LIFE COMP Qs

(4) K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time?

$20,000 She can borrow up to the policy's cash value. She already has a loan of $10,000, so she could borrow another $20,000 at this time.

What is the maximum penalty that can be imposed under the Insurance Frauds Prevention Act for a single violation?

$5,000

A convertible term life insurance policy may be converted _____ time(s) for a permanent life policy based on the original or attained age.

1 time A convertible term life insurance policy may be converted 1 time for a permanent policy that provides coverage for the life of the insured.

How much notice to appear for a hearing is given by the Superintendent whenever a person is believed to have committed or is committing a defined violation?

10 days Whenever the Superintendent has reason to believe that a person has committed or is committing a defined violation and that a proceeding would be in the public's best interest, he/she will serve the person a statement of the charges and a notice of a hearing to be held at least 10 days after the date of service of the notice.

How many continuing education credits must be completed by licensees in the State of New York?

15 credits biennially Licensees subject to continuing education requirements must satisfactorily complete 15 credit hours of approved instruction during each full biennial licensing period (2 years). Licensees must furnish certification of completion of all credit hours.

A typical life insurance application contains how many parts?

2 Parts A typical life insurance application contains two parts, part 1 is general information and part 2 is medical information.

Producer licenses expire every:

2 years on one's birthday in odd or even years, depending on one's year of birth Individual producer licenses expire on one's birthday every two years. If one is born in an odd year, one's license expires in an odd year and so forth. Business licenses expire on June 30th.

The normal waiting period for benefits under the disability income rider is:

3 to 6 months The waiting period for the disability income rider is generally 3 to 6 months, like the waiting period for the waiver of premium rider.

The period within which one may rightfully reinstate a lapsed life insurance policy in New York is:

3 years Policy owners have 3 years to apply for reinstatement by showing evidence of insurability and paying all amounts due.

An insurance producer's license in New York State may be issued for a maximum of:*

30 months

A group policy can be converted to an individual policy, without evidence of insurability, within how many days?

31 Days An employee or member covered under a group policy will be allowed to convert to an individual policy, without evidence of insurability, within 31 days of the group policy's termination or reduction.

An applicant for a life, accident and health agent license would need to complete how many hours of classroom instruction?

40 Hours A minimum of 40 hours must be completed for the following licenses: Life, accident, and health agent or broker, Personal lines agent or broker, and Public adjusters.

What is the grace period for policies with premiums that vary by amount and frequency?

61 Days For policies with premiums that vary by amount and frequency, after payment of the first premium, the policyholder is entitled to a 61-day grace period.

Conditional Contract

A Conditional Contract is one in which both parties to a contract must perform certain duties to make the contract enforceable.

Noncontributory Group Life Plan

A Noncontributory Group Life Plan is one in which the participant does not pay premiums. State law requires that 100% of eligible employees are covered. The insurer can be certain that all employees will enroll and it will not be subject to adverse selection.

Insured

A person covered by an insurance policy

If a life insurance applicant's answers on the application indicate that he/she is in good health, when in fact the applicant has a disease that he/she is NOT aware of, the statement on the application is considered:*

A representation Representations are statements which are 'true and complete to the best of one's knowledge.'

Which of the following would need to be licensed as an insurance producer to legally perform their duties in New York?

A representative of a fraternal benefit society who, in exchange for commission, spends 75% of his/her time in the sales, solicitation, or negotiation of insurance for tat society

What is an alternative to annuitization?

The selection of a lifetime annuity payment option is critical because once chosen it typically may not be changed. An alternative to annuitization is a 'systematic withdrawal plan' that allows the amount of withdrawal to be changed in the future. CH5

(S) Which of the following statements are unacceptable in life settlement advertisements?

The use of absolute superlatives such as 'free,' 'no cost,' or similar words in marketing, advertisement, solicitation, or promotion of the purchase of a policy The failure to follow advertising provisions is a violation of state law.

Concealments

The willful holding back of material facts (occurs when known information is NOT communicated.) Concealment may result in denial of coverage and may void the policy.

