Life Insurance Basics

How are state insurance guaranty associations funded? a. by NAIC b. by the government c. by their members - authorized users d. by the department of insurance

c. by their members - authorized users

If an insured changes his payment plan from monthly to annually, what happens to the total premium? a. doubles b. increases c. decreases d. stays the same

c. decreases

An application for a virtual settlement provider license must be submitting to which of the following? a. the governor's office b. the NAIC c. the insurance department d. the viatical settlement association

c. the insurance department

According to the 2001 CSO Table, what age will the terminal reserves be reached? a. 101 b. 120 c. 100 d. 99

b. 120

When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a(n) a. executive bonus b. key person policy c. fraternal association d. aleatory contract

a. executive bonus

Which of the following is NOT an example of insurable interest? a. child in parent b. debtor in creditor c. business partners in each other d. employer in employee

b. debtor in creditor

Which of the following would provide an underwriter with information concerning an applicant's health history? a. the inspection report b. the medical information bureau c. a medical examination d. the agent' report

b. the medical information bureau

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to.. a. lower its insurability standards b. refused to issue the policy c. charge a higher premium d. require a yearly medical examination

c. charge a higher premium

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 a. survivorship insurance b. juvenile protection provision c. survivor protection d. life planning

c. survivor protection

An insured has entered into a viatical settlement but decides that he would like to back out of the contract. Which of the following is true? a. this is possible at any time, but the longer the insured waits, the more of a penalty he will have to pay b. once a contract has been signed, it cannot be rescinded c. the insured has 15 calendar days from the effective date of the contract to rescind it d. the insured has 30 days from the effective date of the contract to rescind it

c. the insured has 15 calendar days from the effective date of the contract to rescind it

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? a. securities b. stock c. variable d. term

c. variable

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. a paramedic or examining physician at the insurer's expense b. the agent c. a physician of the applicant's choice and at his expense d. a home office underwriter

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

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? a. once every 3 months b. not more often than once a year c. any time d. once a month

a. once every 3 months

An insured has been diagnosed with a form of cancer that would only allow him to live no longer than 6 months. For the purposes of a viatical settlement, the insured would be classified as... a. terminally ill b. disabled c. viator d. chronically ill

a. terminally ill

Which of the following individuals must have insurable interest in the insured? a. producer b. policyowner c. beneficiary d. underwriter

b. policyowner

Which of the following is usually true of a participating life insurance policy? a. assesses premiums against stockholders b. pays dividends to policyowners c. may be converted to a term life policy d. pays dividends to stockholders

b. pays dividends to policyowners

An underwriting is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? a. a complete medical record b. sworn health affidavit from the applicant c. statement of continued good health d. attending physician statement

d. attending physician statement

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

Which of the following premium modes would result in the highest annual cost for an insurance policy? a. monthly b. quarterly c. semi-annual d. annual

a. monthly

Which of the following will be included in a policy summary? a. copies of illustrations and application b. comparisons with similar policies c. primary and secondary beneficiary designations d. premium amounts and surrender values

d. premium amounts and surrender values

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a. standard risk pays a higher premium than a substandard risk b. standard risk requires extra rating c. standard risk is also known as high exposure risk d. standard risk is representative of the majority of people

d. standard risk is representative of the majority of people

Are insurance company underwriters allowed to discriminate? a. yes, but not unfairly b. no, higher risks pay higher premium c. no, discrimination is an unfair practice d. yes, but only for gender

a. yes, but not unfairly

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information? a. state records b. medical records c. application d. interviews

c. application

Insurers must notify the commissioner's office as to whether or not a life insurance policy will be marketed with illustrations. Certification of that notification must be provided annually within how many days of the anniversary of the original certification? a. 10 days b. 30 days c. 60 days d. 90 days

b. 30 days

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. replacement rule b. reinstatement rule c. conversion rule d. disclosure rule

a. replacement rule

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? a. an annuity b. a modified endowment contract c. term d. permanent

d. permanent

At the time of initial licensing, what fee must a viatical settlement provider pay? a. $50 b. $100 c. $200 d. $300

d. $300

Regarding viatical settlements, the term terminally ill means a person who is expected to live for no longer than... a. 3 months b. 6 months c. 12 months d. 24 months

d. 24 months

Violation of unfair discrimination law may result in all of the following penalties EXCEPT a. refusal to renew licenses b. imprisonment c. fines of up to $1,000 for each act d. suspended licenses

c. fines of up to $1,000 for each act

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? a. when the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health b. on the designated effective date c. on the application date d. when the agent submits the application to the company and the company issues a conditional receipt

