Life Insurance (General)
Three Common Characteristics of Whole Life Products
- Level (guaranteed cost) premium - Same premium payment amount is due each year and is based on issue age. - Fixed/level and guaranteed amount of death benefit. - Cash surrender value (CSV), also known as living benefits, constantly grows and accumulates within the policy on a tax-deferred income tax basis.
If a group is non-contributory, what percentage of members must be insured by the policy? A: 75% B: 50% C: 100% D: 0%
100%
R is about to annuitize and wants a settlement option that would pay any unallocated income to a beneficiary if he were to die prematurely. R should select: A: Life Annuity B: Cash Refund Annuity C: Life with Period Certain Annuity D: Period Certain Annuity
Cash Refund Annuity
Of all the following terms, which is the name for the assignment of a life policy to a bank as a security interest for a loan? A: Absolute B: Secured C: Collateral D: Value
Collateral
___________ takes place when the insured pays at application time and a complete offer is sent to the insurer.
Initial Consideration
A customer tried to use a fake id during an insurance transaction and the agent had to file a Suspicious Activity Report under law. One could assume a minimum of ______ was involved in the transaction. A: $4,000 B: $5,000 C: $2,000 D: $10,000
5,000
Which of the following policies offers a minimum guaranteed interest rate? A: Variable Life B: Variable Universal Life C: Level Term D: Interest Sensitive Whole Life
Interest Sensitive Whole Life
offers a minimum guaranteed interest rate, but the rate can fluctuate depending on market performance.
Interest Sensitive Whole Life
Option ______, which is an increasing death benefit, pays the death benefit plus the cash value to the named beneficiary.
B
provide guaranteed principal and a return based off an index of the stock market which can be applied monthly or annually.
Equity Index Annuities
Another name for Ordinary Whole Life is: A: Adjustable Life B: Limited Pay Whole Life C: Straight Whole Life D: Single Premium Whole Life
Straight Whole Life
Which of the following is true about Flexible Premium Annuities? A: The income can be withdrawn Immediately. B: The income can be withdrawal immediately or deferred. C: The income can only be deferred. D: More info is required to properly answer this question.
The income can only be deferred.
Single Premium Whole Life
The purchase of WL coverage in a lump sum (with just one premium payment made)
All of the following annuities have guaranteed principal EXCEPT: A: Equity Index Annuity B: Variable Annuity C: Fixed Annuity D: None of the Above
Variable Annuity
If an insured outlives their coverage with a ROP rider, the premiums are not taxable because ________________________________
the same amount of premium paid over the term is returned to the insured.
K purchased a round trip airline ticket on a regularly scheduled flight to make an important business trip. On the way home, the plane suffered mechanical failure and crashed by which K died upon impact. The face amount of K's policy is $100,000 and his policy had both the double and triple indemnity accidental death benefit rider. How much will the beneficiary receive? A: $300,000 B: $200,000 C: $100,000 D: $0
$300,000
Which of the following best describes taxation of annuities? A: An annuity grows tax deferred and then taxes are paid on any income earned upon pay out. B: An annuity grows with taxable interest and income earned is taxed upon pay out. C: An annuity grows tax deferred and any income earned is tax free. D: An annuity is just like life insurance and pays a death benefit tax free.
An annuity grows tax deferred and then taxes are paid on any income earned upon pay out.
Which of the following may restrict a policy owner's rights? A: An assignee B: A primary beneficiary C: An irrevocable beneficiary D: A producer
An irrevocable beneficiary
C, who is currently a college student, wants a short term, inexpensive temporary policy with a level death benefit. C should buy: A: Annual Renewable Term B: Straight Whole Life C: 10 Year Level Term D: 30 Year Increasing Term
Annual Renewable Term
What kind of loss would activate the Waiver of Premium rider on a life policy? A: Death B: Dismemberment C: Disability D: Non-Payment of Premium
Disability
A provision that allows a policy owner to pay any unpaid premiums before a policy will lapse is known as: A: Grace Period B: Unpaid premiums C: Save the policy provision D: Reinstatement
Grace Period
How does the IRS classify dividends paid by a mutual insurer? A: As taxable income B: As an return of overpayment of premiums C: Tax Free D: Only answers B and C
Only answers B and C
All of the following are correct about riders EXCEPT: A: Riders generally have to be added at application time. B: Riders will sometimes increase the cost of a policy. C: Riders are always permanent and never expire. D: Riders allow the policyholder to customize coverage.
