Life Insurance

If a viatical settlement provider transfers ownership of an insurance policy, how long does the insurer have to inform the insured of the change?

20 Days

A producer has successfully completed 52 hours of continuing education (CE). How many hours can the producer apply to her current reporting period, and how many hours can she carry toward the next reporting period?

24 hours will be applied to the current reporting period, and 24 can be applied to the period immediately following.

Annually Renewable Term policy with a cash value account.

A Universal Life Insurance policy is best described as a/an...

Coercion

A banker is ready to close on a customer's loan. The bank is prepared to offer the loan but only if the customer purchases an insurance policy from the bank in the amount of the loan. This is an example of...

The benefit is received tax free.

A business is the owner and beneficiary of a key person life policy. When the business collects the policy benefit, how is it taxed?

The insured's premiums will be waived until she is 21.

A father owns a life insurance policy on his 15-year old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

90

A licensed producer moving to Pennsylvania may become licensed as a resident if the producer submits a completed application within how many days of establishing residence in Pennsylvania with proof of licensing from their prior home state?

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by

A paramedic or examining physician at the insurer's expense.

Morale

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

20-year level term

A policy states that it will pay a specified face amount if the insured dies during the 20 year premium paying period and nothing if death occurs after the 20 year period. What type of policy is this?

The amount of the loan will be subtracted from the death benefit.

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

30

A producer licensed in Pennsylvania must notify the Insurance Department of any change of address in their address within how many days?

Cost of living rider

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called...

Pure

A situation in which a person can only experience a loss and no gain presents what type of risk?

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Certain groups of employees only

A tax-sheltered annuity is a special tax-favored retirement plan available to...

Limited-pay whole life

A whole life policy that requires that the policyowner only pays premiums for a specified number of years is known as what kind of policy?

Cash value growth is tax deferred.

According to the taxation rules of life insurance policies, how are cash value increases taxed?

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be

Adjusted to the insured's age at the time of renewal.

At distribution, all amounts received by the employee are tax free.

All of the following are TRUE of the federal tax advantages of a qualified plan EXCEPT...

The plan must provide an offset for social security benefits.

All of the following are general requirements of a qualified plan EXCEPT...

Employer contributions are not tax deductible.

All of the following statements are true regarding tax-qualified annuities EXCEPT...

The policy is owned by the company.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT...

Taxation on accumulation

All of the following would be different between qualified and non qualified retirement plans EXCEPT...

Monthly

All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?

Rebating

An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?

FINRA

An agent selling variable annuities must be registered with...

Flexible premium deferred annuity

An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?

Moral

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Fair Credit Reporting Act

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?

Profit-sharing plan

An employer is sponsoring a qualified retirement plan for its employees where the employer contributes money whenever the business has profit. What is this type of plan called?

Annuity

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Decreasing term

An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?

A third-degree misdemeanor and a $1,000 fine

An individual was just caught acting as an exclusive general agent- even though he is not properly licensed. Assuming that this occurred in a single day, what is the maximum penalty he faces?

Foreign

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?

Foreign

An insurance company that is formed under the laws of another state is known as what type of insurer?

Mutual

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Variable

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?

Variable

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month that it was last month. What type of policy does the insured have?

Pay a reduced death benefit

An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Consideration

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

Retirement plans

Annuities can be used to fund which of the following?

Rated

Another name for a substandard risk classification is...

Rebating

Any inducement offered to the insured in the sale of an insurance policy that is not specified in the policy is an unlawful practice known as...

Either on the date of the application or the date of the medical exam (whichever occurs last)

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Universal life

Between adjustable life and universal life policies, which one provides more flexibility to the policyowner?

No, an annuitant must always be a natural person.

Can a business or a corporation be an annuitant?

No, it's an illegal business practice.

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

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

Cash option

Hazards

Conditions that increase the chance of a loss are known as what?

A key person insurance policy can pay for which of the following?

Costs of training a replacement

Are subject to vesting requirements.

Employer contributions made to a qualified plan...

