Life Insurance
K has a loan of $5,000 outstanding against her $25,000 traditional whole life policy. If K dies, how much will her beneficiaries receive? A. $5,000 B. $25,000 C. $30,000 D. $20,000
$20,000 *Any outstanding loans will be deducted from the face amount at the time of claim, or from the cash values upon surrender, along with any interest due.
A producer who changes his/her address must notify the Commissioner within _______ of the change. A. 10 days B. 5 days C. 24 hours D. 30 days
10 days
Entity Plan
An agreement in which a business assumes the obligation of purchasing a deceased owner's interest in the business, thereby proportionately increasing the interests of surviving owners.
A person making application, for themselves or another, to be insured under an insurance policy is called the:
Applicant
Choose the FALSE statement about personal solicitation standards: A. The fact that the producer is selling insurance must be disclosed in writing before meeting the customer B. Disclosure is required in writing if the initial personal contact is made by telephone C. Before personally soliciting a customer, the producer must provide the name of the person making the contact D. A fee may be charged for services rendered if a written disclosure is provided
Disclosure is required in writing if the initial personal contact is made by telephone *Written disclosures are not required if the initial personal solicitation is made by telephone.
Which of the following is NOT a requirement for a person to get a resident producer license in Life and Health insurance? A. Must agree to a criminal background check B. Must pass the licensing exam C. Must complete a prelicensing course D. Must be at least 21 years old
Must be at least 21 years old **MUST BE 18
Consumer Investigative Report can be completed by:
Producer or third party provider
Absolute Assigment
original owner names new owner of policy; transfer of ownership
The __________ has the right to change the premium mode.
policyowner
Which of the following individuals does NOT have insurable interest in the insured's life policy? A. A person with a substantial and legal interest in the continued life of the insured B. A person with an insurable interest at the time the insured dies C. The insured D. A personal representative of the insured's estate
A person with an insurable interest at the time the insured dies *Has to have had insurable interest when policy was issued
In a legal sense, premium functions as the insured's _______. A. Fee B. Consideration C. Tender D. Credit
Consideration *The premium paid by the insured represents their consideration--a required element of a legal contract.
All of the following are common exclusions, except: A. Aviation B. Hazardous hobbies C. Driving D. Hazardous occupation
Driving *Driving is not considered in and of itself an exclusion.
What are factors in premium determination
Premiums are based on expected mortality, interest, and expenses.
The LMC Partnership has 3 partners and is concerned about what would happen to their $300,000 business if one of the partners should die. If they consider a buy-sell agreement, then each partner would have to buy a policy in the amount of $__________ on the other partners. A. $75,000 B. $150,000 C. $100,000 D. $50,000
$50,000
Where payments on a life policy are concerned, an insurer may defer payment of a cash surrender value for ___ months. A. 4 B. 6 C. 12 D. 2
6 months
A person may cancel the insurance policy by returning it _________ following the date of purchase.
By the 10th day
Dividend option: Premium reduction
Dividends are applied toward the next premium due. The same could be accomplished if the policyowner received the dividends in cash and remitted the full premium. If the declared dividends equal or exceed the premium, the policyowner will not have to pay premiums for the next year.
_______________ is the process of selection, classification and rating, and determining if someone is insurable. A. The agent's report B. Completing the application C. Home office underwriting D. Field underwriting
Home office underwriting
Under the Fair Credit Reporting Act, which of the following statements is correct? A. The reporting company can provide confidential information to anyone requesting it B. If an individual is denied coverage, they can request a copy of the report C. The Act is designed to protect reporting agencies from the public D. The reporting agency has no responsibility to investigate inaccurate information
If an individual is denied coverage, they can request a copy of the report
Waiver of Premium Rider
If the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first. To qualify for the waiver, the insured must be disabled for a waiting period of 3-6 months. Unless the insured is disabled, the Waiver of Premium rider drops at age 65.
Of the following, which best describes a Straight Whole Life Policy? A. Increasing cash value and decreasing premiums B. Increasing premium and level death benefit for the life of the insured C. Level guaranteed premium and face value for the life of the insured D. Decreasing face amount and level premiums
Level guaranteed premium and face value for the life of the insured *A traditional Straight Whole Life Policy has as its primary characteristic, fixed (i.e. guaranteed) premiums and death benefit over the life of the policy. It has substantial guarantees, but virtually no flexibility.
If Xwm has a life insurance policy that is no longer wanted or needed and is considering selling their policy, how much might Xwm receive if the premiums are $10,000 annually, the cash value is $200,000, and the face amount is $1,000,000? A. More than $200,000 but less than $1,000,000 B. Less than $200,000 C. Nothing, because selling the policy is a prohibited transaction D. $200,000
More than $200,000 but less than $1,000,000 *Life settlement: sell to third party for more than cash surrender but less than death benefit
All of the following are TRUE of Policy Loan Rate provisions, except: A. The policy loan amount cannot exceed the available cash value B. Policies with adjustable loan interest rates have a maximum interest rate based upon Moody's corporate bond yield average C. Interest, if not paid when due, is added to the total debt D. Policies with fixed interest loan rates have a maximum interest rate of 10%
Policies with fixed interest loan rates have a maximum interest rate of 10% *usually a max interest rate of 8%
Commissions
Renewal or other deferred commissions may be paid to a person who was a licensed producer when the insurance was sold, solicited, or negotiated.