If an annuity policyowner stops putting money into their periodic or flexible premium annuity what happens to the policy values?*

They are protected by the nonforfeiture provision. Just like with life insurance any policy values contained in the contract are nonforfeitable for nonpayment of premium. They can be used for surrender or buying a paid up annuity. CH5

Buy-Sell Agreement

This agreement contractually establishes a price with the intent to purchase, at a predetermined value, the assets of a business should one of the contract participants predecease the others. It may be used with a sole proprietorship, a partnership, or with stockholders of a closed corporation. Some of the advantages of having such an agreement: It is legally enforceable The value of the business is previously agreed upon It is an immediate and automatic method of transferring the deceased's interest

(6) Franchise (Wholesale)

This type of group insurance is unique--a Master Policy is not issued since underwriting is on an individual basis, and individual policies are issued, meaning evidence of insurability may be required. The employer may be the premium payor or the premium costs may be shared by the employer and employee. The grace period is typically 31 days, and the employer is responsible for the plan administration, making it less expensive than individual policies. The insurer requires a minimum number of participants before underwriting and the group must be together for reasons other than to purchase insurance.

(3) A life insurance premium is paid each month. The insurer then subtracts a mortality and expense charge from the policy's cash value. This best describes which of the following life insurance policies?

Universal Life All premiums paid to a Universal Life Policy are placed in the policy's cash value account. The mortality charge (cost of protection) and expenses are then deducted from the cash value account.

All of the following are TRUE regarding a Variable Annuity

Upon annuitization, accumulation units are converted into annuity units, which generate income based on the value of the units The contract owner bears the investment risk and receives the return actually earned on invested assets, less any charges assessed by the insurer and investment managers Premiums paid during the accumulation period are invested into a separate account(s)

(4) When are dividend payments received by a policyholder fully taxable?

When all the premiums paid in have been fully recovered Policy dividends become taxable only after all premiums paid in have been recovered. Subsequent dividend payments become fully taxable as income.

Joint Life

a single policy that covers two or more lives, resulting in a reduction in premium, with the death benefit payable upon the death of the first insured to die.

An adjuster

acts on behalf of an insurer or an insured to investigate and adjust insurance claims.

A broker

aids in the negotiation, selling, or solicitation of annuities or insurance contracts on behalf of the insured.

prospects

applicants

Warranties

are statements of absolute truth.

Representations

are statements which are 'true and complete to the best of one's knowledge.'

Annuities

are used primarily to provide a steady stream of income to an individual, typically upon retirement. They are designed to protect against outliving one's retirement income by providing lifetime income. And they can liquidate an estate over the lifetime of an annuitant. Annuities are designed to distribute an estate

Nonforfeiture provisions

give the owner the rights to the accumulation in the contract.

Policy Dividends

if declared are paid out on an annual basis.

Insurer

insurance company

A reserve

is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability.

Equity-Indexed Annuity

is an annuity product with interest rates that are linked to the Positive performance of a stock market (equity) index, such as the Standard & Poor's 500 Index.

Producer

is in the field soliciting applications for insurance and in effect is another pair of eyes and ears for the insurer (insurance company) in helping to issue policies to insurable prospects (applicant).

An agent

is licensed to sell, solicit, and negotiate, An agent represents the insurer(Insurance company)

Only the _________ can surrender an annuity.

owner The owner has all rights in the policy, including the right to surrender it.

The entire contract consists of the:

policy, riders, amendments, and a copy of the application.

How is a life settlement transaction similar to a viatical settlement transaction?

A third party buys a life insurance policy for less than its face amount

What is an annuitant, in regard to an annuity policy?

An annuitant is the individual whose life the contract is based upon.

All of the following are situations in which the insurer is likely to waive any annuity surrender charges:

Annuity surrender charges are generally waived if the annuitant is hospitalized for an extended period, placed in a nursing facility for at least 30 days, becomes disabled, or dies. CH5

(3) Which of the following is a true characteristic of a Variable Universal Life policy?*

As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium A characteristic of universal life insurance is that there is no requirement to pay any premium other than the first. As long as there is sufficient cash value to pay policy expenses (cost of insurance, riders, and other fees) when due, the policy remains in force.

Capital Retention/Conservation

Assumes the desired income will be generated by the interest only, thus retaining or conserving the principal

What is the minimum requirement for currently insured status under the Social Security system?*

At least 6 credits earned in the 13 calendar quarters prior to death, disability, or is entitled to retirement benefits A worker must be covered at least 6 quarters during the full 13-quarter period ending with the quarter in which the worker dies, becomes disabled, or is entitled to retirement benefits.

