value less any prior debt against the policy.

Bob bought a $100,000 ten-year level term insurance policy on March 1, 2004. What will happen if he dies on March 10, 2014?

Bob's beneficiary will not get any benefits.

When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary?

Death benefits from a life insurance policy are generally not taxable to the beneficiary.

Which of the following statements best describes how employer-paid premiums for group life insurance are treated for tax purposes?

Employers can deduct premiums paid on a group life insurance plan. The employer can deduct premiums it pays on a group life insurance plan.

Who is the contingent beneficiary, second level, in the following beneficiary designation: "Sally Grant, wife of the insured, if she survives the insured; otherwise in equal shares to surviving children of the insured, if any; otherwise to Frank Grant, brother of the insured."

Frank Grant

If an employer sets up a profit-sharing plan, which one of the following statements is most correct?

It must establish individual accounts for each participant.

Life insurance applies to business arrangements in all of the following ways, EXCEPT:

Life insurance is used to make up for the financial losses that might occur when an important customer dies.

The FICA tax collected from each employee and his/her employer pays for ___________________.

OASDI (retirement, survivor, and disability benefits) and the hospital portion of Medicare only. The FICA tax collected from each employee and his/her employer pays for OASDI (retirement, survivor, and disability benefits) and the hospital portion of Medicare only.

All other factors being equal, which of the following applicants can expect to pay the lowest premium for a given face amount of life insurance protection?

Pete, a preferred risk.

Which of the following best describes how the insured's money is handled in a variable life insurance policy?

Premiums are placed in investment subaccounts owned by the policyowner. Under a variable life insurance policy, premiums are placed in investment subaccounts owned by the policyowner.

Which one of the following statements best describes if and when a life insurance premium may change under the level premium concept?

Premiums are set and remain fixed over the full term of the premium-paying period.

With respect to adjustable life insurance, which one of the following statements is correct?

Premiums can increase or decrease to suit the policyowner's changing needs. The policyowner can adjust death benefits, premiums, or cash value to suit changing needs.

Life insurance has been purchased by ABC Company on the lives of two partners, Hugh and Danny, and three key employees Eileen, Vern, and June. Which of the following would apply if Hugh and June were to leave the business?

The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there. A company can keep the life insurance it carries on its employees, even when they are no longer employed there.

Which of the following will happen if a traditional IRA owner dies before all of the funds in his or her account have been paid out?

The funds will be paid and taxed to the beneficiary.

In which of the following situations would the facility of payment clause of a life insurance policy NOT be applied?

The insurer learns, when paying the claim, that the designated beneficiary had no insurable interest in the insured at the time of death.

Which of the following statements is TRUE about a deferred annuity?

The most commonly selected deferred annuity option is the flexible premium deferred annuity

Tiger Motors Company has 25 employees and would like to start a group life insurance plan. However, one of its employees has had two heart attacks during the past five years and his health is questionable. What will happen in this case?

Tiger Motors cannot exclude the employee from the plan based on his risk potential. Although the employee may pose a high risk to the group, Tiger Motors cannot exclude him from coverage based on his risk potential.

Which of the following services does Lloyd's of London provide?

a common meeting ground where member associations can conduct insurance business: Lloyd's of London provides a common meeting ground where member associations can conduct insurance business.

James is a licensed agent who lives in Florida. He moves to Georgia. When must he notify the Department of Financial Services of his move?

within 30 days. An agent who changes his or her residential or business address must notify the Department within 60 days of moving.

In its fiduciary responsibility to its principal, a producer is required to do all the following EXCEPT

Solicit business that is certain to be profitable to the insurer. While producers are expected to use care not to present unsuitable applicants to insurers, it is understood that some business will lapse early or incur unexpected claims and thus not be profitable.

A policyowner can normally borrow against a policy's cash value after the policy has been in force for ___ years.

3: A policyowner can normally borrow against a policy's cash value after the policy has been in force for 3 years.

What is the minimum age at which Gary can withdraw funds from his market value adjusted annuity (MVA) without incurring a tax penalty?

59 ½: Tax penalties apply if an MVA owner is younger than 59.

With regard to qualified plans, the term "vesting" refers to which of the following points?

A plan participant achieves a nonforfeitable right to employer contributions made on his or her behalf. Vesting refers to the point at which a plan participant achieves a nonforfeitable right to the contributions made by the employer on his or her behalf. At all times, however, an employee is fully vested in amounts he or she contributed or deferred into a plan.

Which statement regarding two-tiered interest rate annuities is NOT correct?

A two-tiered fixed annuity has a guaranteed higher level of interest crediting than most traditional fixed annuities.

Which of the following statements about structured annuity settlements is correct?

A structured settlement annuity pays out a stream of payments over the specified period. This type of annuity pays out a stream of payments over the specified period.

All of the following statements about the regulation of the sale of variable products are correct, EXCEPT:

Agents who only sell variable life products and do not sell fixed life products are not required to hold a life insurance license. Selling variable life products also requires a valid life insurance license.

All the following statements regarding life insurance cost indexes are correct EXCEPT

All cost indexes are based on the assumption that no cash value is withdrawn from the policy until the policy matures. The life insurance surrender cost index compares costs at a future date, prior to maturity (age 120) or death, when the policy might be surrendered for its cash value.

Which of the following requirements applies to a life insurance policy issued to a creditor-debtor group?

All eligible debtors must be insured, if the creditor pays the entire premium.

Which of the following requirements applies to a life insurance policy issued to a creditor-debtor group?

All eligible debtors must be insured, if the creditor pays the entire premium. A group policy may be issued to a creditor to insure debtors, provided all eligible debtors are insured, if the creditor pays the entire premium.

People who are members of associations, such as school districts or towns, can be insured under an association group life insurance plan. Which of the following statements regarding association group life is correct?

All members must be eligible to participate in the plan. If an association offers a group life insurance plan, all members must be eligible to participate.

Which of the following best explains why Section 1035 of the Tax Code does not permit a tax-free exchange of an annuity for a life insurance policy?

Allowing a tax-free exchange of an annuity for life insurance would enable taxable annuity gain to escape taxation via the life insurance death benefit. Section 1035 prohibits the exchange of any type of annuity product for any type of life insurance product, because to do so would enable taxable annuity gain to escape taxation via the life insurance death benefit.

Mary refuses to fly on a commercial airplane for her business. This is an example of risk ________.

Avoidance: Mary refuses to fly on a commercial airplane for her business. This is an example of risk avoidance.

All the following statements regarding reinsurance are correct EXCEPT

Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement. The policyowner is usually unaware of the reinsurance arrangement; when a claim is paid, it is paid entirely by the ceding company that issued the policy.

Anne, a life insurance applicant, wants to change an answer that she gave on the application. She should do which one of the following?

Cross out and initial the incorrect entry, and enter the correct information next to it. If an applicant wants to change an answer that he or she has already written on the application, then the applicant should cross out and initial the incorrect entry.

Which of the following statements about defined benefit plans is correct?

Defined benefit plans define the future benefit the employee is to receive. The benefit is typically paid monthly and usually for life. Accordingly, employer contributions are made in such a way and in such amounts so as to fund the future benefit.

Which statement regarding life insurance policy dividends is NOT correct?

Dividends are guaranteed.

If insurers do not allow minors to be beneficiaries of life insurance, what do they do if no adults are available to receive death benefits?

Insurers require the court to appoint a legal guardian before paying benefits to a minor child. State law prevents insurers from paying death benefits to minors, but the states do not provide the solution to that problem. The insurer requires the court to appoint a legal guardian before paying benefits to a minor.

Howard, 33, and Mary, 32, want to fund their 13-year-old daughter's college education. Which one of the following would be the most appropriate advice about using a deferred annuity?

It is not recommended. Deferred annuities typically impose surrender charges on funds withdrawn during a contract's early years, and withdrawals from annuities before the owners reach age 59 may be subject to a tax penalty. Howard and Mary are too young to escape a tax penalty for withdrawing funds from their annuity before 59 1/2, considering that their daughter will be starting college in less than seven years.

When a deferred annuity is annuitized, which one of the following most correctly describes the tax treatment of the contract's "gain" (i.e., accrued interest) portion of each payment?

It is taxable.

Derek buys an individual life insurance policy after he loses his job and is no longer covered by his former employer's group plan. However, he dies during the conversion period and before the policy takes effect. Which of the following statements about the death benefit is true?

It will be paid under the group plan. If a person dies during the conversion period and before an individual policy takes effect, the amount of life insurance to which the person would be entitled under an individual policy is paid as a death benefit under the group plan.

Nicole, age ten, is the insured in a traditional "jumping juvenile" policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy's face amount?

It will increase to $25,000.

All of the following reasons for not using deferred annuities for short-term accumulation goals are correct EXCEPT

Loss of tax-deferred growth

Which of the following documents must an agent deliver to a policyowner who buys a life insurance policy that replaces another?

Notice Regarding Replacement. If a new life insurance policy or annuity contract will replace an existing one, the agent must give the applicant a Notice Regarding Replacement form.

Which of the following statements about straight life annuities is correct?

Of the various life contingency income options, the straight life income option provides the largest monthly income payment for a given amount of annuity funds.

Which of the following actions taken with a life insurance policy would be taxed?

On a withdrawal, the amount that exceeds the premiums paid in would be taxed.

Which of the following statements is TRUE about insurance policies?

Only the insurer is required to make an enforceable promise. In a unilateral contract such as an insurance contract, only the insurer is required to make an enforceable promise.

Which of the following is a characteristic of both interest-sensitive and current assumption life insurance policies?

Premium rates can change over time in response to the insurer's actual mortality, interest, and expense experience. Interest-sensitive and current assumption policies have premium rates that can change over time in response to the insurer's actual mortality, interest, and expense experience.

With respect to adjustable life insurance, which one of the following statements is correct?

Premiums can increase or decrease to suit the policyowner's changing needs.

Which statement about level premium payment plans is NOT correct?

Premiums may be adjusted by the insurer only as long as premiums are increased for all policies of that type issued by the insurer. The premium is set and remains fixed over the policys term.

In the event of the total disability of a whole life policy insured, generally what does the waiver of premium rider cover?

Premiums paid during a required waiting period are refunded; future premiums until the insured is no longer disabled are waived. Under the waiver of premium rider, premiums are waived after an initial waiting period for an insured who becomes disabled. Premiums paid during the waiting period are refunded. Future premiums are waived as long as the disability continues.

Which of the following best describes the present value of money?

Present value is the sum of money needed today to grow to a specified sum in the future, using a specified rate of interest. Present value is the value today that a given sum of money will grow to in the future, with interest earnings added.

A group of people who agree to pro-rate and share the losses suffered by other members is called a(an) ______________ insurer.

Reciprocal: A group of people who agree to pro-rate and share the losses suffered by other members is called a reciprocal insurer.

What is the consideration that an applicant gives an insurance company when buying life insurance?

The application and the first premium.

Which of the following statements about guaranteed minimum interest rates and current (declared) interest rates is correct?

The declared rate can change: The declared rate can change. It remains in effect for a limited period, such as one or two years after it is declared. At that time, the insurer announces a new current rate.

Replacement is considered to have occurred if a life insurance policy is purchased and, in conjunction with that purchase, any of the following occur with an existing policy EXCEPT

The existing policy's beneficiary designation is changed.

A policyowner owns a variable universal life insurance policy that offers a wide array of variable subaccounts. With respect to this policy, which of the following statements is NOT correct?

The insurer bears the investment risk of any losses. The insurer does not insure or guarantee variable subaccounts. The policyowner bears the investment risk if the underlying investments perform poorly.

Stephanie is a policyowner who pays premiums monthly. How does her insurer cover the cost of sending her more frequent premium notices?

The insurer charges higher premiums.

All the following statements regarding the automatic premium loan are correct, EXCEPT:

The insurer deducts the automatic premium loan on the first day of the premium payment grace period if the policyowner has not paid by that time.

Which statement about children's term riders in life insurance is NOT correct?

The insurer must write separate riders for each child in a family.

At the end of the interest-paying period (or upon request by the beneficiary), what happens to the annuity proceeds that the insurer was holding?

The insurer pays the proceeds, either in a lump sum or under one of the other settlement options. At the end of the interest-paying period (or upon request by the beneficiary), the insurer pays the proceeds either in a lump sum or under one of the other settlement options.

Annuities are often referred to as "insurance against living too long" for all of the following reasons, EXCEPT:

The insurer provides a guaranteed death benefit: Deferred annuities pay death benefits if the owner/annuitant dies before annuitization.

Which statement regarding the reduced paid-up life insurance nonforfeiture option is NOT correct?

The paid-up policy will not build any more cash value

What happens when a universal life insurance policy's cash value no longer covers the monthly deductions to cover the policy's insurance and operational costs?

The policy lapses. When the cash value no longer covers those deductions, a universal life insurance policy lapses.

Elizabeth owns a universal life insurance policy with a $100,000 cash value. She pays a $1,400 premium for the coverage. If she loses her job and decides not to make a premium payment, which one of the following is most likely to occur assuming Elizabeth wishes to keep the policy in force?

The policy stays in force as long as the cash value will cover the monthly deductions and charges. Elizabeth can decrease or skip premium payments. As long as the policy's cash value covers the monthly deductions and charges, the policy remains in force.

Andrea bought a $300,000 term-to-55 policy. Which of the following statements about the policy is NOT correct?

The policy will pay the entire death benefit only if Andrea reaches age 55. Andrea's $300,000 term-to-55 policy gives $300,000 of coverage until she reaches the age of 55. The policy will pay the entire death benefit as long as Andrea dies sometime within the term of coverage.

Mary inherited $10 million several years ago. She has just bought a life insurance policy to help preserve her estate. All of the following statements regarding this are correct EXCEPT

The policy's death benefit cannot be used to pay Mary's estate taxes or settlement fees.

If a policyowner partially surrenders a life insurance policy, which of the following happens?