Employees

For a retirement plan to be qualified, it must be designed for whose benefit?

At least 4 years

For how long must a company maintain a complete file of all advertisements used?

Uncertainty of loss

For the purpose of insurance, what is risk?

For continuation of business in case the licensed producer dies or becomes disabled

For what reason can a temporary license be issued?

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income.

Annually renewable term

Group life insurance policies are written as what type of insurance?

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called

Guaranteed insurability.

All of the following are licensing requirements for a business entity, EXCEPT

Having all employees complete continuing education courses once every 2 years.

Single life and multiple life annuities

How are annuities classified depending on how many lives they cover?

They are not included as income for the employee, but are taxable upon distribution.

How are contributions to a tax-sheltered annuity treated with regards to taxation?

By their members - authorized insurers

How are state Insurance Guaranty Associations funded?

The premium is based on the average age of the insureds.

How is the premium determined in a joint life insurance policy?

Only for the life of the annuitant

How long is income paid under a pure life annuity?

10 days

How long is the right to examine period for new individual annuities issued in this state?

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years.

How long will a life annuity with a 15-year period certain pay?

Until the beneficiary's death

How long will the beneficiary receive payments under the single life settlement option?

Biennually (ever 2 years)

How often does a producer license need to be renewed?

As often as deemed necessary, but at least once every 5 years

How often will the Commissioner examine each rating organization?

Within 30 days

How soon after the due date should the insurer pay the agent appointment fees?

No later than 1 year from the time of annuity purchase

How soon can income payments begin in an immediate annuity?

The change must be reported to the Commissioner.

If a licensee wants to transact insurance under a different name than that listed on his or her producer's license, which of the following must occur?

Jumping Juvenile policy

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Defamation

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

The plan has favorable tax treatment.

If a retirement plan is qualified, what does that mean?

Lump-sum payment

If a settlement option is not chosen by the policyowner of the beneficiary, what option will be used by the insurer?

Send the application back to the applicant for signature.

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Joint life annuity

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

The agent

If an applicant does not receive his or her insurance policy, who would be held responsible?

The existence of insurable interest between the applicant and the insured

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

Require evidence of insurability.

If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may...

Evidence of insurability

If an employee wants to join group life insurance coverage outside of the open enrollment period, what would the employee have to provide?

Settlement option

If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a...

It will decrease

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

Whole life

If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage?

Department of Insurance

If an insurer appoints a producer, which authority must be notified?

File the form with the Commissioner for approval

If an insurer changes a form that it uses to transact insurance, it must do which of the following?

Authorized or admitted

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Authorized or admitted

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Cease or desist order

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

Either the amount paid into the annuity or the cash value, whichever is greater

If the annuitant dies before the annuitization period starts, what will the beneficiary receive?

The beneficiary

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

The beneficiary

If the annuitant dies during the accumulation period, who will receive the annuity?

Interest only

If the beneficiary of a life insurance policy receives death benefit and payments that consist of principal and interest, which portion, if any, will be taxed?

Current

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

The annuitant's estate

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

From trustee to trustee

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

Upon the first death

In a joint life policy, when is the death benefit paid?

The annuitization period

In an annuity, the accumulated money is converted into a stream of income during which phase?

The insured's attained age

In annually renewable term policies, what is the annual premium based upon?

The predicted needs of a family after the premature death of the insured

In calculating the amount of life insurance needed, what is the needs approach based on?

Amount of premium

In flexible premium payment annuities, the term "flexible" refers to what?

When an insurer's underwriter approves coverage

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

When the insurer approves a prepaid application.

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

Insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive or clerical).

In general, who can be excluded from producer licensing and examination requirements?

When the insurance application is submitted.

In insurance, when is the offer usually made on a contract?

Grow tax deferred

In life insurance policies, cash value increases...

A certificate of authority

In order for a foreign insurer to do business in this state, it must apply for and obtain...

No, employer contributions are not taxed as income to the employees.

In qualified plans, are employer contributions taxed as income to the employees?

