Life Insurance EXAM TWO
Attempting to determine how much insurance an individual would require based upon their financial objectives is known as A. Human Life Value Approach. B. Estate Planning. C. Viatical Approach. D. Needs Approach.
Needs Approach. Needs method determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.
Statements made by an applicant for a life insurance policy which are true to the best of one's knowledge are referred to as A. Warranties. B. Information. C. Representations. D. Facts.
Representations. Representations are statements that the applicant believes to be true, but that are not guaranteed.
A tornado that destroys property would be an example of which of the following? A. A pure risk B. A loss C. A physical hazard D. A peril
A peril A peril is the cause of loss insured against in an insurance policy.
All of the following statements are correct regarding Credit Life Insurance EXCEPT A. Benefits are paid to the borrower's beneficiary. B. The amount of insurance permissible is limited per borrower. C. Premiums are usually paid by the borrower. D. Benefits are paid to the creditor.
Benefits are paid to the borrower's beneficiary. In Credit Life Insurance, the creditor is the beneficiary for the amount of benefit equal to the outstanding balance of the loan.
For what reason may a life insurance producer backdate a life insurance policy? A. To avoid an increase in premium rate for the insured B. To meet sales quotas established by the insurer C. To make a policy effective during a period when the agent's appointment was in force D. To shorten the period of contestability
To avoid an increase in premium rate for the insured Agents may backdate policies up to 6 months in order to obtain a better premium rate for the insured.
The Waiver of Cost of Insurance rider is found in what type of insurance? Joint and Survivor Juvenile Life Universal Life Whole Life
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.
The person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract is the A. Life settlement provider. B. Life settlement intermediary. C. Policyowner. D. Life settlement broker.
Life settlement broker. Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract.
Which of the following riders would NOT cause the Death Benefit to increase? A. Cost of Living Rider B. Accidental Death Rider C. Payor Benefit Rider D. Guaranteed Insurability Rider
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.
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of A. A STOLI policy. B. A prearranged funeral plan. C. A viatical settlement. D. Third-party ownership.
A STOLI policy. Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
Which concept is associated with "exclusion ratio"? A. Dividend distribution B. How exclusion riders affect an insurance premium C. Policy provisions D. Annuities payments
Annuities payments
If the Superintendent finds a licensee in violation of an unfair method or unfair practice he or she will issue a A. Cease and desist order. B. Rebate. C. Revocation of license. D. Complaint record.
Cease and desist order. A cease and desist order means the licensee must stop the violation he or she is suspected of doing.
Which of the following will NOT be considered unfair discrimination by insurers? A. Assigning different risk classification to applicants based on gender identify. B. Discriminating in benefits and converges based on the insured's habits and lifestyle. C. Charging applicants with similar health histories different premiums based on their ethnicity. D. Cancelling individual coverage based on the insured's marital status.
Discriminating in benefits and converges based on the insured's habits and lifestyle.
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
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 reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A. Exposure. B. Hazard. C. Risk. D. Loss.
Loss. Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.
Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life? A. It must be assumed that the death of the insured will occur immediately. B. Need is predicted using the number of years until the insured's retirement. C. Coverage is based on the predicted needs of that family. D. The death of an insured must be premature.
Need is predicted using the number of years until the insured's retirement. In the Needs Approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are A. Guaranteed. B. Not taxable since the IRS treats them as a return of a portion of the premium paid. C. Paid at a fixed rate every year. D. Taxable as ordinary income.
Not taxable since the IRS treats them as a return of a portion of the premium paid. With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.
Which of the following best defines target premium in a universal life policy? A. The minimum amount to make sure the policy is annually renewable B. The corridor of insurance C. The recommended amount to keep the policy in force throughout its lifetime D. The maximum amount the policyowner may pay on a policy
The recommended amount to keep the policy in force throughout its lifetime The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? A. Those who have worked in the company for at least 3 years B. Those who have dependents C. Those who have no history of claims D. Those who have been insured under the plan for at least 5 years
Those who have been insured under the plan for at least 5 years If the master contract is terminated, every individual who has been on the plan for at least 5 years will be allowed to convert to individual insurance of the same coverage.
