Life Exam
In a life settlement transaction, how many days does the owner have to terminate the contract after the date it is executed? a)10 days b)15 days c)21 days d)30 days
b)15 days The owner has 15 days to rescind the contract.
Which type of retirement account does not require the owner to start taking distributions at age 72? a)Traditional IRA b)Roth IRA c)Nonqualified IRA d)Standard IRA
b)Roth IRA Roth contributions can continue regardless of the account owner's age, and in contrast with a traditional IRA, distributions do not have to begin at age 72.
Which of the following best describes gross annual premium? a)Basic insurance rate plus commissions b)Expense premium c)Net premium plus expenses d)Annual loading
c)Net premium plus expenses Gross annual premium is net premium plus expenses (loading).
The two types of assignments are a)Absolute and collateral. b)Absolute and partial. c)Complete and partial. d)Complete and proportionate.
a)Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.
The mode of premium payment a)Does not affect the amount of premium paid. b)Is defined as the frequency and the amount of the premium payment. c)Is the factor that determines the amount of dividends in a policy. d)Is the method used to compute the cash surrender value of the policy.
b)Is defined as the frequency and the amount of the premium payment. The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly.
Which of the following will NOT be an appropriate use of a deferred annuity? a)Accumulating funds in an IRA b)Funding a child's college education c)Creating an estate d)Accumulating retirement funds
c)Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.
Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? a)Variable life b)Adjustable life c)Universal life d)Flexible life
c)Universal life The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? a)Aleatory b)Good health c)Adhesion d)Conditional
a)Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.
Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a)Limited pay whole life b)Interest-sensitive whole life c)Life annuity with period certain d)Increasing term
a)Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100.
Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? a)Reinstatement rule b)Conversion rule c)Disclosure rule d)Replacement rule
d)Replacement rule Anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company.
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the a)Other-insured rider. b)Change of insured rider. c)Juvenile rider. d)Payor rider.
a)Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.
Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? a)10 b)3 c)5 d)7
b)3 Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? a)It is reduced to the amount of what the cash value would buy as a single premium. b)It is increased when extra premiums are paid. c)It decreases over the term of the policy. d)It remains the same as the original policy, regardless of any differences in value.
a)It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.
Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called a)Suitability. b)Client protection. c)Approval. d)Underwriting.
a)Suitability. Insurance producers must adhere to the concept of suitability by ensuring that, to the best of their belief, the purchase, sale or exchange of a policy is in the best interest of the insured.
Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? a)Assumed b)Express c)Implied d)Apparent
c)Implied Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.
Which of the following is NOT an example of insurable interest? a)Business partners in each other b)Employer in employee c)Child in parent d)Debtor in creditor
d)Debtor in creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.
An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? a)Because the insured is currently not a drug user, his policy will not be affected. b)The policy will not be affected. c)The policy will be voided. d)The insurer will sue the insured for committing fraud.
b)The policy will not be affected. In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
Which of the following statements about group life is correct? a)The group sponsor receives a Certificate of Insurance. b)The policy can be converted to an individual term insurance policy. c)The cost of coverage is based on the ratio of men and women in the group. d)The premiums are higher than in an individual policy because there is no medical exam.
c)The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.
Why should the producer personally deliver the policy when the first premium has already been paid? a)To find out how the family has been doing since the initial presentation b)To make sure the policy is not stolen or lost c)To help the insured understand all aspects of the contract d)To ensure the producer gets paid commission
c)To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences? a)Section 1035 Policy Exchange b)Modified Endowment Exchange c)401(k) Plan d)Section 457 Deferred Compensation Plan
a)Section 1035 Policy Exchange As long as the funds are transferred intact and the form is filed, taxation is deferred.
Who can make a fully deductible contribution to a traditional IRA? a)A person whose contributions are funded by a return on investment b)An individual not covered by an employer-sponsored plan who has earned income c)Anybody: all IRA contributions are fully deductible regardless of income level d)Someone making contributions to an educational IRA
b)An individual not covered by an employer-sponsored plan who has earned income Individuals who are not covered by an employer-sponsored plan may deduct the amount of their IRA contributions regardless of their income level.
Which of the following types of agent authority is also called "perceived authority"? a)Fiduciary b)Apparent c)Express d)Implied
b)Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? a)Fixed amount option b)Interest only option c)Life income with period certain d)Joint and survivor
b)Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
The premium of a survivorship life policy compared with that of a joint life policy would be a)Lower. b)Higher. c)As high. d)Half the amount.
a)Lower. Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
The authority granted to an agent through the agent's contract is referred to as a)Absolute authority. b)Express authority. c)Apparent authority. d)Implied authority.
b)Express authority. Express powers are written into the contract between the insurer and the agent.