The premium goes down. If a policyowner partially surrenders a policy, the premium goes down, reflecting the remaining smaller death benefit.

All of the following statements about joint life (first-to-die) life insurance are correct, EXCEPT:

The premium is more than it would be for two separate policies providing the same death benefit. The premium is less than it would be for two separate policies providing the same death benefit.

Which of the following is TRUE with respect to limited payment life insurance policies?

The premium-paying period is shorter than for ordinary whole life insurance, and a higher premium is charged for otherwise identical ordinary whole life insurance coverage. The premium-paying period is shorter than for ordinary whole life insurance, and a higher premium is charged for otherwise identical ordinary whole life insurance coverage.

What happens if the amount of retirement benefits that a family receives based on the earnings of a single worker exceeds the maximum family retirement benefit?

The total benefits payable to a spouse and children are reduced proportionately. Social Security limits the amount of retirement benefits that any one family can receive from the earnings of a single worker. If the total benefits payable to a spouse and children exceed this limit, then their benefits are reduced proportionately.

Fred is terminally ill. He sells his $100,000 life insurance policy to a viatical settlement provider for $60,000. Six months later, Fred dies. Which of the following statements is correct?

The viatical settlement provider will receive the entire $100,000. Under a viatical settlement, the insured sells his or her interest in a life insurance policy to a viatical settlement provider, who becomes the policyowner and beneficiary. When Fred dies, the provider receives the full death benefit. Fred's estate will not receive any part of the death benefit when he dies.

The payor benefit rider for a juvenile insured sets the terms for when and how long the premium waiver stays in effect. If the payor becomes totally disabled or dies before the specified age, which of the following happens?

The waiver usually stays in effect until the payor recovers or the child reaches a certain age.

Which one of the following statements about deferred compensation plans is most correct?

They allow executives to delay receiving current compensation until a future time. Under a deferred compensation plan, senior executive employees agree to defer part of their salary or compensation until a future date, typically retirement.

All of the following statements regarding guaranteed minimum interest rates on deferred annuities are correct EXCEPT

They are subject to periodic change. They are stated in the contract.

Which statement about the interest-only life settlement option is NOT correct?

Though a policy guarantees a minimum interest rate, if the interest earned is more than the guaranteed minimum, the company pays the lower amount.

Tim has been diagnosed with terminal cancer and has been given one year to live. To carry out his last wish of traveling to Tahiti, he would like to sell his life insurance policy through a viatical settlement. Which of the following statements is most correct?

Tim can enter into a viatical settlement to gain a substantial portion of the policy's face amount, provided the policy has been in force beyond the contestability period. Viatical settlements are generally available only to people whose policies have been in force beyond the contestable period.

Which statement regarding the conversion of a traditional IRA to a Roth IRA is NOT correct?

To convert to a Roth IRA, a person must have earned income.

A settlement option in which the income stream is not affected by the death of the payee (the individual receiving the death benefit) is called a settlement option ______ life contingency.

Without: A settlement option in which the income stream is not determined or affected by the death of the payee (the individual receiving the death benefit) is called a settlement option without life contingency.

When holding insurance premiums and other funds, agents must act in a what role?

a fiduciary capacity. Licensed individuals hold insurance premiums and other funds in a fiduciary capacity. Anyone who appropriates such funds for his or her own use or without the consent of the person entitled to the funds is guilty of larceny.

Lucy is applying for an individual health insurance policy. The application asks about her current health and whether she has any known medical conditions. Lucy discloses that she is diabetic, which would be considered which of the following?

a physical hazard. A physical hazard is a physical characteristic, such as diabetes, that increases the chance of loss.

Which one of the following entities would be eligible to set up a Keogh plan?

a three-person law partnership

Which of the following is NOT an exception to the transfer-for-value rule?

a transfer made to the spouse or child of the insured: Transfers made to the spouse or child of the insured are NOT exceptions to the transfer-for-value rule.

When an annuity owner makes premium deposits and allocates them among the contract's subaccounts, what are these funds used to buy?

accumulation units. When the annuity owner makes premium deposits and allocates them among the contract's subaccounts, they are used to buy accumulation units, which are then credited to the owner's contract.

The insurance company function that is responsible for calculating company mortality and morbidity rates, and calculating dividends on participating life insurance policies, is the

actuarial division. Besides determining company premium rates and calculating participating policy dividends, the actuarial division is responsible for determining appropriate cash reserves on claims.

All the following are common types of term life insurance EXCEPT:

adjustable term insurance. Increasing term life insurance is most commonly used to provide a cost-of-living increase rider on a permanent life insurance policy.

Although exceptions exist, distributions from a qualified retirement plan are subject to a penalty tax if taken any earlier than

age 59 1/2. If taken before the employee's age 59½, plan distributions may be subject to a 10 percent tax penalty.

Under the integrated long-term care option, the beneficiary receives the remainder of the face amount as the death benefit at the insured's death. In this way, the long-term care integrated option is similar to which of the following?

an accelerated benefits rider. The long-term care integrated option is similar to the accelerated death benefit rider, which pays out part or all of the policy's face value while the insured is still living.

How do insurers treat a flood?

as a peril: A flood is a peril, which is a condition that involves danger or risk and causes a loss. Insurance policies offer financial protection against losses caused by perils.

In an absolute assignment, what term is used to describe the new policyowner?

assignee. The policyowner making the assignment is the assignor. The person to whom the assignment of rights is made is the assignee.

In a front-end loaded universal life contract, when does an insurer deduct costs and fees from each premium?

before crediting the premium to the policy's cash value

Cal bought a $100,000 universal life policy ten years ago. He has paid $8,000 in premiums into the policy. He now decides to surrender the policy for its full $15,000 cash value and must pay taxes on $7,000 of that cash value. Which one of the following most correctly describes the type of tax that is applicable in this case?

income tax: It is taxed at ordinary income tax rates, not capital gains tax rates, transfer-of-value rates or alternative-minimum rates.

All of the following are standard exclusions found in most policies, EXCEPT:

military service: Serving in the military is not an automatic exclusion, but the "war exclusion" usually excludes paying a death benefit if the death directly resulted from war.

By definition, what else is a single-premium life insurance policy called?

modified endowment contract. Single-premium whole life insurance policies are modified endowment contracts (MECs), which means that they lose some of the tax advantages usually enjoyed by life insurance policies.

In addition to the four basic dividend options, various combination dividend options are available. Most combination dividend options involve which of the following?

one-year term life insurance.

What information about the proposed insured is available from the Medical Information Bureau to assist the underwriter in making a decision?

only the applicant's medical impairments reported by other insurers: The Medical Information Bureau maintains a database of confidential information on applicants for life and health insurance that have been underwritten by member insurers and found to possess a medical impairment. While all impairments must be reported, the insurer does not report its underwriting decision, therefore this decision is not available to the next insurance underwriter.

Dan surrenders his whole life policy and decides to apply its $20,000 cash value to buy $35,000 of whole life coverage for the remainder of his life. Dan has chosen which of the following?

reduced paid-up option. Dan has chosen the reduced paid-up insurance option under which a policy's cash value buys a paid-up policy of the same type as the lapsed policy. The paid-up death benefit is the amount that the cash value buys as a single premium at the insured's age.

The entire contract provision specifies that all statements the policyowner makes in the application are considered which of the following?

representations

When an employee retires, what is the general tax treatment of the payments he or she receives under a deferred compensation plan?

taxable to the employee as he or she receives benefits: A non-qualified deferred compensation plan lets an employee delay receiving current compensation until a future time. The employee must then pay taxes on the benefits as he or she receives them. However, the employee will typically be in a lower tax bracket than when he or she was working.

Which of the following activities does not violate the insurance code?

telling clients that an agent holds a chartered financial consultant (ChFC) designation. An agent can inform customers that he or she holds a designation as a certified financial planner (CFP), chartered life underwriter (CLU), chartered financial consultant (ChFC), or life underwriter training council fellow (LUTC), or a license to sell securities from the Financial Industry Regulatory Authority (FINRA), if this is true.

George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called?

the annuitant. The annuitant is the person the owner chooses to receive the periodic annuity payments when the contract annuitizes.

What does the employer own under a group insurance plan?

the master policy

Steve, age 72, owns an IRA. The required minimum distribution (RMD) for Steve this year was $6,000, but he only withdrew $4,000. Based only on this information, what penalty tax will Steve have to pay?

$1000. Because Steve did not take his entire required minimum distribution for the year, he will have to pay a 50 percent penalty tax on the shortfall. The amount is determined by taking the additional amount that he should have received ($2,000) and multiplying it by 50 percent.

Bob bought a $100,000 universal life insurance policy and chose an increasing death benefit. At his death ten years later, the policy's cash value had increased to $50,000. What will his beneficiary receive?

$150,000. Because Bob chose an increasing death benefit, his beneficiary will get the policy's specified amount plus its cash value. Since the cash value has increased, the death benefit will also increase by the same amount. The beneficiary will get $150,000 (the $100,000 specified amount plus the $50,000 increase in cash value).

Kate bought a universal life policy with a $200,000 death benefit and chose death benefit option 1. In year five of the policy, she withdrew $50,000 from the policy's cash value. If she dies after withdrawing the $50,000, what will her beneficiary receive?

$150,000. If Kate withdraws $50,000 from her universal life policy, the specified amount will drop by $50,000. This means that the death benefit will be reduced by $50,000. Her beneficiary will get $150,000.

Brian's required minimum distribution from his traditional IRA was $6,000 this year. However, he only took a $2,000 distribution. What tax penalty will Brian have to pay?

$2,000: Failure to take the required minimum distribution results in a 50 percent penalty tax, which is applied to the difference between the amount taken and what should have been taken. As a result, Brian will have to pay a $2,000 penalty tax.

Tom is a 45-year-old senior accountant employed by ABC, Inc. Under ABC's employer-pay-all group life plan, Tom's coverage is $120,000. The premiums for what amount of that coverage are taxable to Tom?

$70,000. The cost of the first $50,000 of coverage is tax exempt for employees. Because Tom has $120,000 of coverage, the premiums for $70,000 ($120,000 - $50,000) are taxable to him.

When does the free-look period for a variable life insurance policy end?

10 days after the policy is delivered, or it can be extended to 45 days after the insurance application is completed, whichever is later. The free-look period for a variable life policy generally ends ten days after the policy is delivered, or it can extend for 45 days after the insurance application is completed, whichever is later. Some states require longer free-look periods.

If Harry, age 58, withdraws funds from his annuity, the taxable portion of the withdrawal may also be assessed which of the following?

10 percent penalty. If a person withdraws funds from an annuity before age 59 1/2, the taxable portion of the withdrawal is charged a 10 percent penalty.

When Gary bought an equity-indexed annuity (EIA) with a $10,000 premium deposit, the S&P 500 Index was at 1000. At the end of the contract's first term one year later, this index was at 1100. Based only on this information, what is the basis for the amount of interest credited to Gary's contract?

10 percent. When Gary bought his EIA, the S&P 500 was at 1000. One year later it was at 1100: an increase of 10 percent. Thus, the basis for the amount of interest to be credited to Gary's EIA contract is 10 percent.

To be eligible for group life insurance, a group must generally cover at least how many persons under one master policy?

10. According to the National Association of Insurance Commissioners' requirements, a group must cover at least ten persons under one master policy.

Terry is licensed in Florida as a life and health insurance producer for the past two years. To maintain his license, how many hours of continuing education must he complete every two years?

24. Agents who have been licensed in Florida for less than six years are required to complete at least 24 hours of continuing insurance education every two years in order to renew their license. At least three hours must be in ethics.

Under the standard bring-back rule, assets transferred out of a decedent's estate will be valued in the estate if done within how many before death?

3 years. To avoid inclusion in an individual's estate, ownership of an asset must be transferred away from the individual at least 3 years before death.

Gene wants to participate in a retirement plan that his employer, West Independent School District, has set up. The plan is reserved specifically for non-profit entities like schools. It calls for pre-tax contributions by both Gene and his employer to be made to an account in Gene's name. Based on the description, which plan is designed for Gene and his employer?

403(b) plan: The 403(b) plan is reserved for employees of non-profit organizations such as schools. Both the employee and employer make pre-tax contributions to an account set up in the employee's name.

Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to

50 percent of the difference between the amount that was taken and the RMD amount that should have been taken. Failure to take an RMD results in one of the stiffest penalties the IRS imposes. This penalty is 50 percent of the difference between the amount that was taken and the amount that should have been taken.

Regarding qualified plan required minimum distributions (RMDs), the penalty tax that is assessed on any shortfall (i.e., the difference between the annual RMD amount and actual amount) is what amount?

50 percent. If a person does not take the correct required minimum distribution for a given year from his or her qualified plan, a 50 percent penalty tax will be imposed on the difference between the amount that was taken and the amount that should have been taken.

In general, what is the earliest age at which a person can take a distribution from a qualified plan without penalty?

59 ½: A 10 percent premature distribution penalty tax will generally be imposed on distributions taken from qualified plans before age 59 1/2 unless the withdrawal falls within certain exceptions.

All of the following are standard life insurance policy exclusions EXCEPT

6-month legal action limit provision. There is no provision by this name, and besides that, most states do not permit insurance companies to include any provision in their contracts that limits the period for filing a lawsuit against the insurance company to less than one year after a triggering event is noted.

At what age does U.S. tax law require IRA owners and other qualified plan participants to start taking distributions from their plans?

70 1/2

Which of the following best describes the difference between a disability income benefit rider and a waiver of premium rider?

A disability income benefit rider pays a monthly income to the insured if he or she becomes disabled. The waiver of premium rider waives the policy's premiums. A disability income benefit rider pays a monthly income to the insured if he or she becomes disabled. The waiver of premium rider waives the policy's premiums.

How does a family income policy differ from a family maintenance policy?

A family income policy combines whole life insurance with decreasing term, while a family maintenance policy combines whole life and level term insurance.