What kind of policy allows withdrawals or partial surrenders? A. 20-pay life B. Term policy C. Variable whole life D. Universal life
Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.
When is the earliest a policy may go into effect? A. When the first premium is paid and the policy has been delivered B. When the insurer approves the application C. After the underwriter reviews the policy D. When the application is signed and a check is given to the agent
When the application is signed and a check is given to the agent The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.
Two individuals are in the same risk and age class; yet, they are charged different rates for their insurance policies due to an insignificant factor. What is this called? A. Misrepresentation B. Adverse selection C. Discrimination D. Law of large numbers
Discrimination Permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination.
All of the following are factors that an underwriter could use to select and classify risk EXCEPT A. Occupation. B. Avocation. C. National origin. D. Morals.
National origin. The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death? A. 0% B. 50% C. 25% D. 10%
0% If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.
Who can make a fully deductible contribution to a traditional IRA? A. Someone making contributions to an educational IRA B. A person whose contributions are funded by a return on investment C. An individual not covered by an employer-sponsored plan who has earned income D. Anybody: all IRA contributions are fully deductible regardless of income level
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.
A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. Required a premium increase each renewal. B. Built cash values. C. Required proof of insurability every year. D. Decreased death benefit at each renewal.
Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.
After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of A. Refund. B. Contestability. C. Renewal. D. Rescission.
Rescission. Rescission is when a company wants to cancel a policy and returns funds paid.
Which of the following best details the underwriting process for life insurance? A. Selection, classification, and rating of risks B. Solicitation, negotiation and sale of policies C. Issuance of policies D. Reporting and rejection of risks
Selection, classification, and rating of risks The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Equity Indexed Universal Life B. Variable Universal Life C. Universal Life - Option A D. Universal Life - Option B
Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.
Which of the following types of insurance policies would perform the function of cash accumulation? A. Increasing term B. Whole life C. Term life D. Credit life
Whole life Life insurance is unique from other types of insurance in that it could perform the function of cash accumulation. Cash values are available in whole life policies.
All of the following events will terminate an agent's appointment EXCEPT A. An agent's license is suspended or revoked by the Department of Insurance. B. A new Superintendent is put into office. C. An agent's license expires and is not renewed. D. A termination issued by the appointing insurer.
A new Superintendent is put into office. An appointment by an insurer is based upon the person maintaining a valid insurance license. If a new Superintendent is put into office, appointments will not be affected.
Which of the following is true regarding the insurance amount in a credit life policy? A. Creditor may insure the debtor for an unlimited amount of coverage. B. Allowable amount of coverage is determined by the State Insurance Commissioner. C. The amount of coverage can be greater than the amount owed. D. Creditor can only insure the debtor for the amount owed.
Creditor can only insure the debtor for the amount owed. Credit life insurance cannot pay out more than the balance of the debt, so that there is no financial incentive for the death of the insured.
A married couple's retirement annuity pays them $250 per month. The husband dies and his wife continues to receive $125.50 per month for as long as she lives. When the wife dies, payments stop. What settlement option did they select? A. Joint annuity B. Cash refund annuity C. Straight life D. Joint and survivor
Joint and survivor Under a joint settlement option, payments would stop at the first death, but under the joint and survivor, payment would continue until both recipients die. Usually, the surviving beneficiary receives 1/2 or 2/3 of the amount received when both beneficiaries were alive.
Which of the following information about the applicant is NOT included on Part 1 of the application for insurance? A. Gender B. Occupation C. Marital status D. Medical background
Medical background Part 1 of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicant's medical background is addressed in Part 2 - Medical Information.