Which of the following policies requires a producer to have both a life and securities license to sell?

Both Variable Life and Variable Universal Life require a securities and life license to sell. A securities license is NOT required for Adjustable Life, Universal Life, or Equity-Indexed Life.

(3) Which of the following term life insurance policies cannot be renewed?

Decreasing Decreasing term follows the debt repayment schedule and once the debt has been paid off the policy ends, therefore it cannot be renewed.

If a policyowner unintentionally pays premiums in excess of the MEC guidelines, the excess premium can be refunded by the insurer within 60 days after the ________.

End of the contract year If a policyowner unintentionally pays premiums in excess of the MEC guidelines, the excess premium can be refunded by the insurer within 60 days after the end of the contract year.

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is:*

Extended Term Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term.

If life insurance proceeds are paid to the deceased's estate they may be subject to

Federal Estate taxes.

An insurance plan owned by an employer, creditor or association, providing coverage for the employees, debtors, or members, refers to which of the following?

Group Life Insurance A Group Life Insurance Policy is owned by the group sponsor (e.g. employer, association). Covered individuals receive Certificates of Insurance.

Failure to repay a loan or loan interest will void a life insurance policy:

If the total amount due equals or exceeds the policy's cash values Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.

Which of the following manufactures and sells insurance coverage in the form of insurance policies or contracts of insurance?

Insurance companies Only insurers ( insurance company's) can manufacture and issue insurance policies or contracts.

Which of the following best describes 'Capital Retention/Conservation' in an effort to meet an income objective?

Investment earnings are paid out In a capital retention/conservation strategy only the investment earnings are paid out the principal is retained or conserved for future purposes. Each payment would fluctuate as it would be based on the earnings and no principal would be used to make up for any shortfalls.

How does an Option A death benefit feature of a Universal Life policy work?

It pays out the policy's face amount Option A in a Universal Life Insurance policy pays out a level death benefit

Most group life insurance has a(n) ______ term death benefit.

Level Group term life insurance has a level death benefit.

A minimum of 40 hours must be completed for the following licenses:

Life, accident, and health agent or broker, Personal lines agent or broker, and Public adjusters.

In a replacement transaction, all of the following are insurer(Insurance company) duties and responsibilities:*

Maintain copies of the information provided by the producer Notify the existing insurer Abide by the state required holding period for all replacement documentation The Replacing Insurer's responsibilities include: upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.

Authorized insurers must file an annual financial statement with the Superintendent of New York on or before which date?

March 1st Each insurer authorized to transact insurance business must file an annual financial statement with the Superintendent on or before March 1st.

Market Value Adjustment (Annuity)*

Market-Value Adjustment (Adjusted) Annuity is an annuity product that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the surrender value to fluctuate in response to market conditions. CH5

The death benefit of a variable life policy*

May go up or down but will never fall below the face amount of the policy

If a life insurance policy accelerates benefits, it does which of the following?

Pays a portion of the death benefit to the insured When a life insurance policy accelerates benefits, it pays a portion of the policy's death benefit to the insured during his/her lifetime and the balance of the death benefit to the beneficiary when the insured dies.

Which of the following best describes 'Capital Liquidation' in an effort to meet an income objective?

Principal and earnings are paid out In a capital liquidation strategy both principal and earnings are paid out over the anticipated time period in order to meet the income objective. Each payment would be the same as any investment earnings shortfall would be offset by principal liquidations.

Y just received an inheritance and instead of spending the money right now, decides to put it away for the future. What annuity premium funding would be best in this situation?

Single A single premium would allow Y to have the peace of mind of knowing that the inheritance is earning tax-deferred interest toward a future goal.

(5) Which of the following annuities does not have a traditional accumulation phase?

Single premium immediate An immediate annuity essentially does not have an accumulation period and is used to generate immediate income. Income is generated within a year of the issue date.

The advantage of an insurance funded buy-sell agreement is:

Some of the advantages of having such an agreement: it is legally enforceable, the value of the business is previously agreed upon, it is an immediate and automatic method of transferring the deceased's interest due to readily available funds.

An agreement to transfer the ownership of a policy or the policy benefits to another person is an example of?

