Life Insurance Agent Practice Exam

The _____________ clause protects the proceeds held under a settlement option from attachment by creditors of the beneficiary.

1) spendthrift 2) incontestable 3) B.O.E. 4) coordination of benefits 1

Risk Retention Groups (RRGs) are a form of __________ insurer.

1) stock 2) mutual 3) commercial 4) industrial 2

Which of the following questions would NOT be a legitimate concern for an underwriter writing a contract?

1) Is the proposed insured a standard risk? 2) Is the proposed insured insurable? 3) Does insurable interest exist? 4) Does the proposed insured have at least $5,000 in the bank? 4

Which of the following best describes the function of insurance?

1) It is a form of legalized gambling. 2) It spreads financial risk over a large group to minimize the loss to any one individual. 3) It protects against living too long. 4) It creates and protects risks. 2

What type of life insurance refers to temporary coverage of a specific hazard for a specific group?

1) LTC insurance 2) Limited insurance policies 3) Indemnity insurance policies 4) Blanket insurance policies 4

In order for the Social Security 40-quarter rule to apply, an individual must have been employed and paid FICA taxes for at least _____ years.

1) five 2) seven 3) ten 4) fifteen 3) Ten

The type of annuity that provides a guaranteed rate of return is called a ______________ annuity.

1) fixed 2) life 3) hybrid 4) variable 1

In order to purchase a life insurance policy, the policyowner must:

1) have an insurable interest in the subject of the insurance. 2) be a relative. 3) be a spouse. 4) be a neighbor. 1

Life insurance is concerned with creating an estate, whereas annuities are concerned with:

1) hiding taxable income. 2) liquidating cash. 3) willing an estate. 4) liquidating an estate. 4

When the youngest child reaches age 16 and the surviving spouse has not reached age 60, Social Security death benefits are:

1) higher due to the child's young age. 2) lower due to the child being of age for employment. 3) temporarily suspended. 4) permanently dissolved. 3

The ______________ annuity option provides a guaranteed income to the annuitant for life and if the insured dies prematurely, the balance of the principal is paid out in a lump sum to the annuitant's beneficiary.

1) installment refund 2) cash refund 3) life with period certain 4) period certain 2

Insurance would be unenforceable and considered a wager if the __________ does not have an insurable interest in the insured party.

1) insured 2) beneficiary 3) policyowner 4) insurer 3

The ____________ determines the life insurance policy's beneficiary.

1) insured 2) policyowner 3) insurer 2) Policyowner

Policy reserves are the intangible amounts set aside by the _____________ out of the insurer's assets at the beginning of the policy period.

1) insurer 2) insured 3) Department of Financial Services 4) state 1

The _______________ is basically a savings account developing within the insurance policy.

1) interest only payment method 2) policy reserve 3) cash value 4) gross premium 3

An annuity must begin with a sum of money that can either be supplied through the single payment method or the periodic payment method. If the periodic payment method is used, the payment amount:

1) is fixed. 2) is flexible. 3) can be either fixed or flexible. 3

Service providers contract for and sell medical and hospital:

1) medications. 2) training. 3) care services. 4) supplies. 3

When a stock life insurance company issues both participating and nonparticipating policies, the company is doing business on a:

1) mixed plan. 2) commercial plan. 3) mutual plan. 4) stock company plan. 1

The employees of XYZ Company must each pay a part of the premium for their group health/life insurance plan. They are, therefore, members of a ______________ group plan.

1) noncontributory 2) contributory 3) nonparticipating 4) nonadmitted 2

In general, the standard life insurance Incontestable Clause means that a policy is incontestable after:

1) one year. 2) two years. 3) the initial premium has been collected. 4) the insurer has promised to pay the claim. 2

Reciprocal insurers are owned by:

1) policyholders. 2) stockholders. 3) the federal government. 1

A PCP is a:

1) protective care physician. 2) primary care physician. 3) proactive care provider. 4) prime consultant physician. 2

An insured group of doctors and an insured group of pharmacists are typically insured through:

1) reinsurers. 2) stock insurers. 3) mutual insurers. 4) risk retention groups. 4

Level, decreasing, and increasing insurance are all basic forms of ____________ insurance.

1) term 2) whole life 3) permanent 4) endowment 1

Toni decides to take a special vacation on her 40th birthday and withdraws $4,000 from her IRA. What penalty will she be subject to on the amount withdrawn?