Which of the following is NOT true regarding the Needs Approach method of determining the value of an individual's life? A. Need is predicted using the number of years until the insured's retirement. B. Coverage is based on the predicted needs of that family. C. The death of an insured must be premature. D. It must be assumed that the death of the insured will occur immediately.
Need is predicted using the number of years until the insured's retirement. In the Needs Approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for benefits to be collected upon the insured's death.
According to the Insurance Frauds Prevention Act, will the person who suspects a fraudulent transaction be penalized for reporting it to the Superintendent? A. Each person who reports to the Superintendent will receive a monetary reward. B. No; in no case may the person be penalized. C. Yes D. No, as long as the act is reported in good faith
No, as long as the act is reported in good faith As long as the suspected fraudulent transaction was reported in good faith, no civil liability will be placed against the person who reported it.
Under a pure life annuity, an income is payable by the company A. For as long as either the annuitant or a named beneficiary is alive. B. Only for the life of the annuitant. C. Until the principal and interest are exhausted. D. For a guaranteed period of time, whether or not the annuitant survives to the end of that period.
Only for the life of the annuitant. With pure life annuity, income payments cease at the annuitant's death and there is no refund or payments to survivors. This type of annuity is also referred to as Life Only or Straight Life.
An agent in another state wants to become an agent in New York. The other state gives the same privileges to New York agents wanting to be licensed in that state as it does its own agents. New York, therefore, extends the privileges of its agents to the prospective agent of the other state. What is this called? A. Fair exchange B. Equanimity C. Reciprocity D. Equality
Reciprocity Reciprocity occurs when the state in which the person resides accords the same privilege to residents of New York.
Which of the following is an example of apparent authority of an agent appointed by an insurer? A. The agent puts up a sign with the insurer's logo without express permission. B. The agent accepts a premium payment after the end of the grace period. C. The agent accepts a premium payment during the grace period. D. The agent has business cards and stationery printed.
The agent accepts a premium payment after the end of the grace period. An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power. The power to use business cards, stationery and signage may be either express (written) or implied (not written), but in either case it is allowed.
A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to A. The insurance company. B. The insured's estate. C. The insured's firstborn child. D. Both children who share equally on a per-capita basis.
The insured's estate. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.
Which of the following is NOT required on an illustration used in the sale of a life insurance policy? A. Underwriting or rating classification upon which the illustration is based B. The name of the primary and secondary beneficiaries C. Generic name of policy D. Name of insurer
The name of the primary and secondary beneficiaries Other required items include the name and business address of producer or insurer's authorized representative; the name, age and sex of proposed insured; underwriting or rating classification upon which the illustration is based; and the initial death benefit.
All of the following statements are true regarding installments for a fixed amount EXCEPT A. Value of the account and future earnings will determine the time period for the benefits. B. This option pays a specific amount until the funds are exhausted. C. The annuitant may select how big the payments will be. D. The payments will stop when the annuitant dies.
The payments will stop when the annuitant dies. Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.
A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? A. The group has not been established for long enough. B. The purpose of the group was to purchase life insurance. C. Their profession poses too high of a risk for the insurer. D. There are not enough people in the group to qualify for group life insurance.
The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance.
Which of the following is an example of a producer's fiduciary duty? A. An obligation to state every known fact about the policy the producer is selling. B. A duty to base all transactions upon the principle of Utmost Good Faith. C. The obligation to tell the truth to the best of one's knowledge D. The trust that a client places in the producer in regard to handling premiums.
The trust that a client places in the producer in regard to handling premiums. An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.
All of the following are true regarding the guaranteed insurability rider EXCEPT A. The insured may purchase additional coverage at the attained age. B. The insured may purchase additional insurance up to the amount specified in the base policy. C. It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. D. This rider is available to all insureds with no additional premium.
This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A. 3 days B. 5 days C. 10 days D. 14 days
3 days Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? 10 days 3 days 5 days 7 days
5 days Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.