Riders are always permanent and never expire.
T/F: The 20 Pay Life policy will allow the insured to pay the policy off for life over 20 years and still retain permanent protection
TRUE
Each of the following is true regarding the Free Look Provision EXCEPT: A: The insured has usually 10, 20, or 30 days from delivery to return the policy for a refund. B: The Free Look is a provision found in life contracts that allows the insured to send a policy back at any time for a refund. C: The insured can send a policy back during the free look period for any reason they choose. D: When exercised within the proper time frame, the free look provision states that the insured receive a full refund of all premiums paid.
The Free Look is a provision found in life contracts that allows the insured to send a policy back at any time for a refund.
K let her whole life policy lapse 6 years ago and is applying for reinstatement. Which of the following will most likely occur? A: The insurer will grant reinstatement no matter what. B: The insurer will grant reinstatement pending K is still healthy C: The insurer will grant reinstatement pending K is still healthy and pays all back premiums and interest D: The Insurer will deny reinstatement
The Insurer will deny reinstatement
If a whole life policy has a loan outstanding and the insured dies before it is paid, which of the following will occur? A: The death benefit is not paid to the beneficiary B: The death benefit is paid to the beneficiary with the loan and interest deducted C: The policy is converted to a Term Life policy D: The policy would have to be replaced
The death benefit is paid to the beneficiary with the loan and interest deducted
R has a Variable Universal Life policy and has several years of great interest rates. What effect will a good rate of growth have on R's Death Benefit? A: The death benefit will increase B: The death benefit will decrease C: The death benefit amount will stay the same D: The policy will automatically be surrendered
The death benefit will increase
What is the tax consideration for taking a cash dividend option? A: The dividend is fully taxable as income B: The dividend is paid tax free C: Depending on income bracket of the insured, the dividend may be taxable D: If the company gets to keep half of the dividend it is take free
The dividend is paid tax free
An insured has a term policy that allows them to renew coverage before it expires. The insured purchased the policy when they were healthy but since have developed many serious health conditions. Which of the following will take place? A: The insured will be able to renew regardless of insurability. B: The insured will be denied renewal. C: The insured will renew however, the policy will then be rated. D: The policy will have to be converted to a permanent policy.
The insured will be able to renew regardless of insurability.
Which of the following is not true regarding annuity income payments? A: The older an annuitant is the higher the income payment will be. B: The younger an annuitant is the lower the income payment will be. C: The older the annuitant is the lower the income will be. D: Life expectancy is a major factor in determining the amount of income paid at annuitization.
The older the annuitant is the lower the income will be.
Each of the following is true regarding a level term policy EXCEPT: A: The death benefit remains level B: If the insured dies within the term, proceeds are paid to the beneficiary C: The policy is temporary coverage D: The premium remains level throughout the policy
The premium remains level throughout the policy
K is 21 years old and is buying a policy. Since K is in perfect healthy and has good family history, he will be able to buy a lot of coverage for a low premium cost. This is an example of purchasing a policy to: A: Protect an estate B: Pay final expenses C: To immediately create an estate D: To build cash value and take loans later
To immediately create an estate
A prospective insured is seeking a life insurance policy that allows flexible premium payments as well as the potential interest rate that can keep pace or even exceed the inflation rate. Which policy should be recommended? A: Term Life B: Straight Whole Life C: Variable Universal Life D: Variable Whole Life
Variable Universal Life
B has a policy that allows flexible premium payments, however, the interest rate on the cash value is never guaranteed. What type of policy does B have? A: Variable Life B: Variable Universal Life C: Endowment at age 65 D: Term Life
Variable Universal Life
Which of the following policies have flexible premiums and will keep pace with inflation in strong market conditions? A: Term Life B: Whole Life C: Variable Whole Life D: Variable Universal Life
Variable Universal Life
Ordinary (Straight Life)
WL offers life insurance (death benefit) coverage for an individual's entire life (currently up to age 115). A "level" premium (the same amount each payment) is payable each year until death or age 115 for straight life.