The premium remains level

In term policies, what happens to the premium throughout the term of the policy?

Executive is the owner, and the executive pays the premium.

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

The insurer

In the agent/insurer relationship, who is considered the principal?

The longer the period selected, the smaller each installment will be

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Cash value and death benefit

In variable universal life insurance, to what policy component does the term variable refer to?

In cash

In what form of payment must the contributions to a traditional IRA be made?

Universal life

In what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?

Annually renewable term policies provide a level death benefit for a premium that

Increases annually.

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

Increasing Term

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

Loss

Insurance is a contract that protects the insured from what?

Domestic, foreign, and alien

Insurers are classified according to their domicile. What are the three types of insurers?

15 days prior to group life policy expiration.

Insurers are required to give the insured converting to an individual policy notice of their conversion privilege...

15 days prior to group policy expiration.

Insurers are required to give the insured converting to an individual policy notice of their conversion privilege...

No, lump-sum benefits are received tax free.

Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary.

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount.

Which statement is NOT true regarding a Straight Life policy?

Its premium steadily decreases over time, in response to its growing cash value.

Generally not taxed as income.

Life insurance death proceeds are...

Estate conservation

Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?

Life expectancy and the death rates for specific groups of individuals

Mortality tables are used by insurance companies to predict what?

A producer has become disabled. In order to keep his business going, what may the producer's designee do?

Obtain a temporary license

Not taxable since the IRS treats them as a return of a portion of the premium paid.

On a participating insurance policy issued by a mutual company, dividends paid to policyholders are...

Misrepresentation

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of?

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

One-year term option.

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value?

Outstanding loans and interest

The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death.

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

Tax deferred

Regarding taxation, how does the cash value of a universal life policy accumulate?

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?

Replacement rule

Which type of retirement account does not require the owner to start taking distributions at age 73?

Roth IRA

No more than 100

SIMPLE plans are available to groups of how many employees?

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?

Standard risk is representative of the majority of people.

Which of the following types of risk will result in the highest premium?

Substandard Risk

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection.

Regulates consumer reports.

The Federal Fair Credit Reporting Act...

Which of the following would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

Set premium rates

The Ownership provision entitles the policyowner to do all of the following EXCEPT

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

The annuitant dies while the annuity is still in the accumulation stage. Which of the following is true?

Who is responsible for paying producer appointment fees?

The appointing insurer

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary.

Depends on the performance of a separate account.

The death benefit in a variable universal life policy...

Annually Renewable Term

The death protection component of Universal Life Insurance is always...

Annually renewable term

The death protection component of a universal life policy is expressed as what type of coverage?

As of the application date

The full premium was submitted with the application for the life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is this money placed?

The insurance company's general account

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

The insured may renew the policy for another 10 years, but at a higher premium rate.

Stock company

The insurer organized to return a profit to the stockholders is what type of insurer?

Which of the following is NOT a characteristic of an insurable risk?

The loss must be catastrophic.

To purchase a similar amount of the same type of insurance as the original policy.

The paid-up addition option uses the dividend...

Age 100

The policyowner of a whole life insurance policy is also the insured. What age must the insured attain in order to receive the policy's face amount?

Lower

The premium of a survivorship life policy compared with that of a joint life policy would be...

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

It will be paid to the insured's estate.

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

The spouse named as beneficiary has obtained or consented to a final decree or judgement of an annulment, divorce or separation.

The termination of marital property rights may be reversed for all of the following reasons EXCEPT

Which of the following is an example of a producer's fiduciary duty?

The trust that a client places in the producer in regard to handling premiums.

Mutual company

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Convertible Term Policy

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

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract

A copy of the original insurance application

To meet the requirement of the entire contract policy provisions, an insurance policy must contain what?

To an insurer authorized to transact business in this state

To whom may a certificate of authority be issued?

Owner's income

Traditional IRA contributions are tax deductible based on which of the following?

Discrimination

Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?