Stranger-Originated Life Insurance is an agreement to transfer the ownership of the policy or the policy benefits to another person.

Systematic withdrawals

Systematic withdrawals are allowed as a way to access the annuity policies values without having to elect a settlement option while still maintaining the policy in force. CH5

Fixed Period

The Fixed Period settlement option pays out proceeds over a specified period of time. Payments are guaranteed for a specified period of time, such as 10 or 20 years, after which time payments will cease. The proceeds and interest are used to make the payments. The interest will increase the amount of each payment, and the interest is taxable.

All of the following are true of re-entry Term

The Re-Entry premium is based on the insured's attained age, rates in effect at the time of re-entry and the premium class Re-Entry is typically allowed one time Proof of insurability is required

(6) All of the following are characteristics of Franchise Insurance:

The group must be together for a reason other than purchasing cheaper insurance Premiums are paid by the employer or shared with the employee The employer handles most of the administrative responsibilities, which makes franchise less expensive than individual insurance

(4) An insured has paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?*

The insured simply needs to contact the insurance company and request a change in premium mode Changing the mode of payment is provided for in the contract. A simple telephone call to the insurance company will effect the change beginning with the next premium due date in most cases, however, some companies may want to receive the request in writing.

(5) All of the following are traits of a Fixed Annuity:*

The insurer bears any investment risk The purchasing power of a fixed dollar benefit amount decreases as the cost of living increases The insurer's general account assets guarantee the fixed annuity contract The actual rate of interest credited is based on the insurer's general account assets.

Human Life Value Approach

The objective is to provide the proper amount of coverage as determined by the value of the insured individual to his/her dependents.

If a beneficiary has the choice and is interested in capital conservation, then which of the following settlement options should be chosen?*

Interest Only With interest only, the death benefit proceeds may be left with the insurer while interest payments are paid at least annually or more frequently. The principal amount does not decrease. This method of providing income is known as capital conservation.

Contract of Adhesion

One party writes the contract, without input from the other party. One party (insurer) prepares the contract and presents it to the other party (applicant) on a "take-it-or-leave-it" basis, without negotiation. Any doubt or ambiguity found in the document is construed in favor of the party that did not write it (insured). EXAMPLE: If a policy is written with unclear definitions, conditions and provisions which are hidden in the contract, and the insured files a law suit. In the court of law, the contract would be construed in favor of the insured because it is a: This is called: 'Ambiguities in a Contract of Adhesion', which states that: any unclear or ambiguous language in the contract goes against the party that wrote the contract: The Insurance Company. Therefore, the insured wins the settlement since the insured had No input in the wording of the contract.

Unilateral Contract

Only one party is legally bound to the contractual obligations after the premium is paid to the insurer. Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract. The policy-owner can cancel the policy at any time and for any reason. The policy-owner is not required to continue paying future premiums.

It is the _________ who issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state.

State Insurance Commissioner In order for an insurer to operate as an admitted or authorized insurer, the insurer must hold a Certificate of Authority issued by the State Insurance Commissioner, Superintendent, or Director.

Which of the following statements is accurate concerning the changing of an irrevocable beneficiary?

The beneficiary may be changed only with the written consent of the present beneficiary An irrevocable beneficiary has a vested interest in the policy benefits.

premiums are based on

expected mortality, interest, and expenses.

Stranger-Originated Life Insurance (STOLI)

is the purchase of life insurance with the intention of benefitting a party that does not have insurable interest in the insured at the time the policy becomes effective.

How long, typically, is the reinstatement period from policy lapse?

3 years Typically, the reinstatement period is 3 years, but it can be up to 5 years with some policies or some insurers.

In the event of an agent or broker's death, the Superintendent may issue a temporary license for how many days following death?

90 Days In the event of the agent's or broker's death, 90 days from the death. The Superintendent may, at his/her discretion, renew such license for additional 90-day terms, not exceeding, in the aggregate, 15 months.

Indemnification

Being restored to the same financial situation or economic condition that existed prior to a loss and not profiting from an insurance transaction.

(3) Term insurance differs from permanent insurance in that term insurance:*

Builds no cash value, pays a death benefit only Term insurance provides death benefits only, at lower premiums, with no cash value accumulation or living benefits.