A Life Income Settlement Option: A: Guarantees that all of the proceeds will be paid out over the beneficiary's life. B: Will stop when the beneficiary dies and all proceeds unpaid goes to a contingent beneficiary C: Will stop when the beneficiary dies and all proceeds unpaid will be retained by the insurer D: All of the Above
Will stop when the beneficiary dies and all proceeds unpaid will be retained by the insurer
When an annuity owner funds a variable annuity, they purchase _______________ which is the individuals ownership value in the insurer's separate account.
accumulation units
In an ____________________, there is a floor minimum rate or return, a capped maximum interest rate and it is common for insurer to take initial interest in the good markets.
equity indexed annuity
Which of the following is not true regarding a renewable option on a term policy? A: The policy must be renewed regardless of insurability. B: The rates cannot be more than standard rates at renewal. C: Premiums are based off of attained age rates. D: A policy can be renewed, however, the insured must convert to a different policy
A policy can be renewed, however, the insured must convert to a different policy
Which of the following components are guaranteed in a fixed annuity? A: Interest Rate B: Income C: Settlement Option D: All of the Above
All of the Above
The purpose of an HIV consent form is to: A: Allow the insurer to deny a policy for any reason B: Allow the producer to be notified of any positive results C: Allow the insurer to test for HIV results and make the client aware of how/why the insurer tests for the virus
Allow the insurer to test for HIV results and make the client aware of how/why the insurer tests for the virus
What is the advantage of a Variable Annuity? A: The interest rate is never guaranteed. B: The accumulation units will fluctuate depending on the market. C: Income may be able to keep pace or even exceed inflation. D: All of the Above
Income may be able to keep pace or even exceed inflation.
J is interested in receiving her annuity benefits over the next twenty years only. J should select: A: Period Certain Annuity B: Life with Period Certain C: Life Annuity D: Joint and Survivor Annuity
Period Certain Annuity
Each of the following is true about the Suicide Clause EXCEPT: A: It is a temporary exclusion B: Suicide is covered immediately in a policy C: The Death benefit is paid if suicide occurs after a stated amount of time in the policy. D: If suicide occurs during the exclusion period, premiums are paid back to the beneficiary of the policy.
Suicide is covered immediately in a policy
T/F: When an annuitant starts to receive income in a Variable Annuity, the number of annuity units are guaranteed, but the value and therefore income amount is not guaranteed.
TRUE
T/F: When an annuity accumulates value it does so tax free and when annuitization takes place, income tax is due on income earned.
TRUE
D has two young children, a 30 year mortgage and a car payment. D is only concerned about a life policy that will protect his survivors if he were to die before the house is paid off. D would best be suited to purchase: A: Variable Life B: Whole Life C: Term Insurance D: Group Life
Term Insurance
When applying for a policy, C told the agent that they did not smoke, when in reality, C smokes a pack of cigarettes a day. C died within one year of issuance and upon inspection the insurer found that C was in fact a smoker at application time. Which of the following actions will take place? A: The insurer will rescind the policy benefits and paid premiums back to the beneficiary. B: The insurer will pay the proceeds because C had three young children. C: The insurer company will not pay the death benefit and keep all premiums because C committed fraud. D: The insurer will pay the proceeds because of the Incontestability provision.
The insurer will rescind the policy benefits and paid premiums back to the beneficiary. Because C committed a material misrepresentation at the time of application and the insurer found that within 2 years of issuance, the insurer would deny the death benefit and refund all paid premiums under the Incontestability Clause.
S & J have just funded a buy and sell agreement with term insurance for their house painting company. Which of the following most accurately states the federal tax consequences to the partnership in terms of death benefits and premium paid? A: The premiums are not tax deductible and the death benefit is not subject to federal income tax. B: The premiums are tax deductible and the death benefit is subject to federal income tax. C: The premiums are not tax deductible and the death benefit is subject to federal income tax. D: The premiums are tax deductible and the death benefit is not subject to income tax.
The premiums are not tax deductible and the death benefit is not subject to federal income tax.
A professional ballerina decides that her income earning potential will be limited to 20 years. If she wants permanent insurance protection, the policy that best suits her is a: A: 20 Year Endowment B: 20 Pay Life C: 20 Year Level Term D: 20 Year Decreasing Term
20 Pay Life
Whole Life and Interest Sensitive Whole Life identically share all of the following characteristics EXCEPT: A: Guaranteed mortality cost B: Interest charges on policy loans C: Guaranteed death benefit D: A Fixed rate of return
A Fixed rate of return
K has an Index annuity with the S&P 500 determining his interest rate performance. Last year the S&P 500 had 30% return. K's annuity will be accredited: A: The entire interest rate of 30% B: Whatever the company decides C: A high rate or return but it will be capped at a certain percentage. D: 3% fixed rate
A high rate or return but it will be capped at a certain percentage.