The death benefit increases each year by the amount of the cash value increases

Under Option B in a universal life policy, what happens to the death benefit?

An undetermined percentage for each dollar contributed by the employee.

Under the 401(k) bonus or thrift plan, the employer will contribute...

Respond to the consumer's complaint.

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must...

Cash surrender

Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?

Installments for a fixed period

Under which of the following annuity options does the annuitant select the time period for the benefits and the insurer determines how much each payment will be?

Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?

Universal life

Guaranteed and current

Universal life policies have two types of interest rates. What are they?

Only the portion in excess of the premium paid

Upon surrender of a life insurance policy, what portion of the cash value will be taxed?

Speculative

Wagering on a sporting event is known as what type of risk?

Life income with period certain

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Pure life

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and ceases at the annuitant's death?

Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)

What are accumulation units in annuities?

Presentations of nonguaranteed elements of the policy

What are illustrations in a life insurance policy?

Return of unused premiums

What are policy dividends?

Complete continuing education hours and pay a renewal fee

What are producers required to do in order to renew their license?

IRA, 401(k), HR-10 (Keogh), SEP, SIMPLE

What are some examples of qualified plans?

Group's purpose, size, financial strength and turnover

What are the characteristics of the group that underwriters will consider before issuing a group life policy?

10% penalty

What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?

Option A- Level death benefit Option B- Increasing death benefit

What are the death benefit options in universal life policies?

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, and one-year term

What are the dividend options in life insurance policies?

Loss must be: 1) due to chance 2) definite and measurable 3) statistically predictable 4) not catastrophic 5) coverage cannot be mandatory.

What are the five characteristics of an ideally insurable risk?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose.

What are the four elements of an insurance contract?

Employer contributions are tex deductible and are not taxed as income to the employee. The earnings accumulate tax deferred.

What are the income tax benefits of a qualified plan?

Loan values

What are the living benefits of whole life insurance?

War and military service, hazardous occupation, and aviation

What are the most common exclusions in life insurance policies?

A cease and desist order, a fine, and license suspension or revocation

What are the most common penalties for violations of insurance statutes?

Immediate and deferred

What are the two classifications of annuities according to the time when annuity payments begin?

Accumulation and annuitization (or pay-in and pay-out)

What are the two phases of an annuity?

Cash refund and installment refund

What are the two types of refund life annuities?

Primary beneficiary

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

The annuity's underlying investments

What causes a variable annuity benefit to vary?

Paid-up additions

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

What dividend option is automatically selected by the company if not chosen by the policyowner?

Policy summary

What document describes the specific information about a policy?

Certificate of Authority

What document is required for an insurance company to transact insurance?

Face amount

What does level refer to in level term insurance?

Availability of cash value

What does liquidity mean in a life insurance policy?

The insurer will pay a benefit of twice the face amount.

What does the term double indemnity mean?

Insurers

What entities make up the Medical Information Bureau?

The owner will receive the surrender value of the annuity.

What happens if a deferred annuity is surrendered before the annuitization period?

The cash value is converted to the same face amount as in the whole life policy.

What happens to a policy's cash value under an extended term nonforfeiture option?

Cash value is paid to the policyowner

What happens to the cash value when a whole life insurance policy matures?

The premium increases with each renewal

What happens to the premium in an annually renewable term life policy?

The proceeds are paid to the insured's estate.

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Misrepresentation

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

What is a disadvantage of owning a fixed annuity, as opposed to variable?

An absolute true statement upon which the validity of the insurance contract is based.

What is a warranty in an insurance contract?

Earned income

What is required to qualify an individual to contribute to a traditional IRA?

Policy premium in a reinstated policy will be set according to the insured's original age.

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Return the application to the applicant for completion.

What is the best way to handle incomplete applications?

The number of payments that purchase the annuity

What is the difference between a single premium and a flexible premium payment options in a deferred annuity?

Death benefits are generally no subject to income taxes.

What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

Evidence of insurability is not required.

What is the main advantage of converting from group life insurance to individual coverage?