J transferred his life insurance policy to his son two years before his death. Which of the following is true? a)The interest portion of the policy will be included in J's taxable estate. b)The unpaid premiums on the policy will be deducted from J's taxable estate. c)Because the policy has been transferred, it will not be included in J's taxable estate. d)The entire face value of the policy will be included in J's taxable estate.
d)The entire face value of the policy will be included in J's taxable estate. If a policyowner transfers or gives away a life insurance policy within 3 years prior to his/her death, the entire face amount of the policy will be included in his or her taxable estate.
The Waiver of Cost of Insurance rider is found in what type of insurance? a)Joint and Survivor b)Juvenile Life c)Universal Life d)Whole Life
c)Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? a)Joint Life b)Decreasing Term c)Whole Life d)Ordinary Life
a)Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a a)Settlement option. b)Nontaxable exchange. c)Nonforfeiture option. d)Rollover.
a)Settlement option. A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.
In most instances, a variable contract must be on file with the Commissioner before it may be issued. However, this can be avoided if the insurer is affiliated with an admitted life insurance company that has issued variable contracts for at least a)10 years. b)3 years. c)5 years. d)1 year.
b)3 years. This may be avoided if the insurer is affiliate with an admitted life insurance company, and has issued variable contracts for at least 3 years.
All other factors being equal, the least expensive first-year premium payment is found in a)Level Term. b)Annually Renewable Term. c)Increasing Term. d)Decreasing Term.
b)Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
In a direct rollover, how is the money transferred from one plan to the new one? a)From the original plan to the original custodian b)From trustee to trustee c)From trustee to the participant d)From the participant to the new plan
b)From trustee to trustee In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? a)Nonforfeiture options b)Guaranteed insurability option c)Dividend options d)Guaranteed renewable option
b)Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.
Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? a)Lump-sum approach b)Human life value approach c)Needs approach d)Blackout approach
b)Human life value approach Human life value approach is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.
Which statement is NOT true regarding a Straight Life policy? a)It has the lowest annual premium of the three types of Whole Life policies. b)Its premium steadily decreases over time, in response to its growing cash value. c)The face value of the policy is paid to the insured at age 100. d)It usually develops cash value by the end of the third policy year.
b)Its premium steadily decreases over time, in response to its growing cash value. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.
An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called a)Reduction of premiums. b)Paid-up additions. c)One-year term purchase. d)Accumulation at interest.
b)Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.
All of the following are examples of risk retention EXCEPT a)Self-insurance. b)Premiums. c)Deductibles. d)Copayments.
b)Premiums. Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.
Life settlement brokers or providers are required to give the owner a separate disclosures document no later than what date? a)The date the contract is signed b)The date of application c)The last day allowed for contract termination d)The date the contract proceeds are paid
b)The date of application According to the disclosure regulations for life settlements, brokers and providers are required to give the owner a separate document with disclosures no later than the date of application for a life settlement contract.
All of the following are general requirements of a qualified plan EXCEPT a)The plan must be permanent, written and legally binding. b)The plan must provide an offset for social security benefits. c)The plan must be communicated to all employees. d)The plan must be for the exclusive benefits of the employees and their beneficiaries.
b)The plan must provide an offset for social security benefits. Plans must meet the general requirements established by IRS.
An insurer was just caught misrepresenting the terms of a policy. What fine does he face? a)A fine of between $100 and $1,000 and imprisonment for up to 6 months b)A fine of up to $1,000 or imprisonment for up to 2 years c)A fine of up to $1,000 or imprisonment for up to 6 months d)A fine of between $100 and $1,000 and imprisonment for up to 1 year
c)A fine of up to $1,000 or imprisonment for up to 6 months In this case, the insurer faces a fine of between $1,000 or imprisonment for up to 6 months.
A Notice of Information Practices must be given to the applicants for an insurance policy at all of the following intervals EXCEPT a)At policy delivery. b)Any time personal information is collected from additional sources other than the applicant. c)At policy application. d)At policy renewal.
c)At policy application. A notice is not required at the time of application, since the information is being collected from the applicant personally.
Which of the following is NOT true regarding policy loans? a)An insurer can charge interest on outstanding policy loans. b)A policy loan may be repaid after the policy is surrendered. c)Money borrowed from the cash value is taxable. d)Policy loans can be repaid at death.
c)Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a)Reduction of premium b)Accumulation at interest c)Paid-up option d)One-year term
c)Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
Any person who violates a cease and desist order of the Commissioner after it has become final must a)Be considered in contempt of court and shall be guilty of a Class A misdemeanor. b)Pay a fine to the state not to exceed ten thousand dollars total, which sum may be recovered in a civil action. c)Pay a fine to the state not to exceed ten thousand dollars for each violation, which may be recovered in a civil action. d)Pay a fine to the state of one thousand dollars for each violation not to exceed ten thousand dollars in total, which may be recovered in a civil action.
c)Pay a fine to the state not to exceed ten thousand dollars for each violation, which may be recovered in a civil action. Any person who violates a cease and desist order of the Commissioner after it has become final must pay a fine to the state not to exceed $10,000 for each violation, which may be recovered in a civil action. Upon order of the Commissioner, the person will be subject to suspension or revocation of his/her license.