If the applicant makes a mistake on an application, which of the following actions should the agent take?

Ask the applicant to cross out the mistake, make the correction and initial the change. If the applicant makes a mistake on an application, he or she should cross out the incorrect entry, add the correct entry and initial the change.

In addition to lump sums the surviving family will need immediately when an insured dies, they also will likely need an ongoing stream of income. Which one of the following statements regarding the need for ongoing income is most correct?

Additional amounts of life insurance may be needed to provide enough ongoing income for the surviving family.

Which of the following characteristics is TRUE for group life insurance?

All participants pay the same premium rate. All participants pay the same premium rate. (Premium rates are averaged for the entire group.)

Which of the following statements about immediate annuities is correct?

An immediate annuity's monthly payments last for as long as the owner wants.

Which statement regarding life insurance cost-of-living riders is NOT correct?

As the Consumer Price Index (CPI) increases, so does the policyowner's coverage, providing the insured can prove insurability. As the CPI increases, so does the policyowner's coverage, without requiring the insured to prove insurability.

Distributions from a qualified plan to a participant must begin no later than _________.

April 1st of the year following the calendar year that the participant turns 70½: Beginning no later than April 1st of the year following the calendar year that the participant turns 70½ or upon retirement, whichever comes later, distributions from a qualified employer plan must begin.

Which of the following statements about agent/producer responsibilities is NOT correct?

As long as the applicant understands the life insurance product being recommended, it is not necessary for the agent to be concerned with the product's suitability for the applicant. Determining a product's suitability for the applicant is always a primary responsibility of the agent or producer.

Andrea owns a variable universal life insurance policy. She has been paying premiums for the last ten years. The policy's cash value is now $75,000. When her son enters college she stops making premium payments and pays tuition instead. After her son graduates, Andrea plans to start making premium payments again. Which one of the following statements is most correct, assuming Andrea wishes to keep the policy in force?

As long as the policy's cash value covers the monthly deductions for the cost of insurance and expenses, Andrea's policy stays in force. Andrea can increase or decrease premium payments and can even stop them altogether. As long as her policy's cash value covers the monthly deductions for the cost of insurance and expenses, the policy stays in force. If the cash value is not enough to cover the monthly deductions, the policy lapses.

By offering tax incentives, the federal government encourages employees to participate in qualified retirement plans. Which of the following is NOT one of these incentives?

Benefits are taxed only if withdrawn at retirement. Benefits are taxed only when they are withdrawn OR otherwise distributed from the plan to the employee.

What will happen if a person starts receiving Social Security retirement benefits before reaching his or her full retirement age and continues to work and earn money that exceeds specified earnings limits?

Benefits will be reduced each year until the worker attains full retirement age. If a person retires early and continues to work, his or her Social Security benefits can be reduced if the amount earned exceeds the annual earnings limit. For every $2 earned over this limit, benefits are reduced by $1. This limit continues until the worker reaches full retirement age. At that point, no earnings limit is imposed, and the person may work and receive full benefits.

Delta Insurers typically affirms or denies claims within 120 days after it receives proof of loss statements. Which statement is correct?

Delta is engaged in unfair claims settlement practices. It is an unfair claims settlement practice for insurers to fail to affirm or deny coverage of claims within 30 days after receiving proof of loss statements.

Brackman Brothers Candy company has bought key person life insurance on both brothers, Harry and Jerry, under a third-party ownership arrangement. Both men have made wills leaving their estates to their spouses and surviving children. When Jerry dies suddenly, who is paid the life insurance policy's death benefit?

Brackman Brothers Candy company: Brackman Brothers Candy company bought the key person insurance on Jerry's life and is the beneficiary of the policy. No other party has any rights to the life insurance proceeds.

Which one of the following is the most appropriate use of life insurance?

Buying life insurance to insure all the parties to a business buy-sell agreement. Life insurance is commonly used to provide stability and continuity in business situations.

Cindy and Rich each bought a $100,000 universal life insurance policy from the same insurer, each with a ten-year surrender charge schedule. In year two, Cindy withdrew $5,000 from her policy. Rich withdrew $5,000 from his policy in year five. Which one of the following statements is most likely correct?

Cindy will probably pay a higher surrender charge than Rich. In a back-end loaded universal life policy, surrender charges are added for withdrawals of cash value from the policy. These charges normally decline over the term of the policy, and typically are limited to the first ten policy years. In this case, Cindy will pay a higher surrender charge than Rich because she withdrew part of the policy's cash value earlier in the policy term when surrender charges were higher.

Jack sets up an insurance policy with two types of beneficiaries. He names his wife Judy as the first in line to receive the policy's death benefit. He names his brother Jason as the next in line to receive the death benefit, in the event Judy dies before Jack. In this scenario, Jason is considered the _________ beneficiary.

Contingent: The contingent or secondary beneficiary is the person or class of persons in line to receive the policy proceeds if the primary beneficiary or beneficiaries are removed or predecease the insured.

Which one of the following statements most correctly describes how interest-sensitive whole life and current assumption whole life insurance differ?

Current assumption policies guarantee minimum cash values while interest-sensitive policies guarantee the death charges and expenses. Current assumption policies guarantee minimum cash values while interest-sensitive policies guarantee the death charges and expenses.

Karen transfers all rights in her life insurance policy to her brother, David, in an absolute assignment. Who is typically responsible for paying the policy's premiums from that point forward?

David must pay the premiums. The assignee, David, assumes full responsibility for the policy, including paying future premiums.

Generally speaking, which one of the following most correctly describes the taxation of a Roth IRA distribution to a person who is age 59 1/2 or older?

Distributions are generally tax free. Once a Roth IRA owner reaches age 59 1/2, he or she can take distributions income tax free, as long as he or she has held the account for at least five years.

Which of the following statements about dividend options is TRUE?

Dividends are not guaranteed: Dividends are not guaranteed. When a life insurance policy participates, it is eligible to receive dividends from the insurer if and when declared. Dividends are generally received income-tax free. There are four basic dividend options. Various combination dividend options are also available.

Six months ago, Bill cashed in his life insurance policy. He now realizes his mistake and asks to reinstate his coverage at his then-attained age. The insurance company is obligated to do which of the following?

Do nothing as the company has no contractual obligation to the policy owner at this point. If Bill surrendered a policy, the insurer cannot reinstate it.

Which statement about group insurance is NOT true?

Employee contributions are disallowed. The employer may pay the entire premium. However, employees usually contribute to the premium.

Premiums paid on a group life insurance plan are fully tax-deductible to the ______________.

Employer: Premiums paid on a group life insurance plan are fully tax-deductible to the employer.

A buy-sell agreement in which the business buys the deceased owner's interest in the business is known as a(an) _______________plan.

Entity: Under an entity plan, the business buys the interest or shares of a deceased partner or shareholder using insurance to fund the buy-sell agreement.

Which of the following statements about IRA rollovers is CORRECT?

Funds can be rolled over from one IRA to another or from a qualified retirement plan to an IRA. Rollover IRAs are commonly used as people move from job to job. Rather than have amounts from a qualified plan account distributed to him or her, a person can transfer the funds directly to an IRA. Funds can also be rolled over from one IRA to another.

Which of the following is defined as increasing the severity or frequency of loss?

Hazard: A hazard does indeed increase the number of, or the severity of, losses.

Jason, age 27, is single, works for a small computer company, and earns $175,000 a year. Because the company does not have any retirement plan for its employees, Jason set up and contributed the maximum amount to a traditional IRA this year. What is he allowed to deduct from his taxes in the current year?

He can deduct the full amount of his contribution. Because Jason is not covered by a qualified employer plan, he can deduct the full amount that he contributes to a traditional IRA, up to the maximum allowed.

Jackie Jones is the Chief Financial Officer of Delta Industries and has been instrumental in the company's growth and success over the years. Because of the significant financial loss that Delta would suffer if she died, it purchased a key person insurance policy covering Jackie. Which of the following statements regarding this scenario is NOT correct?

If Jackie dies, the insurer will pay most of the death benefit to Delta, with the remaining amount going to her heirs. Key person life insurance compensates an employer for the loss of a key employee when he or she dies. The company receives the entire death benefit when the employee dies.

An annuity contract under which the premium is converted to a series of income payments that must begin one payment interval after the premium is paid is known as a/an __________ annuity.

Immediate: An immediate annuity is an annuity contract under which the premium is immediately converted to a series of income payments. The income payments in an immediate annuity must begin one payment interval after the premium is paid.

Though not specifically cited in the producer's contract, the producer is expected to telephone prospects on the insurer's behalf to arrange sales appointments. This is an example of

Implied authority. Though accepted by insurers as a practical aspect of business, apparent authority is not spelled out in contracts or related agreements.

Defined benefit and defined contribution plans each have certain advantages and disadvantages. Which one of the following comparisons is most correct?

Individual accounts are typically created for each employee participating in a defined contribution plan but not for defined benefit plans. Under a defined contribution plan, individual accounts are typically set up for each participating employee. In contrast, no individual accounts are set up for individual employees under a defined benefit plan.

Which of the following factors used in calculating life insurance premiums identifies what the insurer expects to earn on the premiums it receives?

Interest: Interest is the income that the insurance company can expect to earn on the premiums it receives.

The three factors that are unbundled in a universal life insurance policy, permitting flexibility are: mortality, expenses, and _________.

Interest: The three factors that are unbundled in a universal life insurance policy, permitting flexibility are: mortality, expenses, and interest.

Which one of the following statements about the conversion provision in group life insurance policies is most correct?

It allows the employee to convert to an individual policy when his or her group coverage ends. Group life insurance offers employees whose coverage is ending the right to convert their terminating group term life insurance coverage to an individual policy when their group coverage ends.

Which one of the following most illustrates the biggest drawback to the human life value approach to determining insurance needs?

It fails to consider a family's unique financial needs.

Zelda, a producer selling health insurance, assures a prospective applicant that the insurance company she represents is backed by the protections of the Florida Life and Health Insurance Guaranty Association. What is true about this kind of assurance?

It is prohibited at all times. It is an unfair trade practice to use the existence of the Florida Life and Health Insurance Guaranty Association, or the protections the association offers, for the purpose of selling insurance.

Marcia had a mental breakdown six months ago. Under the terms of a typical long-term care rider, what would need to be done to prove Marcia is eligible for long-term care?

It must be proven that Marcia's health or safety would be at risk without supervision. Marcia must prove that her health or safety would be at risk without supervision due to her mental health condition. The insured must be certified within the last 12 months.

To be eligible to set up a SIMPLE plan, a business has to meet which one of the following basic requirements?

It must employ no more than 100 people. SIMPLE plans are designed solely for small businesses with no more than 100 employees.

An insured's estate can be a beneficiary. However, what is the main disadvantage of that arrangement?

It places the policy benefits into the estate where they are subject to creditors and estate taxes. The main disadvantage to a trust designation is that it places the policy proceeds into the estate. Here, the proceeds are subject to the claims of creditors and estate taxes.

Jake and five of his friends are self-employed in different fields. They want to form a group so that they can buy group life insurance. What can they do?

Jake and his friends would probably not be considered an eligible group for insurance purposes.

John Campo names his son James and daughter Rosalie as his primary beneficiaries with each to receive $50,000 from his $100,000 life insurance policy at his death. James has two children, and Rosalie has a daughter. John arranges for the proceeds to be paid out per stirpes. Unexpectedly, James dies before his father. How are the death benefits distributed when John Campo dies?

James' children split $50,000 equally; Rosalie receives $50,000. Under the per stirpes arrangement set up by John Campo., James' children split $50,000 equally and Rosalie receives $50,000.

Jan and David both work for Acme Motors, have $50,000 of taxable income, and are in the 25 percent tax bracket. If Jan contributes to Acme's 401(k) plan this year and David does not, which of the following statements is true?

Jan's taxable income will be lower than David's. If Jan participates in Acme's 401(k) plan, she will defer part of her wages into the plan. The amounts deferred are not included in Jan's gross income or subject to income tax. As a result, Jan's taxable income will be lower than David's.

Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. Judy's life insurance policy designates the death benefit per capita. How will the insurer distribute the policy benefits?

Jerry and Paula will each receive $300,000: If the death benefit was designated per capita, Ralph's share of the benefit will go to the primary and equal beneficiaries—his brother and sister—when his mother dies.

Joan bought a variable universal life insurance policy seven years ago and has been paying premiums regularly so that its cash value has grown to $100,000. This year, she plans to buy a new car and would like to withdraw $25,000 from her policy's cash value to apply toward the price. Which one of the following statements is most correct?

Joan's death benefit will be reduced by $25,000. Joan can access her variable universal cash value through policy loans, withdrawals, or a complete surrender of the policy.

Justine leaves her position with her employer on March 1. She wants to convert her employer's group life insurance coverage to an individual policy. In order to convert her group coverage, she must apply for an individual policy no later than what date?

March 31

Mary pays for her life insurance with an annual premium. However, she is thinking of switching to a monthly premium plan. Which of the following best describes the consequence that will result if she changes her mode of premium in this manner?

Mary will end up paying more over time than if she continued paying annual premiums. Insurers have to add lost interest, plus a processing expense factor, to any premium payable more frequently than annual.

In a third-party ownership situation, the _________ holds all rights in the policy.

Policyowner: In a third-party ownership situation, the policyowner holds all rights in the policy. The insured has no rights. In the personal insurance market, the main reason for setting up a life insurance policy with a third-party ownership arrangement is to keep the policy's death benefit out of the insured's gross estate for tax purposes. In the personal insurance market the primary reason for setting up a life insurance policy with a third-party ownership arrangement is to keep the policy's death benefit out of the insured's gross estate for tax purposes.

Under a flexible premium payment plan, the person/entity to decide the amount of the premium (after paying the first premium) is the _______________.