Insuring Clause
The insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.
When does the free look period begin?
When the policyowner receives the policy, not when the insurer issues the policy.
Life Settlement
the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its death benefit
After receiving a person's written request for cancellation of a policy, the insurer must return all payments made for the policy within how many days? A. 5 B. 10 C. 30 D. 21
10 days
After receiving a person's written request for cancellation of a policy, the insurer must return all payments made for the policy within how many days? A. 10 B. 5 C. 21 D. 30
10 days *The insurer must return all payments made for the policy within 10 days after it receives notice of cancellation and the returned policy, and the notice must be modified to notify the purchaser that he is entitled to a refund.
An employer must notify a covered employee of insurance continuation rights within ____ days after termination of or layoff from employment. A 14 B 21 C 10 D 7
14 days
Prelicensing education must include how many hours of education per line of authority? A. 10 B. 20 C. 30 D. 25
20 hours
Regarding an accelerated death benefit, a physician must give a prognosis of ___ months or less life expectancy for the named insured. A. 18 B. 24 C. 6 D. 12
24 months/2 years life expectancy or less
Copies of all advertisements must be kept on file for at least ___________.
3 years
The producer must deliver an insurance policy within how many days of receiving the premium? A. 5 days B. 30 days C. 21 days D. 15days
30 days
Agent's Report
A written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured's risks.
Conditional Contract
Both parties must perform certain duties to make the contract enforceable. The insured can only collect if there has been a covered loss, and the insurer has a list of conditions stated in the contract that must be met before a claim will be paid.
Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option? A. Extended Term B. Reduced Paid-Up C. Fixed Amount D. Cash Surrender
Cash surrender **Mona surrenders the policy for its cash value and then uses that cash value to reduce her debt load.
Which of the following is NOT within in the power of the Commissioner of Commerce? A. Create the state insurance statutes B. Enforce statutes regarding agent commissions C. Subpoena witnesses D. Hold hearings
Create the state insurance statutes **state legislature votes on and declines or passes insurance laws, and the Commissioner is responsible for enforcing the insurance laws.
Refusing to insure a person solely because the person is divorced is considered:
Discrimination
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. A. Agent's B. Motor vehicle C. Inspection D. Attending physician's
Inspection
The annuity settlement option that pays out the highest monthly income for as long as the annuitant lives, and leaves no residual value upon the annuitant's death, is the: A. Life Income with Refund Option B. Joint Life Option C. Life Income Joint and Survivor Option D. Life Income Option
Life Income Option (Pure or straight life) **The annuity Life Income Option (like the Life Income Settlement Option in life insurance) pays a benefit for as long as the annuitant lives, and upon death, all payments cease. It also provides the highest monthly income, all other factors being equal.
___________ in a policy allow the owner to name the beneficiary, choose a dividend option or settlement option, or borrow against the contract. A. Incontestable Clause B. Ownership Provision C. Consideration Clause D. Insuring Clause
Ownership provision **The rights of ownership are a standard contract provision and allows the policyowner to do all of these things and more.
Fraternal Benefit Societies
Primarily social organizations that engage in charitable and benevolent activities consisting of members of a given faith, lodge, or order, and are usually organized as non-profits.
Dividend option: 1 yr term
Purchases a single premium, 1-year term benefit. Premiums are calculated at the insured's attained age; also referred to as the fifth dividend option.
In a Universal Life policy, the minimum separation between the cash value and the death benefit is called the _______. A. The earned interest B. The cash value C. The MEC limit D. Risk corridor
Risk corridor **A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death benefit must increase so as to provide for this amount at risk. This minimum separation between the cash value and the death benefit is called the 'risk corridor.'
K needs funds and needs to maintain the life insurance she has at the same time. Which of the following should K do with her traditional whole life policy? A. Take out a policy loan B. Make a cash surrender C. Elect the interest only settlement option D. Elect reduced paid-up insurance
Take out a policy loan **A policy loan may be made from a cash value policy once there is sufficient cash value to borrow against; usually after 3 years.
What is the risk to the purchaser in a viatical settlement transaction? A. The check given to the seller does not clear the bank B. The purchaser paid too little for the policy C. The insured does not die within the time period anticipated D. The insured dies sooner than expected
The insured does not die within the time period anticipated **The risk to the purchaser is that the insured does not die within the time period anticipated and therefore the purchaser could lose money on the transaction.
Collateral Assignment
The policyowner temporarily assigns a life insurance policy to a creditor as collateral for a loan
Which of the following is NOT a type of Term Life Insurance Policy? A. Level B. Variable C. Increasing D. Decreasing
Variable **Level, decreasing, and increasing are all types of term insurance!