To serve as a temporary storage of funds for the beneficiary.

What is the main purpose of a Retained Asset Account?

To determine if a life insurance policy is a Modified Endowment Contract

What is the main purpose of the 7-pay Test?

To provide income that the annuitant cannot outlive

What is the main reason for purchasing an annuity?

Risk selection

What is the main responsibility of a company's underwriting unit?

Other-insured rider

What is the name for a life insurance policy rider that provides coverage on the insured's family members?

A Modified Endowment Contract (MEC)

What is the name for an overfunded life insurance policy?

War or military service

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

6%

What is the penalty for excessive contributions to a traditional IRA?

Provide retirement income

What is the primary purpose of a 401(k) plan?

To prevent a producer or insurer from further violating laws for transacting insurance

What is the purpose of a cease and desist order?

To allow the insured to return the policy with a full refund

What is the purpose of a free-look period?

To prevent the policy from lapsing

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

To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers

What is the purpose of insurance guaranty associations?

To minimize the risk of financial loss caused by the death of a key employee

What is the purpose of key person insurance?

To determine how the death benefit will be paid to the beneficiary

What is the purpose of settlement options in life insurance policies?

To prevent the unintentional lapse of a policy because of nonpayment of the premium

What is the purpose of the Automatic Premium Loan provision?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

What is the purpose of the agent's report during the application process?

Income tax on distributions and no penalty

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?

Income tax on distributions and no penalty.

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?

Peril

What is the term for the causes of loss insured against in an insurance policy?

Incontestability

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Entire contract

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Waiver of premium

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Extended term

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Reduced paid-up

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

Interest earned or principal

What portion of a nonqualified annuity payment would be taxed?

Reinstatement

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Grace period

What provision in a life insurance policy extends coverage beyond the premium due date?

Grace period

What provision in an insurance policy extends coverage beyond the premium due date?

HR-10 or Keogh

What qualified plan is suitable for the self-employed?

Grace period

What required provision protects against unintentional policy lapse?

Lump-sum/cash, fixed period, fixed amount, life income, interest only

What settlement options are available in life insurance policies?

Premium

What term describes the fee a person pays an insurance company to receive coverage?

Settlement options

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?

Insurable interest and consent

What two elements are necessary for a life insurance contract to have a legal purpose?

Trust

What type of account will most likely be established for a minor?

Immediate annuity

What type of annuity can be purchased with a single premium?

Equity indexed annuity

What type of annuity credits its interest based upon an Index such as S&P 500?

Straight life

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Variable annuity

What type of annuity requires an agent to have a securities license?

Collateral assignment

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Revocable

What type of beneficiary can be changed at any point by the policyowner?

Contingent beneficiary

What type of beneficiary is next in line after primary beneficiary?

Life insurance

What type of insurance creates an immediate estate?

Increasing term

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

Alien

What type of insurer is formed under the laws of another country?

A life insurance license and a securities license

What type of license(s) is/are required in order to sell variable annuities?

The agent

What type of licensee represents the insurance company?

Broker

What type of licensee represents the insured?

Limited-pay Whole Life

What type of life insurance policy is Life Paid-up at Age 65?

Term

What type of life insurance policy offers pure death protection?

Twisting

What type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?

Qualified profit-sharing plan

What type of plan is a 401(k)?

Group policy

What type of policy issues certification of insurance to the insureds?

A level premium for the life of the insured

What type of premium is charged on a straight life policy?

Single premium whole life

What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100?

Complete a new application or ask the applicant to initial the correction on the original application.

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

The insurance company's general account

When a fixed annuity owner pays a monthly annuity premium to the insurance company, where is the money placed?

It is reduced to the amount of what the cash value would buy as a single premium.

When a reduced paid-up nonforfeiture option is chosen, what happens to the face amount of the policy?

Purchase a single premium policy for a reduced face amount.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to...

The insurer

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

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

When an insurer's underwriter approves coverage

When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

When can an insurance company use suicide as a defense against paying a death claim?