The automatic premium loan provision is activated at the end of the A. Free-look period B. Elimination period. C. Policy period. D. Grace period.
Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.
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? A. Stop-loss B. Consideration C. Reasonable expectations D. Indemnity
Indemnity The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.
Which of the following types of risk will result in the highest premium? Substandard risk Standard risk Preferred risk All risks pay equal premiums
Substandard risk The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.
A spouse was granted a temporary license for her deceased husband's agency on March 1. On May 1 she processed an application for life insurance on a new applicant. Which of the following is true? The application is not valid as submitted. The spouse's license had expired. The application is valid as submitted. The application was processed without a valid license.
The application was processed without a valid license. A temporary license may only be used to service existing business, not to solicit, negotiate or procure new business.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? A. The date of policy delivery B. The date of issue C. The date of application D. The date of medical exam
The date of medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.
Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits? A. $50,000 B. $62,500 C. $75,000 D. Nothing
50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.
The interest earned on policy dividends is A. Tax deductible. B. 40% taxable, similar to a capital gain. C. Taxable. D. Nontaxable.
Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.
What type of life insurance is most commonly used for group plans? A. Flexible premium whole life B. Decreasing term C. Annually renewable term D. Whole life
Annually renewable term Group insurance is usually written for employee-employer groups as annually renewable term insurance.
When an annuity is written, whose life expectancy is taken into account? A. Beneficiary B. Life expectancy is not a factor when writing an annuity. C. Owner D. Annuitant
Annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.
Which of the following is an example of liquidity in a life insurance contract? A. The death benefit paid to the beneficiary B. The flexible premium C. The money in a savings account D. The cash value available to the policyowner
The cash value available to the policyowner Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
Jack has a $20,000 life insurance policy on himself. He wants to insure the life of his 13 year old daughter. According to New York law, what is the maximum amount of life insurance he can purchase on his daughter? A. $5,000 B. $7,500 C. $10,000 D. $50,000
$50,000 The limits for a minor under 14½ are $50,000 or 50% of the amount of insurance a person has on him/herself. $10,000 is 50% of $20,000, but Jack can purchase the greater amount of either $50,000 or 50%.
Any New York agent that is found guilty of a violation of insurance licensing laws will be subject to which of the following penalties? A. Imprisonment for up to one year B. Automatic license revocation C. $5,000 fine for each violation D. $500 fine for each violation
$500 fine for each violation If the licensee is found in violation of insurance licensing laws, the Superintendent may issue a penalty in lieu of revoking or suspending the person's license: up to $500 for each offense, not to exceed $2,500 aggregate for all offenses.
#59. The law states that an insurer is allowed to pay the entire Death Benefit to the insured if they qualify to use the Accelerated Death Benefit Rider; however, most insurers limit the amount of the Death Benefit paid to A. 60% B. 75% C. 30% D. 50%
50% While the law technically allows an insurance company to advance the entire death benefit, most carriers impose their own cap, such as 50% of the death benefit.
An insurance broker's license may be issued to A. Persons age 17 or older. B. Only an individual or a corporation with officers named as sub-licensees. C. A person, firm or corporation. D. Anyone who can pass the written examination.
A person, firm or corporation. An insurance broker is any person, firm, association or corporation who solicits, negotiates or obtains insurance for an insured (other than him or herself) in exchange for a commission.
All of the following are reasons to terminate an agent's certificate of appointment EXCEPT A. An agent's license expires and is not renewed. B. An appointment is terminated by the insurer under the terms of agent's contract. C. An agent's license is suspended or revoked. D. An agent becomes disabled and is unable to complete his duties for the duration of the disability.
An agent becomes disabled and is unable to complete his duties for the duration of the disability. A temporary license may be issued to a spouse or personal representative to complete old business.
Under the 401(k) bonus or thrift plan, the employer will contribute A. All of the money to the plan. B. 30% of what the employee contributes. C. 75% of what the employee contributes. D. An undetermined percentage for each dollar contributed by the employee.