1) $0 2) $40 3) $400 4) $4,000 3

Each Social Security credit equals _______ annual FICA taxed earnings in 2011.

1) $1,050 2) $980 3) $990 4) $1,120 4

In 2011, the limit on employee deferrals to a 401(k) plan is $_________ a year

1) $14,000 2) $14,500 3) $15,500 4) $16,500 4

If an annuitant owns 300 annuity units and receives $1,500 a month, what is the value of each annuity unit?

1) $3 2) $5 3) $30 4) $50 2

Under Social Security benefits, in order for an individual to be classified as "fully insured," the worker must have completed _________________ of participating employment.

1) 20 quarters 2) 30 quarters 3) 40 quarters 4) Any worker is fully insured as long as they retain employment until retirement, disability, or death. 3

Social Security disability benefits have a ________ waiting period

1) 3 month 2) 5 month 3) 6 month 4) 9 month 2

_______ quarters of participating employment are required to be considered fully insured under Social Security.

1) 40 2) 60 3) 80 4) 100 1

A __________ plan is a qualified plan that allows unincorporated business owners to participate in a retirement plan as an employee.

1) 401(k) 2) Keogh 3) SEP 4) Simplified Employee Pension 2

The Free Look Period for life insurance contracts is _______ days.

1) 5 2) 14 3) 10 4) 7 3

In what way is an equity-indexed annuity different from other fixed annuities?

1) Because of the way it credits interest to the annuity's value. 2) Because an equity-indexed annuity is a variable annuity, not fixed. 3) The equity-indexed annuity and other fixed annuities are the same; the only difference is that they are not variable. 1

Which of the following is NOT a benefit to key person insurance?

1) Business credit 2) Flexibility 3) Reserve fund 4) Wage control 4

An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance policies owned by each principal on the lives of all other principals is the:

1) Buy-Sell plan. 2) Disability Buy-Sell agreement 3) Divestiture option 4) Key Person insurance plan. 1

What specific word is used to refer to the "money" used to purchase insurance coverage?

1) Consideration 2) Faith 3) Payables 4) Receivables 1

An immediate annuity is designed to provide income:

1) Immediately. 2) Immediately upon retirement. 3) Immediately upon unemployment. 4) Immediately upon disability. 1

___________ create their own reserves to provide coverage for future losses.

1) Industrial insurers 2) Mutual insurers 3) Self-insurers 4) Commercial insurers 3

The Straight Life Income annuity option pays the annuitant:

1) a lump sum at maturity. 2) nothing until the annuitant dies. 3) a guaranteed face amount. 4) a guaranteed income for the annuitant's lifetime. 4

The ______________ refers to the fact that a written contract cannot be changed by oral evidence.

1) aleatory contract 2) evidence of coverage 3) parol evidence rule 4) coordination of benefits 3

The _______________ bears the investment risk in a variable annuity.

1) beneficiary 2) insurer 3) annuitant 3

A group life insurance plan in which the employee and the employer contribute a portion of the premiums is known as a ____________ plan.

1) contributory 2) noncontributory 3) master 4) universal 1

To "furnish with an income" is to:

1) endow. 2) mature. 3) surrender. 1

There are no cash values in _____________ insurance

1) endowment 2) term 3) whole life 4) universal 2

Taking all of the funds available to a family and planning for their future financial obligations is an example of the ______________ in life insurance.

1) Human Life Value Approach 2) Needs Approach 3) Dollar Valuation Method 4) Multiple Earnings Calculation 2

Insurance is a contract of

1) financial independence. 2) utmost good faith. 3) representation. 4) security. 2

The two categories of retirement contribution plans are _________________ Plans and Defined Contribution Plans.

1) Defined Benefit 2) Administrative 3) Fixed Annuity 4) Variable Annuity 1

Which of the following types of insurance contracts are NOT considered valued contracts?

1) Disability income insurance 2) AD&D insurance 3) Medical expense plans 4) Life insurance 3

The ____________ insurer is licensed and practicing in the same state in which they are incorporated.

1) Domestic 2) Alien 3) Native 4) Foreign 1

The Social Security payroll tax is known as ____________ tax

1) FICA 2) FSSA 3) SSP 4) FPA 1

What does FICA stand for?