Whenever deemed necessary, but at least once every few years

When can the Commissioner or Director examine insurers?

When the premiums paid are more than the cost of the policy

When does an adjustable life policy accumulate cash value?

When the policy is delivered and the premium is paid.

When does an insurance policy go into effect?

When the application is signed and a check is given to the agent

When is the earliest a policy may go into effect?

Within 30 days

When must a licensee make a report of any administrative action taken against them in another jurisdiction or by another government agency?

At the time of application

When must insurable interest exist in a life insurance policy?

At the time of policy delivery

When must the policy summary for a life insurance policy be delivered to the policyowner?

The insured's current assets, liabilities and survivor's needs

When planning for survivor protection in life insurance, what needs to be considered?

Adverse selection

When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?

Evidence of insurability

When the amount of insurance is increased in an adjustable life policy, what will the insurer require from the insured?

When the primary beneficiary dies before the insured

When will a contingent beneficiary receive death benefits from a life insurance policy?

When there is an incident of ownership at the time of death

When would life insurance policy proceeds be included in the insured's taxable estate?

Life income with certain period

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Reduced paid-up

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

Department of Insurance

Which of the following authorities monitors the financial strength of insurers?

Someone who gives money as consideration for a life insurance policy

Which of the following best describes a "viatical settlement purchaser"?

It allows the owner to surrender the annuity without a charge.

Which of the following best describes a bail-out provision?

It is level term insurance.

Which of the following best describes annually renewable term insurance?

The earnings in a qualified plan accumulate tax deferred.

Which of the following best describes the tax advantage of a qualified retirement plan?

The period of time during which accumulated money is converted into income payments.

Which of the following best describes what the annuity period is?

The Federal Trade Commission

Which of the following entities established the Do-Not-Call Registry?

The Commissioner

Which of the following entities must approve all continuing education courses?

The application given to a prospective insured

Which of the following is NOT the consideration in a policy?

The death benefit is fixed.

Which of the following is NOT true regarding a Variable Universal Life policy?

Death due to a plane crash for a fare-paying passenger

Which of the following is NOT typically excluded from the life policies?

It has a tax benefit for both employer and employee.

Which of the following is TRUE of a qualified plan?

Benefit payment amounts are not guaranteed.

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

It commences when the policy is delivered.

Which of the following is true about the mandatory 10-day free look in a Life Insurance policy?

It provides income the beneficiary cannot outlive.

Which of the following is true regarding a single life settlement option?

They are tax free to terminally ill insured.

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

It can protect the policy proceeds from creditors of the beneficiary.

Which of the following is true regarding the spendthrift clause in life insurance policies?

Straight Life

Which of the following policies would be classified as a traditional level premium contract?

Universal Life- Option A

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

Long-term care

Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?

Payor Benefit Rider

Which of the following riders would NOT cause the Death Benefit to increase?

Payor benefit rider

Which of the following riders would NOT cause the Death Benefit to increase?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

Which of the following statements about the reinstatement provision is true?

Withdrawals are not taxable.

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE?

Confirming future dividends in a life insurance proposal

Which of the following would be considered an illegal inducement to purchase insurance?

Absolute assignment

Which of the two types of policy assignments requires transfer of ALL ownership rights in the policy to a third party?

Roth IRA

Which type of retirement account does not require the owner to start taking distributions at age 73?

The insurer

Who bears the investment risk in a fixed annuity?

Producer's spouse or designee in case the licensed producer dies or becomes disabled

Who can usually be granted a temporary license?

The policyowner

Who controls changes in premium payments, face values, and loans in a life insurance policy?

The contingent beneficiary

Who does the common disaster clause protect?

The policyowner

Who has the right to the cash value of a life insurance policy?

A person authorized to sell, solicit and negotiate insurance contracts

Who is an insurance agent?

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

Who is considered a nonresident agent?

A minor

Who is insured under a juvenile life policy?

The insurance company

Who is responsible for the contents of insurance advertisements?