Policyowner: Under a flexible premium payment plan, the person/entity to decide the amount of the premium (after paying the first premium) is the policyowner.

Which one of the following choices most correctly explains why a waiver of premium rider functions differently with a universal life insurance policy than with a traditional whole life policy?

Premium payment for a universal life policy is flexible, and premiums need not be paid consistently.

The Genetic Information Nondiscrimination Act (GINA) essentially does which of the following?

Prohibits insurance companies from discriminating on the basis of information derived through genetic test. The Genetic Information Nondiscrimination Act (GINA), which became law in 2008, prohibits U.S. insurance companies and employers from discriminating on the basis of information derived through genetic test, regardless of the source of the test data.

The purpose for the Policy Summary, which must be given to every insurance applicant, is to

Provide buyers with policy details of the insurance contract they are considering for purchase. To help make sure customers understand what they are buying, most states require that applicants be given a policy summary that provides detailed information about the specific policy that is being purchased.

Which statement about the taxation of annuities is NOT correct?

Qualified annuities-those used in qualified plans-are taxed according to the rules that apply to life insurance.

For Social Security purposes, Brian is considered currently insured while Samantha is fully insured. Which of the following statements is correct?

Samantha is eligible for more Social Security benefits than Brian. The Social Security benefits available to a fully insured worker are much greater than those available to a currently insured worker. Brian's currently insured status only entitles Brian's family to certain survivor benefits if he dies. In contrast, Samantha is entitled to retirement, survivor, and disability benefits as a fully insured worker.

Sasha, Kendall, Adam, and Julio are licensed agents in Florida. The Department of Financial Services would NOT be able to suspend or revoke which agent's license for engaging in the following acts?

Sasha, who sold insurance policies to family members and friends this year. The Department can revoke or suspend the licenses of agents who engage in all of the listed acts but cannot suspend or revoke a license because an agent sells insurance to family and friends.

The tax-free exchange of a life insurance policy for an annuity is sometimes called a

Section 1035 Exchange. Section 1035 of the Tax Code deals with the exchange of life insurance policies and annuities.

Which of the following best typifies the use of a structured settlement annuity?

Shirley was paralyzed in a car accident, and a jury awarded her $2 million which must be paid to her over a 20 year period.

What type of information is typically found in the agent's report?

The agent's report is the primary source for information about any prior insurance policy, if the new coverage is a replacement policy. The agent may also be able to identify other policies the applicant has.

An applicant for an insurance policy submits an application without the first premium. Which of the following is correct?

The applicant has invited the insurer to make an offer. When an applicant submits an application without the first premium, the applicant has invited the insurer to make an offer. In contrast, when an applicant submits an application to the insurer with the first premium payment, the applicant has made an offer that the insurer may or may not accept.

Which of the following statements most correctly describes the relationship, if any, between the application and the insurance contract?

The application is part of the entire contract.

Which of the following statements about life income with refund guarantee payout options is correct?

The beneficiary can receive payment in a lump-sum cash payment or as monthly installment payments.

Which is NOT a situation in which the facility of payment clause is applied?

The beneficiary dies before the policyowner and the named contingent beneficiary is alive. The facility of payment clause is not applied if the beneficiary died before the policyowner and a named contingent beneficiary is alive. The death proceeds will simply be paid to the contingent beneficiary.

Which of the following best describes the tax treatment of fixed annuity death benefit payments?

The beneficiary must pay taxes on any amount he or she receives that exceeds the sum of the premiums paid into the contract.

Arianna owns several industrial life insurance policies and wishes to convert them into an ordinary life insurance policy. Which of the following is required to convert the policies?

The combined face value of Arianna's policies must exceed $3,000. If a person owns industrial life insurance policies with one insurer and the combined face value of all the policies exceeds $3,000, the policyowner has the option of converting these policies into one ordinary life insurance policy. The policyowner is not required to provide evidence of insurability.

Which of the following statements about how fixed annuities accumulate is correct?

The contract owner deposits premium payments into the contract. The owner is then guaranteed a specified rate of interest to be credited to the account for a specified period. With a fixed annuity, the contract owner deposits premium payments into the contract. The owner is then guaranteed a specified rate of interest to be credited to the account for a specified period.

Why are ambiguities in an insurance contract most often interpreted in favor of the insured or the policyowner?

The contract's terms are drafted by the insurer without input by the policyowner. Ambiguities in an insurance contract are usually interpreted in favor of the policyowner because he or she had no say in drafting the terms of the contract.

Defined benefit plans provide a specific, defined benefit for plan participants when they reach retirement age. Which of the following statements regarding defined benefit plans is NOT correct?

The employee typically contributes a portion of the plan funding, through pre-tax contributions.

Which of the following statements about the conversion of group life insurance to individual coverage is correct?

The employee who is converting must normally apply for a conversion policy within 31 days after termination or retirement from the group. The employee who is converting must normally apply for a conversion policy within 31 days after termination or retirement from the group.

Which of the following statements about the employee's participation in a qualified plan is TRUE?

The employee's contributions are made with pre-tax dollars. The employee's contributions are made with pre-tax dollars. That is, they are made directly into the plan before income taxes are assessed. This lowers the employee's taxable income.

A traditional IRA owner, who is 30, decides to take a distribution from her IRA to pay the down-payment on her first home. What will she owe on her distribution?

The entire amount of the distribution is subject to income tax. However, the penalty tax does not apply to certain distributions, such as those used to buy a first house (as in this case) or to pay for education expenses.

Which statement regarding the extended term nonforfeiture option is NOT correct?

The extended term option is available where the original policy was issued on a substandard (rated) basis. If the original policy was issued on a substandard (rated) basis, then the extended term nonforfeiture option is normally not available.

Adverse selection arises from which of the following?

The fact that people in poor health are more likely to buy and keep insurance. Adverse selection is the tendency of people more likely to have a claim to buy and keep insurance. These people are selecting against the insurance company. For example, a person who is sick is more likely to buy health insurance and to keep the policy in force than a healthy person.

All the following statements about family term riders with life insurance are correct, EXCEPT

The family term rider covers multiple family members (spouse plus children) with term insurance based on their ages.

In some states, employers can buy group life insurance for their employees through a Multiple Employer Trust (MET). All of the following statements about METs are correct EXCEPT

The individual employers are the policyowners.

All of the following statements about long-term care riders and long-term care policies under the Health Insurance Portability and Accountability Act (HIPAA) of 1996 are correct, EXCEPT:

The insured must spend time in a hospital before payment.

Which one of the following statements about the tax treatment of viatical settlements is most correct?

The insured pays no federal income tax on the money from a viatical settlement.

All the following statements regarding stranger-originated life insurance (STOLI) are correct EXCEPT

The insured retains the right to designate the policy's beneficiary. Upon transfer to the investor, the insured loses all rights to the contract and the new owner typically changes the beneficiary designation to the investor(s).

Carl is a policyowner who does not want to pay premiums annually. How does Carl's insurance company adjust his premium when it allows him to pay more frequently?

The insurer increases the modal premium so that the sum of premiums exceeds the annual premium. For policyowners who do not want to pay premiums annually, insurance companies increase the annual premium to account for lost interest and additional insurer costs.

Which statement regarding apparent authority is NOT correct?

The insurer is not liable for an agent's acts when he or she is acting under apparent authority. Apparent authority is authority that the contract does not create and the insurer does not intend. It appears to belong to the agent based on the agent's reasonable statements and the actions (or inactions) of the insurer. Because apparent authority seems to the customer to belong to the agent, the insurance company may be liable for the agent's acts, even though the insurer did not allow those acts either expressly or by implication.

Under the fixed amount life settlement option, the payee receives a fixed income for an unspecified period of time. All of the following statements about the fixed amount settlement option are correct EXCEPT

The insurer may only pay out the proceeds annually.

What options does an insurer have when asked by an annuity owner for a full withdrawal of an annuity contract's accumulated value?

The insurer must comply with the request. The insurer can ask the annuity owner how he or she wants the funds paid; but the insurer must honor the request.

Under a policy's facility of payment provision, what does an insurer do with the death benefit?

The insurer names a blood relative or someone with a valid claim as the new beneficiary.

As a collateral assignee, Ned has first claim on the policy for the amount of the assignment. In these cases, what happens to the death benefit if the policyowner dies?

The insurer pays the assignee the balance of the loan still owed out of the death benefit, and the rest of the death benefit goes to the beneficiary. If the policyowner dies, the insurer pays the assignee the balance of the loan still owed out of the death benefit. The rest of the death benefit is paid to the beneficiary.

If an insured, Nan, dies during her life insurance policy's grace period without having paid her premium, what is the insurance company's obligation?

The insurer pays the death benefit after first deducting the unpaid premium. If the insured dies during the grace period without having paid the premium, the insurer deducts the unpaid premium from the death benefit.

Which statement regarding defined contribution qualified plans is NOT correct?

The retirement benefit from defined contribution plans typically does not include contributions from the participant. The benefits from defined contribution plans are likely to include contributions the participant makes, which were previously not taxed. As a result, the retirement benefit, when paid out, is fully taxable.

Which statement regarding the life insurance return of premium rider is NOT correct?

The return of premium rider pays a beneficiary a sum equal to the death benefit. The return of premium rider pays to the owner of a term life insurance policy a sum equal to all or a portion of the premiums paid if the insured is alive at the end of the policy term.

Which of the following statements about variable annuity accumulation units is correct?

The value of an accumulation unit in a subaccount is called its net asset value.

Which of the following most accurately describes the standard life insurance policy war clause?

The war exclusion excludes paying the death benefit only if the death is the direct result of war action.

To be eligible to receive Social Security disability benefits, a worker must satisfy all of the following requirements EXCEPT:

The worker must satisfy a 12-month waiting period. To be eligible to receive Social Security disability benefits, the worker must first satisfy a waiting period of five consecutive months.

When do funds in a deferred annuity become the owner's property?

They always belong to the contract owner.

When do funds in a deferred annuity become the owner's?

They always belong to the contract owner. Funds in a deferred annuity always belong to the contract owner.

Tim had paid only four premiums on his health insurance policy when he was diagnosed with cancer. The insurance company paid more than $100,000 to cover the medical bills for his treatment during the next year. This situation demonstrates which of the following characteristics of insurance contracts?

They are aleatory.

According to FCRA, an insurer who requests an MIB, inspection, or consumer report, is responsible for which of these follow-up actions with the applicant?

They are responsible for disclosing to the applicant all requests for reports, what each covers, and how to contact the reporting agency for a copy of a report. The FCRA requires the requesting agency (in this case the insurer) to notify the applicant that a report is being requested. What the report will cover must also be disclosed to the applicant. If the applicant is denied insurance based in part on a report, then the insurer must also provide the reporting agency contact information so that the applicant can request a copy of the report.

Which one of the following most correctly describes the basic tax treatment of deferred annuity death proceeds paid to a beneficiary before the contract is annuitized?

They are taxable to the beneficiary when received. Unlike life insurance death benefits, the death proceeds from an annuity are taxable to the beneficiary when they are received.

Agent Holly routinely charges her clients an extra amount in addition to the premium stated in the life insurance policy to cover her own personal administrative expenses. What is true about Holly's actions?

They are unlawful. It is unlawful to knowingly collect any sum as a premium or charge for insurance that is not provided for in the policy. Insurers and agents also may not collect more than the amount of premium stated in the policy.

Which one of the following statements about Multiple Employer Welfare Arrangements (MEWAs) is most correct?

They are usually created by employers in the same industry.

Straight whole life, limited pay whole life, and modified and graded premium whole life all share a common trait. What is that trait?

They offer fixed, "known in advance" premium amounts. Straight whole life, limited pay whole life, and modified and graded premium whole life all share a common trait: they offer fixed, "known in advance" premium amounts. That fixed amount may increase over time, as is the case with modified and graded premium policies.

Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy?

Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.

What is the main difference between decreasing term insurance and level term insurance?

Under decreasing term insurance, the death benefit decreases over the policy period while with a level term policy, the death benefit stays level over the policy period. Decreasing term and level term insurance differ mainly in the death benefit. Level term has a level death benefit for the entire policy period while the death benefit decreases over the policy term under a decreasing term insurance policy.

Term life insurance is well suited for all the following needs EXCEPT:

a source of emergency cash for any financial need. Because it only offers protection for a limited time, term life is best used for temporary needs that have a defined end-date. Term life is pure insurance, with no cash value (or "savings element") associated with it, making it unsuitable as a source of cash while the insured is alive.

Which one of the following most correctly describes a key difference between variable life and variable universal life insurance?

Variable life policies require a fixed premium payable for the life of the policy while variable universal life permits premium flexibility. Variable life policies have a fixed premium payable for the life of the policy. Variable universal life policies generally require a minimum first premium, but policyowners do not pay a fixed amount on a set schedule after this period.

All the following statements about life insurance accelerated benefit riders are correct, EXCEPT

When the insured dies, the accelerated payment has already been deducted from the proceeds. The insurer then pays the remainder to the beneficiary.

Which statement is TRUE of both Roth IRAs and traditional IRAs?

Withdrawals are both taxed and penalized when the owner is under age 59½. Roth IRAs and traditional IRAs differ in the limits of adjusted gross income at which full contributions are no longer allowed. Contributions to a traditional IRA are tax deductible, but those to a Roth IRA are taxed. Only persons age 50 and over can make catch-up contributions to their accounts. Funds withdrawn before the owner is 59 1/2 years old and within five tax years will be taxed and incur a 10% penalty on earnings. (Withdrawals for certain reasons may avoid the penalty.)

If Sam, who owns a deferred annuity, withdraws funds as a full or partial surrender before the contract annuitizes, what happens?

Withdrawals are taxable until accrued earnings have been fully withdrawn, at which point remaining withdrawals (of principal) are not taxable. If Sam withdraws funds as full or partial surrenders before the contract annuitizes, any withdrawn annuity interest earnings are taxable.