1) Federal Income Compensation Association 2) Federal Income Compensation Act 3) Federal Insurance Contributions Association 4) Federal Insurance Contributions Act 4

Which of the following is a Nonforfeiture Option that provides continuing cash value buildup?

1) Fixed Period Certain 2) Reduced Paid-up 3) Automatic Renewability 4) Cash Surrender at age 100 2

_____________ health insurance is issued to cover a group who may be exposed to the same risks, but the composition of the group is constantly changing.

1) Franchise 2) Blanket 3) Credit accident 4) Accident 2

_____________ health plans are designed to help the insured pay off a loan in the event he or she is disabled due to an accident or sickness.

1) Franchise 2) Blanket 3) Credit accident 4) Accident 3

Rob died in a car accident and his wife, Jean, survived. Their annuity was purchased to provide income for two people. Jean's annuity income will now provide her with two-thirds of the original payments. Which annuity payout method did they choose?

1) Life with Period Certain 2) Joint and Full Survivor 3) Joint and Two-thirds Survivor 4) Joint and One-half Survivor 3

Which of the following does NOT describe one of the ways in which insurable interest can be established?

1) Love and affection 2) Sympathy for a neighbor 3) Blood relationships 2

All of the following are unfair trade practices except:

1) Misrepresenting the financial condition of an insurer 2) Processing an insured's premium payment by credit card 3) Disseminating a false statement about the business of insurance 4) Issuing agency stock to encourage the sale of insurance 2

Which of the following is NOT one of the primary factors used in determining life insurance premium costs?

1) Mortality 2) Loading charges 3) Interest rate 4) Morbidity 4

Which of the following types of insurers are prohibited in North Carolina?

1) Mutual insurers 2) Assessment Mutual insurers 3) Reinsurers 4) Commercial insurers 2

Discounting a person's future net earnings at a reasonable rate of interest is known as the ___________________ approach.

1) Needs 2) Human Life Value 3) Economic Value 2

On a 10-year level term policy, if the insured dies after 10 years, what does the beneficiary receive?

1) Nothing 2) The cash value 3) An amount equal to the premiums paid 4) The full face value 1

If the insured on a 10-year level term policy dies after only 5 years, what does the beneficiary receive?

1) Nothing 2) The full face value 3) One-half of the face value 4) An amount equal to the premiums paid in 2) The full Face Value

What does OASDI stand for?

1) Owner Authorizes Disability Income 2) Old Age, Survivors, Disability & Hospital Insurance 3) Owned and Supported Disability Insurance 2

Which of the following risks is insurable?

1) Pure risks 2) Gambling 3) Speculative risks 4) Investing 1) Pure Risks

Mac decides to install a burglar alarm in his residence. What type of risk classification would this be?

1) Risk Reduction 2) Risk Retention 3) Risk Avoidance 4) Risk Transference 1

Self-insuring is an example of:

1) Risk Reduction. 2) Risk Retention. 3) Risk Transference. 4) Risk Avoidance. 2

Annuity payment amounts are based upon which of the following factors?

1) Starting principal and interest 2) Interest and income period 3) Income period and starting principal 4) Starting principal, interest, and income period 4

Which of the following whole life policies provide level premiums limited to a certain time period (less than life)?

1) Straight Whole Life 2) Limited Pay Whole Life 3) Single Premium Whole Life 4) Indexed Whole Life 2

"Corporations" can be publicly-held or closely-held

1) TRUE 2) FALSE 1

"Partnerships" usually are made up of two or more owners who contribute and share profits.

1) TRUE 2) FALSE 1

A Waiver of Premium rider is usually included with guaranteed renewable and noncancelable individual disability income policies.

1) TRUE 2) FALSE 1

Term insurance specifies coverage for a limited amount of time.

1) TRUE 2) FALSE 1

A life insurance policy's cash value belongs to the insured.

1) TRUE 2) FALSE 2

Since a mutual insurance company has no stockholders, it cannot be considered a corporation.

1) TRUE 2) FALSE 2

The purpose of Social Security is to provide retirement income

1) TRUE 2) FALSE 2

When a life insurance policy is reinstated after lapse, any outstanding loans must ALWAYS be repaid before reinstatement is effective

1) TRUE 2) FALSE 2

When a group life insurance policy is canceled, which of the following is NOT required?

1) The insurance company must notify the group policyowner. 2) The insurance company must request that the policyowner notify the group members. 3) The insurance company must notify the group members. 4) The policyowner must notify the group members. 3

Adverse Selection is based on what premise?