V has just paid money into a variable annuity and purchased: A: Annuity Units B: Accumulation Units C: Life Income D: Period Certain Annuity
Accumulation Units
Before the insurer pays proceeds to a beneficiary, they find that the insured misstated their age. The insurer will: A: Not pay the death benefit B: Pay the full death benefit purchased because Incontestability has expired C: Adjust the death benefit to the insured's true age and pay proceeds accordingly D: Pay the death benefit, but it will be taxable.
Adjust the death benefit to the insured's true age and pay proceeds accordingly
Why does the Cost of Insurance component increase every year in a Universal Life Policy? A: Because the policyholder missed a premium payment. B: Because the insurance component in the policy is base off Annual Renewable Term Insurance. C: Because the policy's beneficiary has been changed. D: None of the Above
Because the insurance component in the policy is base off Annual Renewable Term Insurance.
Which of the following annuity contracts can offer returns linked to a stock index without any threat to cash value? A: Equity B: Variable C: Fixed D: Term
Equity
D has a flexible premium policy on his daughter that gains interest from the S&P 500 but does not lose any cash value in poor market conditions. D has: A: Variable Life B: Equity Index Universal Life C: Term Life D: Variable Universal Life
Equity Index Universal Life
All of the following require a producer to be licensed in life and securities EXCEPT: A: Variable Life B: Variable Universal Life C: Variable Annuity D: Fixed Annuity
Fixed Annuity
Which of the following life insurance products offers guaranteed income while the insured is alive. A: Variable Annuity B: Whole Life insurance C: Fixed Annuity D: Term Life
Fixed Annuity
All of the following statements regarding dividends or dividend options are true EXCEPT: A: dividends are not income taxable B: dividends may be used to reduce premium C: dividends may be taken in cash D: Interest earned on dividends is not taxable income
Interest earned on dividends is not taxable income When a policyholder receives a dividend payment with accrued interest, under the accumulation at interest option, the interest is taxable.
All of the following are correct concerning a minor beneficiary EXCEPT: A: Proceeds will be paid directly to a minor B: Proceeds will go through probate and a judge will decided how proceeds are settled C: It is advised a living trust be set up to protect a minor beneficiary. D: None of the Above
Proceeds will be paid directly to a minor
Which of the following is a short term strategy for funding an annuity? A: Flexible Premium B: Single Premium C: All of the Above D: None of the Above
Single Premium
B owns and is insured by a policy that has one premium but also provides coverage for her spouse. B has: A: Double Indemnity B: Group Health Insurance C: Spouse coverage under an Other Insured Rider D: Long Term Care Rider
Spouse coverage under an Other Insured Rider
J would like to purchase a policy that has level annual premiums and coverage for life. J should purchase: A: Term Life B: Straight Whole Life C: Life Paid @ Age 65 D: Credit Life
Straight Whole Life
When endowment occurs in a straight whole life policy: A: The Cash Value equals the death benefit amount B: The policy is converted to a term policy C: The Cash Value is surrendered and the policy expires D: Coverage is continued for extra premium cost
The Cash Value equals the death benefit amount
In a fixed annuity, who bears all investment risk? A: The insurer B: The annuitant C: The annuity owner D: The beneficiary
The insurer
B has a Variable Annuity and is now retiring. When B annuitizes which of the following elements of her annuity are guaranteed? A: The Accumulation unit value B: Income Amount C: The number of Annuity Units D: All of the Above
The number of Annuity Units
An annuitant is deferring their income payments until a later date. What are the tax considerations during the accumulation period? A: The principal and interest grows tax deferred until annuitization. B: The principal is tax deferred but taxes will be paid on interest while the annuity is accumulating. C: The principal and interest are taxable and the sum grows over time. D: The principal and interest is tax free while accumulation takes place and is still tax free when payments are made.
The principal and interest grows tax deferred until annuitization.
A term life policy has the return of premium (ROP) rider. All of the following are true EXCEPT: A: The rider greatly increases the premium of the policy. B: The ROP rider is optional for the insured to add at application. C: When a 30 year term policy expires with the ROP rider added, the returned money is devalued by inflation. D: The returned premium is income and fully taxable.
The returned premium is income and fully taxable.