All of the following are essential elements of a legal contract:

Competent Parties Legal Purpose Agreement Consideration

Death benefits paid from an employee group life insurance plan to an employee's named beneficiary are received:

Death benefit proceeds from a group life insurance plan to an employee's named beneficiary are received income tax free.

Producers must provide the following forms:

Definition of Replacement, Outline of Coverage, and Notice Regarding Replacement.

(3) Renewable (Annual Renewable Term Policy)

A benefit that will renew the contract on the renewal date without evidence of insurability. The policy may be a one (annual), five, ten, or twenty year renewable contract, with premiums increasing at the beginning of each renewal period. The renewal premium is based upon attained age. Renewability is important because the risk is that the insured's health may deteriorate and the insured may be unable to obtain a policy at the same rates, or even at all, leaving the insured without coverage. Level term policies may offer the option of being renewable for an additional premium.

Which annuities are directly affected by a 'bullish' stock market?

A bullish stock market means that equity-based indices and funds will grow in value, directly benefiting the Equity-Indexed Annuity's interest credit and the Variable Annuity's separate account growth.

(4) All of the following are examples of an absolute assignment:

A business permits the change of ownership of a company owned policy over to a retiring executive A grandparent signs over ownership of a juvenile policy to their grandchild who is now reached age of majority A court orders the existing policyowner to change it to their ex-spouse The original owner, the assignor, will name a new owner, the assignee, of the policy. Since a new owner is named, this is considered a permanent assignment. The full amount of the policy is assigned, and this is referred to as a transfer of ownership.

Which of the following could initiate the Accelerated Benefits Provision or Rider of a life policy?

A condition that is terminal The qualifying event in the Living Needs rider is the terminal status of the insured (i.e. projected to die within 1 or 2 years).

If a medical exam is required as part of the underwriting process, who normally conducts the exam?*

A physician or nurse Physicians, nurses, or paramedics are the ones who conduct medical exams which may include blood tests, urine tests, EKGs, and medical histories among other things.

(3) Which of the following best describes an Annual Renewable Term Policy?

A policy with a level death benefit, but with increased premium at each renewal Whether the policy period is 1 year, 5 years, 10 years, etc., the premium will increase at each renewal to sustain the same specified death benefit that was purchased when the policy was written. At renewal the premium is based upon attained age.

The Attending Physician's Statement (APS) is completed by:*

An applicant's physician to provide information about the applicant's medical history An Attending Physician's Statement (APS) is used in cases where the individual application and/or medical reports reveal conditions for which more information is required. The treating physician will provide information regarding the medical history of the applicant. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.

When the cash value account of a universal life policy reaches zero, the policy-owner must make a premium payment or:*

The policy goes into the grace period When the cash value account reaches zero, it has actually made its last premium payment, at that time it has entered the grace period. At the end of the grace period, if no premium payment has been made, the policy then lapses.

Which of the following meets the criterion for being a natural group for group life insurance purposes?

The group was formed for a purpose other than for procuring or reducing the cost of insurance To be eligible for a group plan, the group must be a natural group, meaning it was formed for a purpose other than for procuring or reducing the cost of insurance.

Absolute Assignment

The original owner, the assignor, will name a new owner, the assignee, of the policy. Since a new owner is named, this is considered a permanent assignment. The full amount of the policy is assigned, and this is referred to as a transfer of ownership.

Equity Universal, Variable, and Variable Universal all have which of the following characteristics in common?

The overall policy performance has something to do with the stock market in general all of them have a death benefit that is somehow tied to the stock market.

Policyowner

The person who is entitled to exercise the rights and privileges in the policy. This person may or may not be the insured.

Straight Whole Life Policy

Whole life is a type of permanent insurance Permanent insurance is designed to provide coverage for an entire lifetime. Matures (endows) at the insured's age 100 (or to age 121 if the policy is based on the 2001 Mortality Table), when the face amount equals the cash value In a traditional whole life policy the net amount at risk is the face value minus the cash value. As the cash value increases over time, the net amount at risk decreases. Once the cash value has accumulated for a certain number of years, typically 3 years, the owner can borrow against the policy. a whole life policy cannot be convertible or renewable. has as its primary characteristic, fixed/guaranteed premiums and death benefit over the life of the policy. It has substantial guarantees, but virtually NO flexibility.