Which of the following is TRUE for both equity indexed annuities and fixed annuities? a)Both are considered to be more risky than variable annuities. b)They invest on a conservative basis. c)They have a guaranteed minimum interest rate. d)They are both tied to an equity index.
c)They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.
Which of the following is NOT a goal of risk retention? a)To increase control of claim reserving and claims settlements b)To fund losses that cannot be insured c)To minimize the insured's level of liability in the event of loss d)To reduce expenses and improve cash flow
c)To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.
What is the waiting period on a Waiver of Premium rider in life insurance policies? a)30 days b)3 months c)5 months d)6 months
d)6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.
A business entity acting as an insurance producer is required to obtain a) A $10,000 bond prior to transacting insurance business. b)Prior approval from the Department of Commerce. c)60 hours of Continuing Education every 24 month licensing period. d)An insurance producer license.
d)An insurance producer license. A business entity acting as an insurance producer is required to obtain an insurance producer license.
Employer contributions made to a qualified plan a)May discriminate in favor of highly paid employees. b)Are after-tax contributions. c)Are taxed annually as salary. d)Are subject to vesting requirements.
d)Are subject to vesting requirements. Qualified plans must have a vesting requirement.
Connor, a licensed producer, paid Brandon, a fellow producer, a commission on a life sale that results from a referral from Brandon. Brandon, however, is only licensed as a health producer. Which of the following statements is true? a)Connor knowingly paid Brandon a fee for which he was not licensed; he will be punished by a fine of not less than $100 nor more than $1,000. b)Connor knowingly paid Brandon a fee for which he was not licensed; he will be punished by a fine of not less than $50 nor more than $1,000. c)Since Brandon was licensed, such a payment of commission is allowed. d)Brandon was not licensed in the line of insurance that resulted from the commission; therefore, Brandon will not be paid.
d)Brandon was not licensed in the line of insurance that resulted from the commission; therefore, Brandon will not be paid. Anyone who knowingly allows compensation of unlicensed person can be punished by a fine of an amount between $50 and $500.
What happens when a policy is surrendered for its cash value? a)Coverage ends but the policy can be reinstated at any time. b)The policy can be reinstated by paying back all policy loans and premiums. c)The policy can be converted to term coverage. d)Coverage ends and the policy cannot be reinstated.
d)Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.
If a deferred annuity is surrendered prematurely, a surrender charge is imposed. How is the surrender charge determined? a)It is always 7% of the cash value. b)It is a flat fee determined by the annuity owner when the annuity is purchased. c)It will increase as the accumulation period increases. d)It is a percentage of the cash value and decreases over time.
d)It is a percentage of the cash value and decreases over time. If a deferred annuity is surrendered prematurely, a surrender charge is imposed. The charge is generally a percentage that reduces over time until it ends.
In Modified Life policies, what happens to the premium? a)It always remains level. b)It is higher during the first policy years. c)It varies at the beginning, but levels out by the end of the third year. d)It is level at the beginning and increases after the first few years.
d)It is level at the beginning and increases after the first few years. Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.
Which of the following is NOT true regarding a nonqualified retirement plan? a)Contributions are not currently tax deductible. b)It can discriminate in benefits and selecting participants. c)Earnings grow tax deferred. d)It needs IRS approval.
d)It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? a)Mortality rate b)Risk exposure c)Morbidity d)Life expectancy
d)Life expectancy Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).
Which of the following riders would NOT cause the Death Benefit to increase? a)Guaranteed Insurability Rider b)Cost of Living Rider c)Accidental Death Rider d)Payor Benefit Rider
d)Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? a)Paid-up addition b)Accumulation at interest c)Cash option d)Reduction of premium
d)Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
A 60-year-old participant in a 401(k) plan takes a distribution and rolls it over to an IRA within 60 days. Which of the following is true? a)No taxes are due since the plan participant is over age 59 1/2. b)There is a 10% early withdrawal penalty. c)The amount distributed is subject to ordinary income tax. d)The amount of the distribution is reduced by the amount of a 20% withholding tax.
d)The amount of the distribution is reduced by the amount of a 20% withholding tax. Distributions from 401(k) plans are taxable as ordinary income in the year of the distribution. However, if the distribution is rolled over to a Traditional IRA, taxes are deferred until the required minimum IRA distributions begin (which is generally no later than age 70 1/2). Since this client actually took a distribution (instead of making a trustee-to-trustee roll over), the distribution is subject to 20% withholding tax.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT a)The annual dividend is retained by the company. b)The interest is credited at a rate specified by the policy. c)The policyholder has the right to withdraw the accumulations at any time. d)The interest is not taxable since it remains inside the insurance policy.
d)The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.