Which statement about cash value withdrawals from a universal life insurance policy is NOT correct?

Withdrawals incur interest charges. Universal life withdrawals do not incur interest charges.

Someone other than the insured often applies for and owns a life insurance policy. Which of the following can NOT be an applicant and owner?

a minor child of the insured: The applicant and owner cannot be a minor child.

According to the legal definition of life insurance, a contract must maintain a certain level of pure risk to be considered life insurance. This means that a life insurance policy must contain which of the following?

a corridor of insurance protection between the cash value and death benefit that depends on the insured's age. According to the legal definition of life insurance, a life insurance product cannot consist fully of cash value. The death benefit must be greater than the policy's cash value by a specified percentage. Up to age 95, the policy must contain a corridor of insurance protection, which depends on the insured's age.

Which of the following would provide instant liquidity upon the death of an estate owner?

a life insurance policy on the owner's life, payable to his estate: An investment with liquidity is easily converted into cash. Life insurance policies with cash accumulation features offer liquidity, as do policies that are payable at death to the insured's estate. In this case, the only asset with instant liquidity is the life insurance policy. The other assets can not be easily converted into cash.

Sylvia's insurer guarantees a fixed death benefit for the policy she owns. Based on this, which one of the following benefits is also most likely guaranteed with this policy?

a minimum rate of return on the policy's cash value. Sylvia's policy does guarantee a minimum rate of return on the policy's cash value.

At age 49, Caleb took a $15,000 distribution from his deferred annuity. In addition to paying income tax on the $15,000 withdrawal, what else will Caleb probably have to pay?

a penalty tax of $1,500: In addition to paying income tax on the $15,000 withdrawal, Caleb also pays a 10 percent penalty, or $1,500.

The convertibility provision of a term life policy lets the owner convert the term coverage into what type of policy?

a permanent life insurance policy. The convertibility provision of a term life policy lets the owner convert the term coverage into a permanent life insurance policy without proving insurability.

In most states, insurance companies can include a provision in their contracts that allows which of the following?

a provision that makes the acts or representations of the agent binding on the insurer. In general, acts of the agent are binding on the insurer. The insurer is the agent's principal.

Jones commits suicide 18 months after buying a life insurance policy that contains a standard suicide provision. Jones's beneficiary will get which of the following from the insurer?

a return of premiums paid, plus interest. Because the suicide occurred within the suicide exclusion period, the insurer will not pay the death benefit but will instead return the premiums paid, plus interest.

In accordance with Section 1035 of the Tax Code, a deferred fixed annuity may be exchanged on a tax-free basis for all the following types of products EXCEPT

a whole life insurance policy. Sec. 1035 permits the tax-free exchange of an annuity for any other type of annuity, but not for a life insurance policy.

Which one of the following best describes what an agent's goals should be in completing an application for insurance?

accuracy, thoroughness, and clarity: When completing an application for insurance, the agent must aim for accuracy, thoroughness, and clarity. From a legal point of view, the application must be completely clear, thorough, and accurate. However, the agent has an additional vested interest in being thorough and accurate when completing the application because the applied-for policy has a better chance of being promptly issued.

The Royale Insurance Company, headquartered in Toronto, Canada, conducts business legally in New York. In New York, Royale is a(n)

alien insurance company. An alien insurer is one that is domiciled in a different country

Under the code section 1035, which type of exchange CANNOT be exchanged tax-free?

an annuity for a life insurance policy: An annuity for a life insurance policy CANNOT be exchanged tax-free under a 1035 exchange. This is because annuity values are taxed when withdrawn or paid out.

Which of the following would be most appropriate for Haley, 55, if her primary objective is to ensure having an income she cannot outlive?

an annuity: Annuities provide benefits during one's life. They ensure that one's income cannot be outlived.

Based on the definition of a legal contract, which of the following statements represents an offer?

an application for coverage presented by the applicant with the first premium. An application for coverage presented by the applicant with the first premium constitutes a legal offer.

What type of annuity option pays income over a set number of years or in specified amounts?

annuity certain income option

What term is used to describe the amount a fixed annuity could provide per $1,000 of accumulated value under a straight life payout option?

annuity purchase rate.

Under an annuity, the annuitant is _________________?

any natural person: The annuitant is always a natural person. The annuitant cannot be a non-natural entity like a corporation.

An agent for ABC Insurance Company met with a client to talk about long-term care policies. The agent showed the client ABC's sample policies, referred to the ABC rate book, gave him an ABC business card, and told the client that ABC has given him unlimited binding authority. If the client assumes this is true, then which of the following describes the agent's authority in this case?

apparent authority. Apparent authority is authority that a third party (such as a prospect) assumes that an agent has, based on the agent's actions or words. The contract does not create this type of authority and the insurer does not intend it. In this case, the client could reasonably assume that the agent has unlimited binding authority because the agent has ABC Insurance Company's business cards, rate book, and sample policies.

Kevin owns a lapsed policy that was issued on a standard basis, but he has not chosen a nonforfeiture option. The insurer will do which of the following?

automatically apply the extended term option. If an owner of a lapsed policy issued on a standard basis does not choose a nonforfeiture option, then the insurer automatically applies the extended term insurance option.

Why do variable life policies carry charges and fees that traditional whole life policies do not?

because of the product's investment feature and the costs associated with separate account investing: Because of VLI's investment feature and costs associated with subaccount investing, the insurer may also charge a policy administrative expense or operational charge and a fee for the expenses incurred by the separate investment accounts' investment advisory fees.

Jeff and his wife Anne each took out life insurance policies. Jeff named Anne and his son Andy as joint beneficiaries; Anne named Jeff and Andy as joint beneficiaries. Ten years later, they divorced. Sixteen months later, Jeff suddenly dies of a heart attack. At the time of Jeff's death, the policy was in force, and no changes had been made. According to the concept of insurable interest, who collects the death benefit?

both Anne and Andy: Because the insurable interest existed at the time the policy was written, the named beneficiaries, Anne and Andy, share in the death benefit.

Any dividend greater than the amount required to buy the one-year term insurance is applied to the policyowner's choice of one of the other four basic dividend options. Which is NOT one of the four basic dividend options?

buying one-year term insurance: The additional dividend amount cannot be used to buy one-year term insurance. The additional dividend amount can be used to buy paid-up insurance additions.

Jason has owned a whole life insurance policy for seven years. If he takes a loan from the policy, the insurer

can charge a fixed interest rate of up to 10 percent annually.

Which of the following most correctly describes the nonforfeiture option(s) available with universal life insurance?

cash surrender option only. Universal life policies normally do not contain the standard nonforfeiture options. Universal life insurance policies remain in force as long as their cash value allows the insurer to make a monthly deduction to cover the policy's insurance and operational costs. If universal life still has cash values, cash surrender and cash withdrawal remain options.

Jerry asks his insurance company to pay him the cash value of his permanent life insurance and cancel the policy. Jerry is using which of the following nonforfeiture options?

cash surrender option. Under the cash surrender option, the owner surrenders the policy and the insurer pays the cash value to the policyowner in a lump sum.

Which of the following is a nonforfeiture option available under a whole life insurance policy?

cash surrender: Cash surrender is one of three nonforfeiture options offered. The other two are1. reduced paid-up insurance, and 2. extended term insurance.

What do covered employees receive to show they have coverage under a group life insurance policy?

certificate of insurance

Which of the following can be used as a funding vehicle for a traditional IRA?

certificates of deposit: Very few restrictions exist on the kinds of vehicles that can be used to fund a traditional IRA. For example, certificates of deposit, securities, annuities, and real estate are all permitted funding vehicles. However, life insurance and collectibles (such as artwork, stamps, rare books, or antiques) are not allowed.

Hannah participates in her company's retirement plan, which provides for 100 percent vesting after four years with no vesting prior to that. What is this type of vesting schedule called?

cliff vesting. Under a cliff vesting schedule, the participant is 0 percent vested in a plan's contributions or benefits for the first four years of participation. Then, in the fifth year, he or she is 100 percent vested. For plans with employer matching contributions, cliff vesting is reduced to a three-year schedule.

The agent's primary responsibility(ies) during field underwriting is to

collect the right data from the applicant and disclose the insurer's underwriting and policy issue practices to the applicant. The two most important duties that the agent performs during field underwriting are to collect the right data to help the insurer decide whether to accept the application; and to disclose information about the insurer's underwriting and policy issue practices.

The agent's primary responsibility(ies) during field underwriting is to

collect the right data from the applicant and disclose the insurer's underwriting and policy issue practices to the applicant.The two most important duties that the agent performs during field underwriting ar to collect the right data to help the insurer decide whether to accept the application; and to disclose information about the insurer's underwriting and policy issue practices.

Steven is filling out an application for life insurance. The application asked whether he had ever had heart problems. Steven intentionally skips this question even though he had heart surgery three years ago because he is afraid his application will be denied. What is the term for Steven's failure to give his entire medical history?

concealment. Concealment is deliberately withholding material facts when applying for insurance. If the concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer can void the insurance contract.

The biggest drawback to the human life approach to determining how much personal life insurance to buy is that it doesn't

consider the family's actual financial needs for the future: The biggest drawback to the human life approach to determining how much personal life insurance to buy is that it doesn't consider the family's actual financial needs for the future.

Medical expense insurance policies are typically what type of contracts?

contracts of indemnity. A medical expense insurance contract is a contract of indemnity. This means that the benefit cannot exceed the contract owner's actual loss (or the policy's maximum benefit amount, if less). A valued contract, such as a life insurance policy, pays a stated amount regardless of the amount of the loss.

Conrad obtained a life insurance agent's license primarily to write insurance for his family members and friends. Which unfair trade practice has Conrad engaged in?

controlled business. The Department will not grant or continue a license if it believes that an agent will use the license primarily to engage in controlled business. Controlled business is insurance that is written primarily on the lives, property, or risks of the agent or of the agent's family members, employer, or business associates.

At the end of a contract period, market value adjusted annuity owners can do all of the following, EXCEPT

convert to a variable annuity: At the end of a contract period, an MVA owner can stay with the same rate, move to another contract period, or withdraw funds. Converting to a variable annuity is not an option.

Which of the following actions does the insurer take on a universal life insurance's monthly deduction day?

deducts the cost of insurance and any expense charge: The insurer deducts the cost of insurance and any expense charge from the universal life policy's cash value.

When underwriting group life insurance, the underwriter can offset the risk of loss posed by the group by doing all of the following, EXCEPT

denying insurance coverage to any person with a pre-existing condition. Although underwriters cannot deny coverage to someone who has a pre-existing condition, they can exclude coverage for a pre-existing condition for a specified period only. This helps offset the risk of loss posed by the entire group.

An agent is using the needs approach to calculate the amount of life insurance that a person should have. What is the agent's first step?

determine the survivor's immediate and ongoing need for income when the insured dies. Before an agent can determine how much insurance a person needs and the type of policy that is most appropriate, the agent and client need to categorize the client's needs. There are two basic categories of needs: the need for a lump-sum cash amount immediately after the insured's death and the need for an ongoing source of income for the future.

Which of the following statements is TRUE under a universal life insurance policy's death benefit Option 1? Increases in cash value ____________________.

do not increase the death benefit: Under a universal life insurance policy's death benefit Option 1, increases in cash value, do not increase the death benefit paid at the insured's death.

When a person buys a fixed immediate annuity or when a fixed deferred annuity is annuitized, the funds are converted into fixed payments. They are then distributed based on the payout option the owner has selected. Which of the following options most correctly describes the basis upon which the annuity payment amount is determined?

dollars per $1,000 of accumulation, based on the payout option. The payments are defined in terms of dollars per $1,000 of accumulation, based on the payout option.

Policy dividends are not taxable unless they are

earning interest: Policy dividends are taxable when the dividends earn interest. In this case, the interest earned on the dividends is taxable.

In a participating policy, the insurance company pays the policyowner a dividend out of which of the following?

earnings available for distribution (the divisible surplus). Insurance companies do pay dividends out of the company's earnings that are available for distribution (the divisible surplus).

Polly bought a long-term care rider. She becomes eligible for its benefit if she is diagnosed as chronically ill and the diagnosis is the result of which of the following?

either a medical or cognitive (mental health) reason: An insured who buys a long-term care rider becomes eligible for its benefit when he or she is diagnosed as chronically ill for a medical or cognitive (mental health) reason.

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal?

either the contract's accumulated value or the amount of premium the owner invested, whichever is greater. The death benefit typically equals either the contract's accumulated value or the amount of premium the owner invested, whichever is greater.

What must an agent do to figure out a family's lump sum needs if the breadwinner dies?

estimate the amount of cash needed to pay debts, taxes, and funeral expenses: To determine a family's lump-sum needs at the breadwinner's death, the agent must estimate the amount of cash that survivors would need immediately to pay debts, taxes, and funeral expenses, as well as the amount needed for emergencies, dependent care, and education.

Jerry owns a life insurance policy with premiums payable directly to the insurer's home office. However, for the past five years Jerry has sent his payments to his agent, who then forwards them to the insurer. The insurer had accepted this arrangement but later requires Jerry to send payments directly to the home office. The insurer will probably not be able to insist that Jerry pay directly because of which of the following legal principles?

estoppel

In a modified endowment contract, the life insurance policy's cash value grows more quickly than is permitted by the Tax Code, which results primarily from which of the following?

excessively large premiums being deposited into the contract during the first seven years or less

Most states permit insurers to include a provision in their life insurance policies that does which of the following?

excludes coverage of death that occurs while the insured is operating an aircraft. Life insurance policies may exclude coverage for aviation and hazardous occupations and hobbies. If the aviation exclusion is included, then it excludes paying a death claim if the insured was involved in operating an aircraft as a crew member.

According to the rules governing how annuitized income is taxed, the interest portion is taxed and the principal is not. Which phrase explains how this division is achieved?

exclusion ratio: According to the rules governing how annuitized income is taxed, the interest portion is taxed and the principal is not. This division is achieved through the exclusion ratio.