An undetermined percentage for each dollar contributed by the employee. Under the bonus or thrift plan, the employer will contribute certain amount or percentage for each dollar contributed by the employee. There is no specific rule as to how much the employer must contribute.
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
As of the application date If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.
An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe? A. Avoidance B. Reduction C. Sharing D. Retention
Avoidance Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such loss. Risk avoidance is effective but seldom practical.
An insured receives an annual life insurance dividend check. What term best describes this arrangement? A. Cash option B. Reduction of Premium C. Annual Dividend Provision D. Accumulation at Interest
Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.
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 Living need rider. Payor rider. Cost of living rider. Accelerated benefit rider.
Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.
What characteristic makes whole life permanent protection? A. Guaranteed level premium B. Living benefits C. Coverage until death or age 100 D. Guaranteed death benefit
Coverage until death or age 100 Whole Life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured or till the insured's age 100.
Which of the following is NOT an example of insurable interest? Child in parent Debtor in creditor Business partners in each other Employer in employee
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.
Which of the following types of insurance policies is most commonly used in credit life insurance? A. Equity indexed life B. Decreasing term C. Increasing term D. Whole life
Decreasing term Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.
In group life policies, a certificate of insurance is given to A. The group sponsor. B. The insurance producer. C. The policyholder to keep on file. D. Each insured person.
Each insured person In group life policies, individual certificates are given to each insured person.
All of the following statements are true regarding tax-qualified annuities EXCEPT A. Employer contributions are not tax deductible. B. Tax accumulation is deferred. C. They must be approved by the IRS. D. Withdrawals are taxed.
Employer contributions are not tax deductible. Tax qualified annuities are required to be approved by the IRS. Tax qualified annuities provide tax deductible employer contributions and all tax accumulation is deferred.
When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount A. The same as the original policy minus the cash value. B. Equal to the original policy for as long a period of time that the cash values will purchase. C. In lesser amounts for the remaining policy term of age 100. D. Equal to the cash value surrendered from the policy.
Equal to the original policy for as long a period of time that the cash values will purchase. With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.
Equity indexed annuities A. Seek higher returns. B. Are more risky than variable annuities. C. Are security instruments. D. Invest conservatively.
Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.
What does "level" refer to in level term insurance? A. Face amount B. Premium C. Cash value D. Interest rate
Face amount Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
Which of the following insurance providers must be nonprofit and sell insurance only to its members? A. Reciprocal B. Fraternal C. Service D. Mutual
Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society.
Which is TRUE about the cash surrender nonforfeiture option? A. The policy remains active for some time after the policyholder opts for cash surrender. B. The policyholder receives the original cash value of the policy. C. After the cash surrender, the insured is covered for a grace period of 1 month. D. Funds exceeding the premium paid are taxable as ordinary income.
Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
Life insurance death proceeds are A. Taxable to the extent that they exceed 7.5% of the beneficiaries adjusted gross income. B. Taxed as a capital gain. C. Taxed as ordinary income. D. Generally not taxed as income.
Generally not taxed as income. Life insurance death benefits are generally not taxed as income.
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. Guaranteed insurability option B. Dividend options C. Guaranteed renewable option D. Nonforfeiture options
Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.
A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? A. If the daughter is disabled for more than 3 months B. If the daughter is disabled for any length of time C. If the father is disabled for more than 6 months D. If the father is disabled for at least a year
If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.
All advertisements are the responsibility of the A. Department of Insurance. B. Insurer. C. Insured. D. Advertising agency.
Insurer. The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.
Who makes up the Medical Information Bureau? A. Former insured B. Physicians and paramedics C. Insurers D. Hospitals
Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
As a field underwriter, a producer is responsible for all of the following tasks EXCEPT A. Issue the policy that is requested. B. Help prevent adverse selection. C. Solicit business that will fall within the insurer's underwriting guidelines. D. Obtain appropriate signatures on the application for insurance.