a. when the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health

Insurers must notify the Commissioner's office as to whether or not a life insurance policy will be marketed with illustrations. Certification of that notification must be provided annually within how many days of the anniversary of the original certification? a. 10 days b. 30 days c. 60 days d. 90 days

b. 30 days

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? a. the applicant's habits and health do not affect the premiums b. it will likely be lower because the applicant is a preferred risk c. it will likely be higher because the applicant is a substandard risk d. it will likely be the average premium issued to standard risks

c. it will likely be higher because the applicant is a substandard risk

Based on human life value approach, which of the following is NOT used to calculate an individual's life value? a. insured's annual expenses b. effect of inflation on income over time c. predicted needs of the family after the insured's death d. insured's current and future income

c. predicted needs of the family after the insured's death

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a ... a. backdated receipt b. warranty c. premium receipt d. statement of good health

c. premium receipt

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? a. the key employee is the owner and beneficiary b. the key employee is the owner and the employer is the beneficiary c. the employer is the owner and beneficiary d. the employer is the owner and the key employee is the beneficiary

c. the employer is the owner and beneficiary

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about a. whether an insurable interest exists between the individuals b. the gender of the applicant c. the type of policy requested d. which individual will pay the premium

a. whether an insurable interest exists between the individuals

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? a. split dollar agreement b. buy-sell agreement c. profit and loss agreement d. key person agreement

b. buy-sell agreement

What does "liquidity" refer to in a life insurance policy? a. the insured receives payments each month in retirement b. cash values can be borrowed at any time c. the death benefit replaces the assets that would have accumulated if the insured had not died d. the policy-owner receives dividend checks each year

b. cash values can be borrowed at any time

All of the following are duties and responsibilities of producers at the time of application EXCEPT a. check to make sure that there are no unanswered questions on the application b. change any incorrect statement on the application by personally initialing next to the corrected statement c. explain the nature and type of any receipt the producer is giving to the applicant d. probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information

b. change any incorrect statement on the application by personally initialing next to the corrected statement

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 (HLVA) c. needs approach d. blackout approach

b. human life value approach (HLVA)

An applicant wants to buy a policy that has a cash value element. Which type should she buy? a. term b. permanent c. stock d. investment

b. premium

When is the earliest a policy may go into effect? a. after the underwriter reviews the policy b. when the application is signed and a check is given to the agent c. when the first premium is paid and the policy has been delivered d. when the insurer approves the application

b. when the application is signed and a check is given to the agent

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? a. as of the first of the month after the policy issue b. as of the policy issue date c. as of the application date d. as of the policy delivery date

c. as of the application date

Which of the following statements concerning buy-sell agreements is true? a. benefits received are considered income taxable b. buy-sell agreements pay in the event of a medical emergency c. buy-sell agreements are normally funded with a life insurance policy d. premiums paid are deductible as a business expense

c. buy-sell agreements are normally funded with a life insurance policy

What must happen when an individual policy or annuity has been personally delivered to the policyowner? a.the producer must go over the policy with the policyowner b. a notary public must witness the exchange c. the policyowner must sign a delivery receipt d. the policyowner must pay the annual premium in full

c. the policyowner must sign a delivery receipt

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? a. business partners have an insurable interest in each other b. a husband or wife has an insurable interest in their spouse c. an individual has an insurable interest in his or her own life d. a debtor has an insurable interest in the life of a lender

d. a debtor has an insurable interest in the life of a lender

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT a. explain the policy provisions, riders, and exclusions b. collect any premium due c. explain the rating procedures if the policy is rated differently than applied for d. disclose commissions earned from the sale of the policy

d. disclose commissions earned from the sale of the policy

Which of the following is the best reason to purchase life insurance rather than annuities? a. to create regular income pmts b. to liquidate a sum of money over a lifetime c. to create an estate d. to liquidate a sum of money over a period of year

c. to create an estate

In the event the key employee quits or is terminated, what provision allows the policyowner to transfer coverage to the replacement employee, provided the new employee provides evidence of insurability? a. free look b. change of insured c. consideration d. misstatement of age

b. change of insured

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 to surrender value of the policy

b. is defined as the frequency and the amount of the premium payment

All of the following are true of key person insurance EXCEPT a. the plan is funded by permanent insurance only b. there is no limitation on the number of key employee plans in force at any one time c. the employer is the owner, payor and beneficiary of the policy d. the key employee is the insured

a. the plan is funded by permanent insurance only