1) The propensity for insuring less favorable insurance risks. 2) The propensity for insuring more favorable insurance risks. 3) Age discrimination. 4) Gender discrimination. 1

A policy of individual life insurance must contain a grace period provision.

1) True 2) False 1

Except as otherwise provided by law, offering a rebate on life insurance premiums other than what is plainly expressed in the contract is prohibited.

1) True 2) False 1

"Replacement" means a transaction in which a new policy is purchased by a person who has never had insurance before.

1) True 2) False 2

Even with the incontestable clause in a life insurance policy, if an insurer finds that the purchased policy was fraudulent, the insurer can void the contract.

1) Under the Incontestable Clause, the insurer CANNOT ever void a policy. 2) The policy cannot be voided after the two year (or policy-defined) period. 3) Even after two years, the policy can be voided as long as fraud can be proven. 2

Is a variable annuity insurer required to inquire whether an applicant for a variable annuity also has any form of fixed dollar income?

1) YES 2) NO 1

Deferred compensation plans can be simply and best defined as:

1) a contractual agreement to pay benefits in the future. 2) a distinct advantage in lowering overhead costs. 3) a means of avoiding paying benefits due to advancing age. 4) a way of retaining high-paid employees. 1) a contractual agreement to pay benefits in the future.

Using preprinted material in a sales presentation is recommended because:

1) the agent doesn't have to know exactly how a product works. 2) it saves a lot of time and explanation. 3) such material generally has been reviewed for compliance. 4) the agent can give it to the client instead of answering the client's questions. 3

A Salary Continuation Plan is set up between the employer and employees and is funded by:

1) the government. 2) the employer. 3) the employee. 2

The Social Security Administration defines disability as:

1) the inability to secure another employment position. 2) the inability to support your family. 3) the inability to engage in any substantial gainful work. 4) a condition of acute illness. 3) the inability to engage in any substantial gainful work.

A Variable annuity separate account will be invested in:

1) the legal reserve for liquidity. 2) common stocks and other securities. 3) short term government securities. 4) bonds. 2

The actual number of annuity units is determined by:

1) the number of annuity units. 2) the number of annuity units and the number of accumulation units added together. 3) the number of accumulation units and how long the annuity has been in force. 4) the current value of one unit relative to the amount of premiums paid. 4

In a reciprocal insurer structure, each policyholder insures the risks of:

1) the other stockholders. 2) the Board of Directors. 3) the other policyholders. 4) the industry. 3

Once insurable interest has been established, and the process of evaluating all of the information and applying it against the insurer's standards and guidelines has been accomplished, ______________ can be established.

1) the policy's face amount 2) premium rates 3) the effective date 4) risk 2

The basic risk insured against by purchasing a life insurance contract is ___________________ whereas the basic risk insured against by an annuity contract is __________________.

1) the risk of dying too soon; the risk of living too long 2) the risk of living too long; the risk of dying too soon 3) the risk of high interest rates; the risk of low interest rates 4) the risk of capital gains taxes; the risk of capital gains appreciation 1

Joan's insurance agent, Tim, has offered her a $100 dinner gift certificate if Joan purchases a life insurance policy from Tim. Tim has violated ethical sales practices by:

1) twisting. 2) churning. 3) misrepresentation. 4) rebating. 4

The designated time period for an equity-indexed annuity is ________ years.

1) two 2) four 3) six 4) seven 4

When a stock insurer issues both participating and nonparticipating policies, it is referred to as a company doing business on a ___________ plan.

1) two-for-one 2) par and nonpar 3) mixed 4) double 3

Lloyd's of London is an association of individuals and companies that individually:

1) underwrite insurance. 2) create insurance. 3) rate insurance. 4) insure high profile personalities. 1

To be insurable, a risk must involve the chance of loss that is ______________ and outside the insured's control.

1) unexpected 2) expected 3) anticipated 4) immediate 1) Unexpected

Most new life insurance policies are purchased by ______________ from life insurance agents.

1) unions 2) employees 3) individuals 4) employers 3

Family Income and Family Maintenance contracts both utilize a ____________ as the base, with a __________ rider.

1) whole life policy, term insurance 2) level term insurance policy, whole life 3) whole life policy, level term insurance 4) whole life policy, decreasing term insurance 1