Which Universal Life death benefit option pays the beneficiary the death benefit plus the cash value when the insured dies? A: Option B B: Option A C: Option A and B D: Reduced Paid up Option
Option B
Limited Pay
- provided for the insured's entire life - premium payments condensed and paid in a shorter time frame than over the lifetime of the insured ex: 10-pay life, 20-pay life, life paid @ age 65
J buys a policy that has a $50,000 death benefit. J is covered until the policy expires in 20 years at which time the face value is worth $100,000. Which coverage does J have? A: 20 year Increasing Term B: 30 Year Level Term C: 20 Year Level Term D: 20 Year Decreasing Term
20 year Increasing Term
S has a policy that has a minimum rate of interest but also has a capped maximum rate of return. S has a(an): A: Variable Life B: Term Life C: Equity Indexed Life Policy D: Whole Life
Equity Indexed Life Policy
Death from war is not covered under a life insurance policy. This is an example of A: Limitation B: Exclusion C: Reduction D: Exception
Exclusion
K has a Level Term Policy. What is level about K's policy? A: Premium B: Face Amount C: Cash Value D: Interest Rate
Face Amount
Which of the following parties have the right to select death benefit Settlement Options? A: Policy owner B: Beneficiary C: The insurer D: None of the Above
Policy Owner
M is on active duty in the military and dies of heart attack. The death benefit will be paid because of the _______ war exclusion. A: Results B: Status C: War Exclusion D: Active Duty Exclusion
Results
Another name for a lump sum funded annuity is? A: Flexible Premiums B: Whole Life C: Level Premiums D: Single Premium
Single Premium
R has a Variable Universal Life policy and has several years of great interest rates. What effect will a good rate of growth have on R's Death Benefit? A: The death benefit will increase B: The death benefit will decrease C: The death benefit amount will stay the same D: The policy will automatically be surrendered
The death benefit will increase
A producer could best explain the Free Look provision of an insurance policy by telling a prospect which of the following? A: The insurance company will underwrite the policy only after examining the application for a specified period of time. B: The insurance company may withdraw coverage if it discovers adverse information about you within a specified time after underwriting the policy. C: Within a specified time after you receive the policy, you may retire it and receive a full refund of premiums paid. D: Any time after the policy is issued, you may choose not to accept it and receive a full refund of premiums paid.
Within a specified time after you receive the policy, you may retire it and receive a full refund of premiums paid.
Systematic liquidation of accumulated funds is the basic function of: A: an annuity B: a whole life policy C: a Combination plan D: a universal variable life policy
an annuity
The primary difference between a Viatical settlement and a life settlement is: A: an insured is transferring ownership to another party B: one is considered a life insurance transaction and the other is not C: one situation requires an insured to be terminally ill and the other does not D: one situation is legal and the other is not
one situation requires an insured to be terminally ill and the other does not
All of the following apply to a term policy EXCEPT: A: proceeds are paid at the end of the term B: it is considered temporary insurance C: it may be sometimes converted to another plan D: it usually does not build cash value
proceeds are paid at the end of the term
All of the following are true about decreasing term insurance EXCEPT: A: The coverage will decline over time B: It is the least expensive term policy C: Cash Value is guaranteed D: Uniformly decreasing term death benefit goes down by the same dollar amount every year until the policy expires.
Cash Value is guaranteed
Aviation, War, and Hazardous activities that are not covered by a life policy are known as: A: Examples B: Exclusions C: Riders D: Ratings
Exclusions
A certificate of insurance for a group policy: A: proves ownership of the policy B: proves that the insured has group insurance C: proves that the policyholder and insured are the same person D: proves that the insured's auto policy is in force
proves that the insured has group insurance
Which of the following describes interest allocation in an indexed annuity? A: The insurance company usually takes a minimal initial return in good markets. B: The annuity has a floor minimum interest return. C: The annuity has a maximum cap rate which is usually higher than a fixed annuity. D: All of the Above
All of the Above
Which of the following losses are commonly excluded under a life insurance policy? A: War B: Aviation C: Hazardous Occupation D: All of the Above
All of the Above
If a policy does not lapse at the end of the grace period because money is taken from the cash values to pay the premiums, what provision is in effect? A: Insuring Clause B: Extended Term Insurance C: Automatic Premium Loan D: Automatic Dividend Option
Automatic Premium Loan
Which of the following is true regarding a Indexed annuity? A: Interest rate performance depends on an index of the stock market and guarantees principal B: The interest rate earned never has a limit or floor guarantee C: Interest can be allocated to the account month to month or year to year D: Only answers A and C
Only answers A and C Interest rate performance depends on an index of the stock market and guarantees principal Interest can be allocated to the account month to month or year to year