Which of the following is added to the net single premium during loading to produce the gross premium amount?

expenses and contingencies: The actuary adds an amount for expenses and contingencies called "loading" to produce the gross premium.

The owner of a policy that was issued on a standard basis has not chosen a nonforfeiture option. The policy has now lapsed.Which nonforfeiture option would the insurer automatically apply according to common practice?

extended term insurance: Common practice is for the insurer to apply the extended term insurance option. This occurs automatically if the owner of a lapsed policy issued on a standard basis fails to elect one of the nonforfeiture options.

Which of the following features is the same for ordinary whole life, modified premium whole life, and graded premium whole life policies of the same amount?

face amount: The face amount is the same for ordinary whole life, modified premium whole life, and graded premium whole life policies of the same amount.

To qualify for Social Security disability benefits, a worker must satisfy a waiting period of how many months?

five months

Agents and insurers must maintain records of their insurance transactions for at least how long?

five years. Agents and insurers must keep records of their insurance transactions at their place of business for at least five years after the transaction was completed.

Agent Adams met with Shirley, an elderly client, to discuss variable annuities and other insurance products. For how long must he keep records of the information he collects from Shirley that he uses to make annuity recommendations?

five years. Insurers and agents must keep records of the information collected from a consumer and used in making annuity recommendations for five years.

The Office of Insurance Regulation can examine the business transactions, accounts, and records of domestic insurers as often as necessary, but must do so at least once every how many years?

five years. The Office of Insurance Regulation can examine the business transactions, accounts, and records of domestic insurers as often as necessary, but must do so at least once every five years.

If a group health insurance policy terminates, an employee can elect to convert coverage provided he or she has been insured under the plan for how long before it terminates?

five years. To be eligible to convert to an individual policy, an employee or member must have been continuously insured for at least five years before the date of termination.

Market value adjusted annuities and equity-indexed annuities are which of the following?

fixed annuities.

The Excalibur Insurance Company, headquartered in Iowa, conducts business legally in Nebraska. In Nebraska, Excalibur is a(n)

foreign insurance company. A company that does business in states other than the one in which it is domiciled is classified as a foreign company in those states.

What type of organization is a non-profit entity that operates on the lodge system, has no capital stock, and sells insurance mainly to its members?

fraternal benefit society. A fraternal benefit society is a nonprofit entity that operates on the lodge system, has a representative form of government, has no capital stock, and sells insurance primarily to its members.

The Grand Halvorson Lodge has 250 members, united by a common Danish heritage. For 50 years they have also run an annual carnival for the purpose of sponsoring families in need of medical care for their children. All the money brought in through dues and fund-raising events is used to support their non-profit work with needy families. The Grand Halvorson Lodge offers life insurance to its members. What type of insurer is it considered?

fraternal benefit society: The members of a lodge or fraternal organization can provide life insurance for their members.

A type of not-for-profit insurance provider that is operated by an organization that has a representative form of leadership, operates on a lodge system, and exists solely for the benefit of its members and their beneficiaries is called a

fraternal insurance company. Sponsored by fraternal societies, fraternal insurers are not-for-profit organizations that specialize primarily in life insurance and annuity products that are usually available only to the society's members.

What unfair trade practice has a person committed if he knowingly and with intent to defraud files an insurance claim that is false?

fraud. A person commits insurance fraud if he or she submits an insurance application that contains false, incomplete, or misleading information.

Which of the following holds an insurance company's undivided investment account and the funds that support the contractual obligations of the insurer's fixed and guaranteed products?

general account. The general account is the company's undivided investment account. It holds the funds that support the contractual obligations of the insurer's fixed and guaranteed products, such as whole life insurance policies and fixed annuities.

Frank, an applicant for life insurance who is a substandard risk, can expect to pay a premium that is best described as which of the following?

generally higher premiums than for a standard risk. Sub-standard risks generally pay higher rates (all other factors being equal) than standard risks, reflecting the higher risk they represent to the insurer.

Agents must act in the best interests of applicants and insureds. What does this require them to do?

give all important information about a proposed policy. Agents must act in the applicant's or insured's best interests at all times. This means that agents must give all important information about a proposed policy. Also, they cannot misrepresent the terms or conditions of a proposed policy.

Which action must a life insurance policyowner take to assign his or her rights in a policy to a third party?

give written notice to the insurer of the assignment. The assignment provision sets the procedures that a policyowner must follow in order to transfer ownership rights to a third party. Typically, policyowners must notify the insurer in writing of the assignment, and the company will accept the transfer.

Whittier Insurance Company is a newly incorporated insurer in Florida. In which of the following investments would it typically NOT be allowed to invest?

gold and currencies. Insurers may typically invest in corporate bonds, cash equivalents, interest-bearing securities, mortgages, real estate, policy loans, and obligations of federal, state, and local governments. Insurers may also invest in the common stock, preferred stock, debt obligations, and other securities of a subsidiary.

If the Alpha-Omega Corporation wants to provide life insurance for all its full-time employees, it will most likely buy which of the following?

group insurance

Lisa is a producer for an insurance company that sells its products to the general public and which specializes in life insurance policies designed for burial and last expense purposes, generally with face amounts of $10,000 or less, for which she oftentimes collects premiums weekly. Lisa most likely represents a(n)

home service insurance company. Traditionally called industrial life insurance companies, home service companies specialize in affordable policies with relatively modest face amounts, for which premiums are often collected weekly.

To determine the amount of insurance that a client should buy, an agent estimates the person's earnings each year until retirement and deducts from that amount the costs of self-maintenance and income taxes. The result is the residual income needed to provide for family members. In this case, the agent used which of the following approaches?

human life value approach

An insurance product characterized by small coverage amounts, with premiums paid on a weekly or monthly basis, and a death benefit but no living benefits, is called a(n) _________ policy.

industrial insurance: An industrial insurance policy offers individual coverage in small amounts usually around $1,000 to $2,000, with premiums paid frequently. Since little cash value accumulates, these policies do not offer living benefits.

What type of information is typically found in the agent's report?

information about any prior insurance policy, if the new coverage is a replacement policy: The agent's report is the primary source for information about any prior insurance policy, if the new coverage is a replacement policy. The agent may also be able to identify other policies the applicant has.

The federal Risk Retention Act of 1986 contains guidelines for which of the following entities?

insurance companies that provide self-insurance services to its owner-members. A risk retention group (RRG) is a form of insurance company that provides self-insurance services to its owner-members which all have a business, occupation, or professional relationship with one another. RRGs are a relatively new type of insurer, born out of the federal Risk Retention Act of 1986. The Act requires that an RRG follow the insurance laws of at least one state.

If the parties disagree over the terms of an insurance contract, courts will typically interpret anything unclear in the contract in favor of which party?

insured. Because the insurer drafts the insurance contract and offers it to the applicant "as is," applicants have little or no ability to change the terms of the policy. As a result, courts typically rule in favor of a policyowner if policy provisions are not clear.

By submitting an application without the first premium, Larry is doing which of the following?

inviting the insurer to make an offer. When Larry submits an application without the first premium, he is inviting the insurer to make an offer.

What are the responsibilities of the Office of Insurance Regulation and the Department of Financial Services?

issuing rules and regulations to administer the insurance laws. The Department of Financial Services and the Office of Insurance Regulation are responsible for issuing rules and regulations to administer the insurance laws.

ABC Company operates as a viatical settlement provider in Florida. For which of the following reasons can the Office of Insurance Regulation suspend or revoke ABC's license?

issuing viatical settlement contracts that were approved in Texas but not Florida

Mark and Mary buy a deferred annuity and choose a joint and survivor option. When they annuitize the contract, Mark receives a monthly income of $1,200. Under which of the following would Mary receive a monthly income of $600 for life?

joint and one-half survivor. In a joint and one-half survivor option, after the first annuitant dies, the survivor's income is reduced to one-half of the original amount.

Under which settlement option is an income paid until the second of the two annuitants dies, and at the second death, no further payments are made to anyone?

joint and survivor life income: Under a joint and survivor life income option, an income is paid until the second of the two annuitants dies. When the second annuitant dies, no further payments are made to anyone.

This term is the principle that the greater the number of incidents of a random process, the more likely that the expected number of incidents and the actual numbers of incidents will be the same.

law of large numbers: The law of large numbers describes the principle that the greater the number of incidents of a random process, the more likely that the expected number of incidents and the actual numbers of incidents will be the same. This fact allows the insurer to predict the extent of risk.

Dave wants a life income settlement option that pays him an income for life. In addition, if he dies before the annuity's cash value has been paid out, he wants to make sure that his beneficiary receives the balance of cash value that remains as a lump sum. Which settlement option does Dave want?

life income with refund guarantee: The life income with refund guarantee pays the annuitant an income for life. In addition, if the annuitant dies before all cash value has been paid out of the annuity, it promises to pay a beneficiary the balance of cash value that remains.

As whole life insurance policies mature, they build cash value, which can be accessed through loans, withdrawals, or policy surrender. What is the ability to use a policy's cash value in these ways generally called?

living benefit: While living, the policyowner can access the policy's cash value through loans, withdrawals, or policy surrender. These are the living benefits of permanent life insurance ownership.

Which of the following life insurance riders provides financial support for medical care, nursing home care, and assisted living care for extended periods?

long-term care rider: The long-term care rider provides financial support for medical care, nursing home care, and assisted living care for extended periods.

Which of the following is the main appeal of joint life insurance compared to two separate policies?

lower cost. The main appeal of joint life insurance is its lower cost. The premium is less than it would be for two separate policies offering the same death benefit.

When an insured dies, what are the two main categories of needs that arise?

lump-sum needs and ongoing income needs: When an insured dies, the two most basic categories of needs that arise are immediate needs that require a lump-sum cash amount (such as to pay final expenses and estate taxes) and an ongoing income stream to cover monthly expenses.

Jana applied for a life insurance policy and submitted the initial premium with her application. When Acme Insurers reviewed Jana's application, it decided to offer her a modified policy at a higher premium. In this case, Acme Insurers has done what?

made a counteroffer to Jana. When an insurer issues a policy on a basis other than as applied for, the insurer has rejected the applicant's offer and made a counteroffer. In this case, Acme Insurers did not accept Jana's application but offered her a modified policy at a higher premium. Acme therefore made a counteroffer that Jana can either accept or reject.

An applicant for a $500,000 whole life insurance policy pays the initial premium along with his application. In this case, what has the applicant done?

made an offer to the insurer. When an applicant gives an application to the insurer along with the first premium payment, the applicant has made an offer to the insurance company. The insurance company reviews the application and decides whether to accept the risk the applicant poses. If the insurer accepts the application, the insurer has accepted the offer. In contrast, when an applicant submits an application without the first premium, the applicant has invited the insurer to make an offer.

When Tom, an agent for ABC Insurance, receives an approved policy, he MUST do all of the following, EXCEPT

mail the policy to the applicant and offer to review it at the agent's office at a later date. While the agent can simply mail the policy to the policyowner, in practice it is recommended that policy delivery be made in person.

Before selling an annuity, an agent must make reasonable efforts to obtain information about the prospect with respect to all of the following EXCEPT:

marital status. Before selling an annuity, an agent or insurer must make reasonable efforts to obtain information concerning the consumer's financial status, tax status, investment objectives, and other information considered to be reasonable in making recommendations to the consumer.

When asked about the payment of dividends by a prospect, Agent Maloney states that policy dividends are always guaranteed, even though they are not. Which unfair trade practice has the agent committed?

misrepresentation. It is considered misrepresentation to circulate misleading information about an insurance contract, such as by assuring policyholders that they will receive future dividends when they are not guaranteed.

What are policies that do not meet IRC Section 7702's definition of life insurance generally called?

modified endowment contracts (MECs). A policy that does not meet Code Section 7702's definition of life insurance is considered a modified endowment contract, or MEC.

Which one of the following do actuaries use to predict the likelihood of an individual dying at any certain age in the premium rate-making process?

mortality. Mortality is the element of premium rate-making that reflects the rate of death of prospective insureds.

During the accumulation stage, an annuity contract owner normally has the right to

name the annuitant and the beneficiary and receive some or all of the cash value in a partial or complete surrender of the contract. During the accumulation stage, an annuity contract owner normally has the right to name the annuitant and the beneficiary and receive some or all of the cash value in a partial or complete surrender of the contract.

Which of the following groups would not be eligible for group life insurance?

neighborhood groups. Employers, associations, and credit unions are all eligible groups for life insurance purposes.

The premiums the Acme Company pays for business life insurance on the lives of a business owner or key executive are generally

not tax deductible: Premiums a business pays for business life insurance on the lives of a business owner or key executive are generally not deductible.

When Terry applied for his life insurance policy four years ago, he omitted any information in the application related to treatment he had received several years earlier for a serious chronic illness. Which of the following actions can the insurance company take when it learns of the omission?

nothing. After a policy has been in force for two years, it becomes incontestable with respect to the truthfulness of any statements that the policyowner made in the insurance application.

When a producer determines that the sale of a life insurance policy will replace an existing policy, the producer must do all of the following EXCEPT

notify the state insurance department. A producer is not required to notify the state insurance department of a transaction that involves the replacement of a life insurance policy.

An agent is figuring out how much money a surviving family would immediately need when an insured dies. The agent must estimate the amount of money that they would need immediately to pay for all of the following, EXCEPT

ongoing monthly expenses: In addition to lump sums that will be needed immediately when an insured dies, the surviving family will also typically need an ongoing income stream later on to pay for daily and monthly expenses.

George buys a participating life insurance policy. A dividend is paid this year, and George wants to use it to purchase small single premium amounts of life insurance. Which dividend option has he selected?

paid-up additions. Dividends from participating life insurance policies can also be taken in cash or used to purchase paid-up additions to the policy's face value, accumulate at interest for future use, or purchase one-year term insurance.