The insurer who is being examined

Who is responsible for the costs associated with the examination of insurers?

The employer

Who is the beneficiary on a key-person life insurance policy?

Insurers

Who makes up the Medical Information Bureau?

Only producers properly licensed for the type of insurance transaction

Who may share in the commission from the sale of a life insurance policy?

All insurers authorized to write insurance within a state

Who must be a member of insurance guaranty associations?

The Department of Insurance (Commissioner/Director/Superintendent)

Who must be notified of a producer's change of address?

The policyowner

Who must have insurable interest in the insured?

The employer (also known as the sponsor of the group)

Who owns a group life insurance contract?

Stockholders

Who owns stock companies?

The annuity owner

Who possesses all the rights in an annuity?

Employees of nonprofit organizations under Section 501 (c)(3) and employees of public school systems

Who qualifies for tax-sheltered annuities, or 403(b) plans?

The annuitant

Who receives income payments from an annuity?

The full death benefit

Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at age 80, and there are no outstanding loans on the policy, what portion of the death benefit will be paid to the beneficiary?

Age 100

Whole life policies provide protection until the insured reaches what age?

The insurance company

Whom does an insurance agent represent?

The annuitant

Whose life expectancy is taken into consideration in an annuity contract?

The agent's

Whose responsibility is it to determine that all the questions on an insurance application are answered?

Dividends are not considered income for tax purposes; they are a return of unused premium.

Why are dividends in life insurance policies not taxable?

There is no cash value to borrow against.

Why are policy loans not available on term insurance?

To help the insured understand all aspects of the contract

Why should the producer personally deliver the policy when the first premium has already been paid?

No sooner than 1 year after the annuity purchase

With a single premium deferred annuity, when will the annuity payments become available?

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary

With the interest only settlement option, what happens to the policy's death benefit?

The dividend is applied to the next year's premium (it reduces the next year's premium).

With the reduction of premium dividend option, how is the dividend used?

Limited pay whole life

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 the client?

Cash surrender, reduced paid-up, and extended term

what are the three nonforfeiture options in life insurance policies?

The amount and payment period of the premium, the face amount, and the period for protection

what elements of an adjustable life policy can be changed by the policyowner?

Agent or producer

According to the Law of Agency, a principal is represented by whom?

Higher frequency of premium payments will result in higher overall premium

How does the premium mode affect the total premium paid for insurance for the year?

Once every 3 months

How often may a viatical settlement provider contact an insured regarding the insured's health status if the insured's life expectancy is more than one year?

Fiduciary

The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?

For 20 years or until the insured's death, whichever occurs first.

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid for what time period?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

What are the personal uses of life insurance?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate.

What are the strategies used by underwriters to prevent adverse selection?

Mortality, interest and expense

What are the three factors that determine the premium for a particular life insurance policy?

Insuring your own life, the life of a family member, or the life of a business partner or someone who has a financial obligation to the policyowner

What are the three main instances when insurable interest exists in life insurance?

Express, implied, and apparent

What are the three types of agent authority?

Physical, moral, and morale

What are the three types of hazards?

Insurance

What do individuals use to transfer their risk of loss to a larger group?

Medical information about the prospective insured

What is included in Part 2 of a life insurance application?

The process of risk selection and classification

What is insurance underwriting?

Premium mode

What is the term that describes the frequency and the amount of the premium payment?

Decreasing term

What type of life insurance is best suited to cover a mortgage?

Permanent insurance (usually, whole life)

What type of life insurance offers an applicant a cash value element?

A level premium for the life of the insured

What type of premium is charged in a straight life policy?

Investigative consumer report

What type of report provides information about the applicant's hobbies, habits and financial status?

Pure

What type of risk is insurable?

Single premium whole life

What type of whole life insurance policy generates immediate cash value?

Option A

What universal life option has a gradually increasing cash value and a level death benefit?

When the insured reaches age 100

When would a 20-pay whole life policy endow?

When it is intentional and material.

When would a misrepresentation on an insurance application be considered fraud?