Issue the policy that is requested. The producer does not issue the policy but delivers the policy. The producer has a duty to solicit business that will fall within the underwriting guidelines and represent profitable business to the insurer (help prevent adverse selection).
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT A. The payments are not guaranteed for life. B. The insurer determines the amount for each payment. C. It is a life contingency option. D. It will pay the benefit only for a designated period of time.
It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingecies.
In which of the following situations is it legal to limit coverage based on marital status? A. Divorce within the last six months of applying for insurance B. It is never legal to limit coverage based on marital status. C. Excessive number of divorces, as defined by the Insurance Code D. Legal separation during the application process
It is never legal to limit coverage based on marital status. Availability of insurance benefits or coverage may not be denied based on sex or marital status. Marital status may be considered for the purpose of defining persons eligible for dependent benefits.
Which of the following is true regarding a single life settlement option? A. Payments continue until the entire principal is exhausted. B. Proceeds are paid out in a lump sum. C. It provides income for a specified period of time. D. It provides income the beneficiary cannot outlive.
It provides income the beneficiary cannot outlive. The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.
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.
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.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A. Alcohol and tobacco consumption. B. Recent surgeries. C. Other insurance coverages. D. Family health history.
Other insurance coverages. Part 2 of the application contains questions regarding the applicants' health history. Part I of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the A. Payor rider. B. Other-insured rider. C. Change of insured rider. D. Juvenile rider.
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.
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? A. Pay the full death benefit and refund excess premium B. Pay a reduced death benefit C. Pay the full death benefit D. Pay nothing; there was a misrepresentation on the application
Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A. Installment refund B. Joint and survivor C. Pure life D. Life with guaranteed minimum
Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
All of the following are the types of term insurance depending on how the face amount changes during the policy term EXCEPT A. Increasing. B. Renewable. C. Decreasing. D. Level.
Renewable. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate.
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A. Standard risk is also known as high exposure risk. B. Standard risk is representative of the majority of people. C. Standard risk pays a higher premium than a substandard risk. D. Standard risk requires extra rating.
Standard risk is representative of the majority of people. Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.
The initial amount of credit life insurance may NOT exceed A. The amount to be repaid under the contract. B. An amount set by statute and adjusted regularly for inflation. C. The borrower's monthly income. D. The borrower's annual income.
The amount to be repaid under the contract. The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness.
Which of the following statements about group life is correct? A. The premiums are higher than in an individual policy because there is no medical exam. B. The group sponsor receives a Certificate of Insurance. C. The policy can be converted to an individual term insurance policy. D. The cost of coverage is based on the ratio of men and women in the group.
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.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A. The interest is credited at a rate specified by the policy. B. The policyholder has the right to withdraw the accumulations at any time. C. The interest is not taxable since it remains inside the D.insurance policy. The annual dividend is retained by the company.
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.
Which of the following best describes what the annuity period is? A. The period of time during which accumulated money is converted into income payments B. The period of time from the accumulation period to the annuitization period C. The period of time during which money is accumulated in an annuity D. The period of time from the effective date of the contract to the date of its termination
The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.
A deferred annuity is surrendered prior to annuitization. Which of the following best describes the nonforfeiture value of the annuity? A. The surrender value should be equal to 100% of the premium paid, minus any prior withdrawals and surrender charges. B. A deferred annuity cannot be surrendered prior to annuitization. The owner must wait until the annuitization period begins to receive any payments. C. The surrender value will be based on current interest rates. D. The surrender value will not be more than 80% of the cash value in the annuity at the time of surrender.
The surrender value should be equal to 100% of the premium paid, minus any prior withdrawals and surrender charges. If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed (e.g. 100% of the premium paid, less any prior withdrawals and related surrender charges) due to the nonforfeiture provision.
When would a 20-pay whole life policy endow? A. At the insured's age 65 B. After 20 payments C. In 20 years D. When the insured reaches age 100
When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