If a payee dies before the end of a fixed-period settlement option, what can the insurer do?

pay a contingent payee the pre-set payment amount until the fixed period ends: If a payee dies before the end of a fixed-period settlement option, the insurer continues to make the pre-set payments to a contingent beneficiary until the end of the period. Or, the insurer can pay the contingent beneficiary the current value of the remaining amount in a lump-sum. (This latter option would include principal plus interest to the end of the period.)

Will has held his traditional IRA for three years. Now he wants to convert his $105,000 traditional IRA to a Roth IRA before he turns 60. His adjusted gross income for the year is $90,000. What is he required to do?

pay the income taxes on the IRA amount moved into the Roth IRA: Will has put his money in an IRA, where contributions plus earnings have built up tax-free. Now he must pay the income taxes on the IRA funds he moved into the Roth IRA. He is not required to pay a 10 percent penalty for withdrawing funds from his traditional IRA before age 59½.

An agent's license can be suspended or revoked for all of the following reasons EXCEPT:

paying commissions to a licensed agency. A life insurance agent's license may be suspended or revoked for all of the listed reasons except for paying commissions to a licensed agency with which the agent is affiliated.

Henry wants to buy a rider to waive the premiums he pays on his son's life insurance policy. Henry wants to do this in case he were to become totally disabled and were unable to make those premium payments. What type of rider does Henry need?

payor benefit: Under the provisions of the payor benefit rider, the premium payor's total disability before a specified age—usually age 55 or 60—will result in the premiums on the juvenile's policy being waived for the duration of the total disability.

Which of the following is considered a defined benefit plan?

pension plan: Defined benefit plans define the future benefit the employee is to receive. The benefit is typically paid monthly and usually for life. Accordingly, monthly employer contributions to a pension plan fund the future benefit.

The beneficiary designation in which the proceeds of a policy are paid only to the beneficiaries who are alive and have been named in the policy, and the beneficiary's share is not passed down to his or her children is called

per capita: Per capita designations mean that proceeds of the policy are paid only to the beneficiaries who are alive and have been named in the policy. The share of a per capita beneficiary is not passed down to his or her children. Instead, the share is paid to the policy's other named beneficiaries.

Which of the following is NOT recognized as a standard life insurance nonforfeiture options?

policy loans.

Andrea owns a participating life insurance policy, which means that the insurer will pay dividends to whom?

policyowners from company surplus. A participating life insurance policy pays dividends to policyowners from company surplus. The dividends are considered a return of premium based on the insurance company's financial success but are not guaranteed. Under a participating policy, the insurer must annually ascertain and apportion the divisible surplus, if any, beginning no later than the end of the third policy year.

Under this dividend option the dividend is kept by the insurance company and used to lower the amount of the next premium due. What is this dividend option called?

premium reduction option: Under the premium reduction option, the dividend is kept by the insurance company and used to lower the next premium due.

Which of the following features of an adjustable life insurance policy requires the agreement of both the insurer and the policyowner to change?

premiums only: It's important to understand that with an adjustable life insurance policy, any change in the premium requires a formal adjustment to the policy. Both the policyowner and the insurer must agree to the change before it can be made.

In which annuity situation are taxes NOT applied?

premiums paid into a individually owned annuity plus the interest that accumulates while funds remain in the annuity: Taxes are not applied to premiums paid in plus the interest that accumulates while funds remain in an individually owned annuity.

Brad invested $8,000 in a savings plan that lets him lock in the cost of a future college tuition at today's prices. What type of plan is this?

prepaid tuition plan. Brad invested in a prepaid tuition plan, which lets him pre-pay a child's education at today's tuition rates.

When an insurance company cedes part of an insurance risk to another insurance company, the process is known as

reinsurance: When an insurance company wants to transfer some or all of the risks represented by its insureds, the process is known as reinsurance. The company accepting the risk being transferred is the reinsurance company.

The primary reason for using third-party ownership in personal life insurance for estate planning purposes is to

remove the value of the life insurance proceeds from the insured's estate. Done correctly, third-party ownership of life insurance removes the value of the life insurance proceeds from the insured's estate.

Which activity is NOT prohibited by the Code of Ethics?

replacement. The Code of Ethics addresses four main activities: misrepresentation, twisting, rebating, and defamation.

Genevieve wants to renew her Florida insurance agent's license. Which of the following is not a condition for renewal?

report of insurance sales made in the last two years. To continue a license, an agent must submit a renewal form, satisfy the continuing education requirements, and pay the required fee.

What are statements made in a life insurance application?

representations

The Commissioner of the Office of Insurance Regulation issued an order prohibiting Agent Theo from describing himself as a financial planner and senior insurance expert in his advertising materials. Agent Theo continues to use the marketing materials, despite the order. Which penalty may the Commissioner NOT impose?

restitution. If a person violates a cease and desist order, the Department or Office may impose a fine of up to $50,000, suspend or revoke the person's license, or impose a fine and suspend or revoke a license.

Which of the following risk management techniques best describes the role of insurance?

risk transfer. Risk transfer—transferring the loss to a third party—is the basis for most forms of insurance today. Through risk transfer an individual or business transfers the risk of loss to an insurance company in exchange for the payment of a premium.

Which one of the following is an additional charge imposed by an insurer to recover the cost of getting new business?

sales load

The banding together of individuals who collectively agree to cover a loss suffered by any group member is the definition of which method of handling risk?

share the risk: Under risk-sharing each member of a group agrees to share the financial burden of a loss that could be suffered by any member.

In a collateral assignment, policyowners may (or must) do all the following, EXCEPT

surrender the policy.

Bob's only goal is to provide a death benefit to protect his family in case he dies while his children are young. What type of life insurance is best suited to this need?

term insurance: Under a term policy, insurance coverage is temporary, applying to only a limited period of time. At the end of that time, the policy expires. The policy pays a death benefit only if the insured dies during the term.

Generally, a family protection policy provides whole life insurance coverage for the principal insured and the following coverage for other family members?

term life insurance for the spouse to age 65 and each child to age 21: Generally a family protection policy provides whole life insurance coverage for the principal insured; term life insurance coverage on the spouse to age 65; and term life insurance coverage on each child to age 21.

A policy's effective coverage date begins on

the date of the receipt of a first payment or the date of a medical exam, if required. The date of the receipt of a first payment or the date of a medical exam, if required, controls when the insurance coverage goes into effect. A binding or conditional receipt identifies this date when the premium is submitted with the application. If the premium is not submitted until the policy is delivered, the date the applicant pays the first premium is still the effective date of coverage.

When does the free look period begin?

the date the policy is delivered to the owner: The free-look period begins on the date that the policy is delivered to the policyowner. If the policyowner is not satisfied for any reason, he or she can return the policy for a full refund of the premium paid.

Who has the first right to choose how the proceeds of an insurance policy are paid out when the insured dies?

the policyowner: According to the Payment of Claims provision, the policyowner has the first right to choose which payout or settlement option to use. However, he or she can defer that decision to the beneficiary at the time that the proceeds are due to be paid out.

All the following are characteristics of a stock insurance company EXCEPT

they are owned by policyowners. Stock insurance companies are owned by stockholders. Mutual insurance companies are owned by their policyowners.

What is the typical life insurance contract's reinstatement provision period?

three years, but may be longer depending on the case and the laws of the state that control the policy. The reinstatement provision lets policyowners put a lapsed policy back in force within a certain period. This period is typically three years but may be longer depending on the case and the laws of the state that control the policy.

Which of the following is NOT a use for permanent life insurance?

to allow the beneficiary to borrow against the future proceeds to pay the beneficiary's debts while the insured is still living: The beneficiary has no rights to the life insurance proceeds while the insured still lives. Therefore, he or she cannot borrow against the policy's future proceeds to pay his or her own debts.

The purpose of Tom's life insurance policy's rights provision is which of the following?

to establish Tom's rights as policyowner and the conditions under which he can exercise those rights. A life insurance policy's rights provision establishes the rights of the policyowner and the conditions under which he or she can exercise those rights.

What is the purpose of surrender charges in universal life insurance policies?

to recover the insurer's business acquisition costs: The purpose of surrender charges in universal life insurance policies is to recover the insurer's business acquisition costs.It is not unusual, considering first year commissions, field expenses and underwriting expenses, for the acquisition cost of new business to be 150% or more of the first year premium. These business acquisition costs can be recovered by the insurer through deductions from each premium, the imposition of surrender charges, or both premium deductions and surrender charges.

Settlement options can be based on the length of the joint lives of which of the following?

two or more annuitants: Settlement options can be based on the length of the joint lives of two or more annuitants.

Which of the following is NOT a permitted investment for a domestic insurer in Florida?

viatical contracts. Insurers may invest in corporate bonds, cash equivalents, interest-bearing securities, mortgages, real estate, policy loans, and obligations of federal, state, and local governments.

Which of the following contract characteristics is unique to insurance contracts but not all contracts?

unilateral. All legally enforceable contracts must contain an offer, acceptance, and consideration. The contract must also be for a legal purpose and between parties that are legally competent. In addition to these elements, insurance contracts have their own unique elements. For example, they are unilateral contracts because only one party-the insurer-makes an enforceable promise.

Which type of life insurance policy allows withdrawals?

universal life insurance: Universal life insurance policies allow withdrawals from their cash values; whole life policies do not allow withdrawals.

Miguel purchased a permanent insurance policy that lets him vary premium payments and adjust the death benefit over the policy's term. After owning the policy for fifteen years, the policy's cash values had grown to the point that he decided not to pay premiums for the next six months. What type of policy does Miguel own?

universal life. Universal life insurance is a flexible premium product that contains renewable term insurance and a cash value account. As long as the policy's cash value is sufficient to cover the monthly mortality and expense cost deductions, the policy will continue in force, regardless of whether the policyowner pays a scheduled premium or not.

Under the integrated long-term care option, what percentage of the base policy's face amount can be used for long-term care expenses?

up to 70 to 75 percent, depending on the insurer. The insured can use up to 70 to 75 percent of the face amount for long-term care expenses.

The requirement that an insurable interest must exist when life insurance is purchased is intended to prevent people from doing which of the following?

using life insurance for wagering or betting

Which type of annuity DOES NOT guarantee a minimum rate of return?

variable annuity: Under a variable annuity, the insurer makes no guarantees regarding either the annuity's principal or the credited interest rate.

A whole life insurance policy accumulates cash value as it matures. When does this value equal the policy's death benefit?

when the insured reaches age 100, under most policies. As permanent life insurance policies mature, they accumulate cash value. This value equals the policy's face amount or death benefit when the insured reaches age 100 (or age 95, with some policies).

When is a whole life insurance policy designed to mature or endow?

when the policy's cash value equals its face amount. A whole life insurance policy is designed to mature or endow when the insured reaches age 120. At this age, the cash value of the policy has accumulated so that it equals the face amount of the policy.

With a survivorship life insurance policy, the insurer pays the death benefit only

when the surviving spouse dies. Survivorship life insurance policies insure more than one person and pay the death benefit on the death of the surviving spouse, regardless of which insured dies first or second.

When are partial withdrawals taxable?

when withdrawals exceed the dollar amount of the premiums paid into the policy. Partial withdrawals are not taxable until they exceed the dollar amount of premiums that were paid into the policy. At that point, the withdrawals are taken from the interest earnings, which are taxable.

What are the responsibilities of the Office of Insurance Regulation and the Department of Financial Services?

whether the policy pays dividends to its owner. The participating/non-participating classification determines whether the policy pays its owner a dividend.

Harry and Constance want life insurance to provide death benefits in case either dies, as well as living benefits in the event of financial emergencies. Which of the following would this couple most likely buy?

whole life insurance: Whole life insurance pays death benefits for the insureds' lifetimes, or until age 100. Whole life policies also accumulate cash values, which grow over the life of the policy. These are the "living benefits" Harry and Constance are seeking.

What does a family life insurance policy offer?

whole life on the primary insured and term life insurance coverage on the spouse and each child to age 21.

ABC Life Insurance Co. sells term and whole life insurance policies through agents. If it sells a policy, it must give the customer the right to examine the policy for at least how long?

14 days. Life insurance policies must provide for a free-look period of at least 14 days after the policy is delivered to the policyowner. If unsatisfied with it for any reason, the policyowner or contract owner can return it to the insurer for a full refund of the premium paid.

Frank's first income payment is $1,950. The value of each accumulation unit in each of the subaccounts in Frank's contract is $10. How many annuity units does Frank have?

195. The $1,950 first payment divided by $10 is 195 annuity units. This number stays constant. Frank's contract will forever have 195 annuity units.

Endowment contracts issued today no longer qualify as life insurance (for tax purposes), but those issued before what date were grandfathered and still retain favorable life insurance taxation?

1986. Endowment contracts issued before 1986 were grandfathered and many continue in force today.

How long from contract signing and issue does an insurance company have to discover and void an insurance policy due to fraud?

24 months. The time during which an insurer can void an insurance company on the basis of fraud is typically limited to two years from the date the contract was signed and issued.

In a universal life insurance policy, why are the three factors central to the policy—mortality, interest, and expenses—considered to be "unbundled?"

As separate policy elements, they individually impact the universal life insurance policy and allow much of its flexibility. In a universal life insurance policy, the three factors central to the policy—mortality, interest, and expenses—are considered to be "unbundled" because as separate policy elements, they individually impact the universal life insurance policy and allow much of its flexibility.

What must an annuity owner do to withdraw funds from his or her annuity contract?

Ask the insurer: An annuity owner who wants to withdraw any values from his or her contract must simply notify the insurer. The insurer cannot withhold these funds or refuse to honor the owner's request.

John owns a whole life insurance policy with a $250,000 death benefit. Over the years, the policy's cash value has grown to $25,000. All the following statements regarding this are correct EXCEPT

At John's death, the beneficiary receives the policy's cash value plus its face amount.

Which of the following best describes the bring back rule?

If an insured dies within three years after transferring life insurance to a third party, the policy death benefits become part of the insured's estate for tax purposes. If the insured dies within three years after transferring the policy to a third-party owner, the policy death benefits become part of the insured's estate for tax purposes.

Which of the following statements regarding joint life insurance and survivorship life insurance is not true?

Joint life insurance is especially popular in the estate planning market.

Donna, age 40, buys a $200,000 straight whole life policy. Her best friend, Kara, buys a $200,000 20-pay life policy. Which of the following statements is correct?

Kara's policy will build cash value more quickly than Donna's policy while she is paying premiums. When compared to Donna's policy, Kara's policy will build cash value more quickly while premiums are payable.

Settlement options with life contingencies all involve income payments that last a ____________.

Lifetime: Settlement options with life contingencies all have a common element: they involve lifetime income payments. These are income payments that the payee cannot outlive.

Which of the following best describes the premium tax insurance companies must pay when they receive premiums?

Most companies pass this tax on to their policyowners in some way, either directly or indirectly. It is a state tax that most companies pass on to their policyowners in some way, either directly or indirectly.

Allen chose the life income with ten-year certain settlement option for his life insurance. When Allen died, his beneficiary, his wife, Fran, received income from Allen's death proceeds for six years. When Fran died, payments continued to Allen's contingent payee, his son, Vern, for another four years. What would have happened if Fran had lived beyond the guarantee period?

Payments would continue until Fran died and then be discontinued. Under the life income with term certain, a payee receives income payments for life. However, he or she is guaranteed that the payments will be made for a specified term. For example, a life income with ten-year term certain provides payments to the payee for life. It also guarantees that those payments will be made for at least ten years. So, if the payee died six years after payments begin, then payments will continue to a contingent payee for the remaining four years of the term. If the payee lives beyond the guarantee period, payments will continue until he or she dies.

Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. If Judy's life insurance policy designates the death benefit be paid "per stirpes," how will the insurer distribute the policy benefits?

Ralph's $200,000 share will pass equally to his two children when Judy dies. The surviving siblings, Jerry and Paula, will each receive $200,000. Under a per stirpes designation, Ralph's $200,000 share will pass equally to his two children when Judy dies. The surviving siblings, Jerry and Paula, will each receive $100,000.

Term insurance that may be extended at the end of the term for an additional period without requiring the insured to present proof of insurability is known as _____ term insurance.

Renewable: Renewable term life insurance is term insurance that may be extended at the end of the term period for an additional term period without requiring proof of insurability.

Which of the following best illustrates risk transfer?

Robert purchases life insurance because he figures doing so is far less expensive than trying to save all the money his survivors would need upon his death. Purchasing insurance is a risk transfer technique, because it transfers to a third party (the insurer) the financial risk associated with premature death.

Which of the following plans accept contributions from employers but does not accept contributions from employees?

SEPs: SEP plans do not accept employee contributions. The employer sets up individual retirement accounts (IRAs) for each participating employee and makes contributions to them.

Which of the following plans replaces the SAR-SEP which is no longer offered?

SIMPLE: When the tax laws got rid of SAR-SEPs, they replaced them with SIMPLE plans. SIMPLE plans are designed solely for small businesses.

Joanna has a $500,000 permanent life insurance policy that she no longer wants to keep in force. In order to enter into a viatical settlement, what must Joanna prove?

She is terminally or chronically ill.

Which of the following statements about buy-sell agreements is correct?

The entity who buys the business owner's interest is usually a partner, co-stockholder, or the business itself. Because of this agreement, the business owner's death creates a need for cash with which to complete the promised purchase. The entity who buys the deceased owner's interest is usually a partner, co-stockholder, or the business itself. Because of this agreement, the business owner's death creates a need for cash with which to complete the promised purchase.

After taking a policy loan, Bob decides not to repay it. What is the result of that decision?

The unpaid policy loan interest incurs interest, and the death benefit is reduced dollar-for-dollar by the amount of the unpaid loan (plus accrued interest). The loan incurs interest charges at the same rate as the loan. In addition, the death benefit is reduced by the loan amount at the insured's death.

Which statement about life insurance accelerated living benefits riders or provisions is NOT correct?

They are commonly used to supplement an individual's retirement income. Accelerated living benefits riders are designed to release a portion of the policy's death benefit to help the terminally ill or permanently confined insured with final expenses.

Which statement about death benefits paid to a beneficiary under a group life insurance plan is NOT correct?

They are fully tax exempt. The taxation of the death benefit paid under a group plan is the same as that of individually owned policies.

Why are endowment contracts NOT considered life insurance?

They endow before age 120. To meet the legal definition of life insurance, a policy cannot endow before age 120. However, endowment contracts build cash values quickly and endow well before age 120.

All of the following statements regarding viatical settlement brokers are correct, EXCEPT:

They fund a viatical settlement on behalf of the viatical settlement provider.

What is the primary difference between a revocable and an irrevocable beneficiary?

What is the primary difference between a revocable and an irrevocable beneficiary? The main difference between a revocable and an irrevocable beneficiary is the policyowner's ability or inability to remove the beneficiary. A policyowner can remove a revocable beneficiary at any time. The policyowner can only remove an irrevocable beneficiary if this beneficiary agrees.

Under a traditional split-dollar arrangement, what does the employer typically receive when the insured employee dies?

an amount equal to the policy's cash value.

For a life insurance contract to be enforceable, which of the following parties must be legally competent?

applicant and insurer. For a contract to be enforceable, the applicant for an insurance policy must be legally competent. This means that a person must be mentally sound, of legal age, and not under the influence of drugs or alcohol. In addition, the insurer must be competent. This means that the company must have legal authority to issue a policy and also must be authorized by the state to offer insurance.

Insurers use inspection reports to verify the information applicants provide to agents and examiners. Who is most likely to be the subject of an inspection report?

applicants who ask for very high amounts of life insurance or business insurance: Insurers most often order inspection reports on applicants who ask for very high amounts of life insurance or business insurance.

A premium receipt that guarantees coverage for the period after the application is signed and before the underwriter makes a decision is called a

binding receipt: A binding receipt guarantees temporary coverage for the applicant for the entire underwriting period. This holds true even if the insured is later found to be uninsurable.

Jason has owned a whole life insurance policy for seven years. If he takes a loan from the policy, the insurer

can charge a fixed interest rate of up to 10 percent annually. Insurers can charge a fixed interest rate of up to 10 percent annual interest on policy loans. Insurers can also charge an adjustable interest rate, with the maximum rate based on the average monthly published interest rate determined by Moody's corporate bond index. Adjustable rates must be determined at least once every 12 months.

Which of the following riders gives the policyowner the option to increase his or her life insurance policy's face amount based an inflation index?

cost-of-living rider

Which type of group life insurance is issued in connection with a specific loan or credit transaction in case the debtor dies or becomes unable to pay the remaining debt?

credit life insurance. Credit life insurance covers the life of a debtor and is issued in connection with a specific loan or other credit transaction.

When meeting with a prospect to discuss life insurance, Agent Tyler makes disparaging comments about the financial stability and reputation of a competitor to dissuade the prospect from purchasing its policies. Which unfair trade practice has Agent Tyler committed?

defamation. It is considered defamation to publish or circulate a false, deceptive, or misleading statement about-or a statement that is maliciously critical of or derogatory to-the financial condition of an insurer, when such a statement is designed to injure anyone in the insurance business.

According to FCRA, an insurer who requests an MIB, inspection, or consumer report, is responsible for which of these follow-up actions with the applicant?

disclosing to the applicant all requests for reports, what each covers, and how to contact the reporting agency for a copy of a report: The FCRA requires the requesting agency (in this case the insurer) to notify the applicant that a report is being requested. What the report will cover must also be disclosed to the applicant. If the applicant is denied insurance based in part on a report, then the insurer must also provide the reporting agency contact information so that the applicant can request a copy of the report.

What is a non-qualified deferred compensation plan funded by?

employee deferrals of current compensation

An agent will violate the prohibition against controlled business if she sells most of her insurance policies to whom?

employees of a business owned by her husband. The Department will not grant or continue a license if the license is used primarily to engage in controlled business. Controlled business is insurance that is written primarily on the lives, property, or risks of the licensee or of the licensee's family members, employer, or business associates.

What authority does an insurer give to an agent through the agent's contract?

express authority: The contract between the agent and insurer gives the agent express authority. An agent's contract specifies the activities the agent can perform and outlines the agent's duties.

Insurers must keep records of their insurance transactions for how many years after the transaction was completed?

five. Agents and insurers must keep records of their insurance transactions at their place of business for at least five years after the transaction was completed.

Rick wants a settlement option that pays him $1000 a month until the principal in his annuity is liquidated. If he dies before then, he wants his wife Jenny to receive that $1,000 monthly payment until the principal is gone. Which settlement option does Rick want?

fixed amount certain payout: Under the fixed amount certain payout, Rick can receive the $1,000 a month that he requested until the annuity's principal is liquidated. If he dies before the principal reaches zero, Jenny will receive $1,000 a month until it is gone.

The minimum guaranteed interest rate ensures that an equity-indexed annuity (EIA) contract will grow by at least that amount. Because of that feature, EIA contracts most closely resemble which of the following?

fixed annuities: Because of the protection of principal created by the minimum guaranteed interest rate, most equity-indexed annuities are classified as a form of fixed annuity.

Henry wants his life insurance policy's proceeds to be paid out in the following manner: the proceeds placed under the option are to be held by the insurer, and along with interest, are to be paid out monthly over the next ten years until the balance is zero. Which settlement option does Henry want?

fixed period settlement option: Under the fixed period settlement option, the policyowner or beneficiary selects the period over which payments are to be made. The amount of the payment is calculated so that the principal plus the interest it earns is reduced to zero at the end of the period selected.

Which of the following annuities specifies the exact premium payment amounts (and when they must be paid) for the contract to generate the desired future income payments?

fixed premium deferred annuity. A fixed premium deferred annuity specifies the exact premium payment amounts (and when they must be paid) for the contract to generate the desired future income payments.

Fran has an annuity into which she is making monthly fixed premium deposits of a specified amount and which she intends to use to supplement her income when she retires in 15 years. The annuity is credited with the higher of a current or guaranteed rate of interest. What type of policy does Fran most likely own?

fixed premium deferred annuity. Under a fixed premium deferred annuity, the owner makes on-going, fixed, and level premium deposits of specific amounts. The owner makes these deposits at specified times (annually, quarterly, monthly) during the contract's accumulation period.

Long Life Insurance Company is incorporated in Georgia but transacts insurance in Florida. Which type of insurer is Long Life considered in Florida?

foreign. Long Life Insurance Company would be considered a foreign insurer in Florida since it was formed under the laws of a state, district, territory, or commonwealth of the United States other than Florida.

What is the name of one of the first systems developed for determining how much life insurance is necessary, based on the economic value of a human life?

human life value approach. The human life value approach involves estimating an individual's personal earnings each year to retirement. The costs of self-maintenance and income taxes are then deducted, and the result is the income needed to provide for family members. This residual income stream is then discounted to its present value.

Which of the following terms identifies the highest premium that the policyowner can pay based on the policy's death benefit and still maintain the policy's qualification as life insurance?

maximum premium: The maximum premium is the highest amount the policyowner can pay based on the policy's death benefit and still permit the policy to meet the guideline premium test. This test qualifies the policy as life insurance. Please try again.

What is a term insurance policy in which the protection and premium amounts stay the same during the term period known as?

level term. Level term insurance offers a level death benefit and premium during a set period. During the term of coverage, neither the death benefit nor the premium changes.

As beneficiary of her husband's life insurance, Beth chooses to receive payments for life. However, she is guaranteed that the payments will be made for ten years. Beth has chosen which of the following?

life income with period certain: Under the life income with period certain, a payee receives income payments for life. He or she is guaranteed to receive payments for a specified period. For example, a life income with ten-year period certain provides payments to the payee for life and guarantees payments for at least ten years. If the payee dies six years after payments begin, then payments will continue to a contingent payee for the remaining four years. If the payee lives beyond the guarantee period, payments will continue until he or she dies.

Funds withdrawn from a market value adjusted annuity (MVA) before its contract period ends are subject to which of the following?

market value adjustment and surrender charge. Funds withdrawn before a MVA contract period ends are subject to a market value adjustment and a surrender charge.

In order to be grounds for ending a contract, what must a misrepresentation on an insurance application involve?

material fact. If an applicant misrepresents himself or herself in an application, the insurer may end the contract only if the misrepresentation was material to the formation of the contract. For example, a misrepresentation is material if the insurer would not have issued the policy or would have issued the policy at a different premium rate if the truth had been known.

Life insurance settlement options are best described as which of the following?

payment alternatives a policyowner or beneficiary can choose to receive life insurance policy proceeds: Settlement options are payment alternatives a policyowner or beneficiary can choose to receive life insurance policy proceeds.

Barbara is an employee who has group life coverage through her employer. What type of life insurance does she most likely have?

term insurance

What is credit life insurance designed to cover?

the borrower's life. Credit life insurance covers the life of a borrower in the amount of his or her outstanding loan. Decreasing term insurance is typically used for this purpose.

What part of group life insurance-if any-is tax exempt for employees?

the cost of the first $50,000 of coverage. The cost of the first $50,000 of coverage is tax exempt for employees. In other words, the premium charged for the first $50,000 of coverage is not taxable to the employee. But the cost of any amount over that level of coverage is taxable.

Under group life insurance paid by an employer, the IRS taxes the employee for

the premium charged on coverage over $50,000: Under group life insurance paid by an employer, employer-paid premiums are considered income. However the first $50,000 of coverage is exempt. The IRS taxes the employee for the premium charged on coverage over $50,000.

What feature stays level under an increasing term insurance policy or rider?

the premium: Under an increasing term insurance policy or rider, the premium stays level. However the death benefit increases.