A statement that a person makes and guarantees to be true is a:
WARRANTY *Warranties are statements of absolute truth. Representations are statements made to the best of one's knowledge and belief.
Why should a producer collect a premium at the time the application is completed? A. Without it, coverage cannot go into effect, as there would be a lack of consideration B. It allows the producer to get paid faster C. It helps the home office with its cash flow D. It allows the insurer to afford to pay for any required medical records or tests
Without it, coverage cannot go into effect, as there would be a lack of consideration **Collecting the premium at the time of application allows the producer to issue a conditional coverage receipt, which can bring coverage into effect as early as the date of the application, provided all the conditions have been satisfied.
What is the maximum an employee of an insurer being examined by the Division of Commerce may be fined for violating a written order? A. $2,500 B. $1,000 C. $5,000 D. $10,000
$10,000
After receiving a person's written request for cancellation of a policy, the insurer must return all payments made for the policy within how many days? A. 21 B. 5 C. 10 D. 30
10 days
How long, typically, is the reinstatement period from policy lapse? A. 2 years B. 1 year C. Indefinitely D. 3 years
3 years *Typically, the reinstatement period is three years, but it can be up to 5 years with some policies or some insurers.
A life insurance policy form is effective if not disapproved within how many days of submission to the Commissioner? A. 20 B. 10 C. 30 D. 60
60 days
An insurance policy form is effective if not disapproved within how many days of submission to the Commissioner? A. 10 B. 30 C. 20 D. 60
60 days *If the Commissioner does not disapprove or otherwise object within 60 days after the filing of any form, the form will be deemed approved.
Each licensed person must complete at least ______ of initial training course on long-term care in order to sell LTC insurance. A 8 hours B 3 hours C 6 hours D 10 hours
8 hours
Which of the following is an example of a collateral assignment? A. A wealthy person signing over a life insurance policy to their irrevocable trust for estate planning purposes B. A corporation signing over a policy on the life of an executive upon their retirement C. A parent turning over the juvenile policy to the now adult child D. A business using a life insurance policy to secure a bank loan
A business using a life insurance policy to secure a bank loan *A collateral assignment is typically used when an insurance policy is used as collateral for a loan. This is a temporary assignment until the debt is paid in full.
Which of the following individuals does NOT have insurable interest in the insured's life policy?
A person with an insurable interest at the time the insured dies (A person has insurable interest only if it existed at the time the policy was issued.)
Which of the following is NOT considered rebating?
A promotional advertising item of $25 or less or a gift of $25 or less per year is not a rebate if the receipt of the item or gift is not conditioned upon purchase of an insurance policy or product.
Prospectus
A prospectus is a disclosure document that provides the prospective buyer with information about all fees, charges, expenses, and risks. It must be provided by the producer prior to sale of the variable annuity.
Payor Benefit
A rider or provision, usually found in Juvenile policies, under which premiums are waived if the Payor of the premium (usually a parent) becomes disabled or dies while the child is still a minor.
Waiver of Monthly Deduction
A rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability. Usually, the disability must occur prior to 65, and if disabled, the rider typically terminates at age 65. While the rider is in effect, only the monthly deductions are covered and no additional amount is added to the cash value other than monthly interest credits. When the rider terminates, premiums must once again be paid.
Single Premium Immediate Annuity
A single premium (lump sum) is put into an annuity from which the annuitant may immediately begin drawing benefits (within a year of the issue date).
Single Premium Deferred Annuity
A single premium (lump sum) is put into an annuity from which the annuitant will draw the benefits at some specified time in the future, more than 1 year from the issue date.
_____________ is/are not considered material to the policy issuance. A. Hazardous occupations and/or hobbies B. Recent major inpatient hospital surgeries C. Age and/or gender D. 12 driving under the influence tickets within 6 months prior to application
Age and/or gender
With a Life Income Payment Option, what happens at the annuitant's death? A. The beneficiary starts receiving benefits B. Payments continue until the principal is paid out C. All payments cease D. The estate is paid the total remaining balance
All payments cease **Because all payments cease upon the annuitant's death, the amounts of the monthly income payments under this option are larger than under any other option.
Substandard Risk
An applicant or insured who has a higher than normal probability of loss, and who may be subject to an increased premium.
Which of the following is the overall least expensive premium mode?
Annually; the less frequent the mode, the lower the overall cost.
Which of the following is a true characteristic of a Variable Universal Life policy? A. As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium B. The policy has a fixed premium schedule C. The policy requires only a life license to sell D. The insurer bears all risks in accumulating cash value
As long as there is sufficient cash value to cover policy expenses when due, the insured is not required to pay the planned premium **A characteristic of universal life insurance is that there is no requirement to pay any premium other than the first. As long as there is sufficient cash value to pay policy expenses (cost of insurance, riders, and other fees) when due, the policy remains in force.
Regarding Social Security survivor benefits, when the youngest child reaches age 16, the widow's/widower's _________ period begins and continues until the surviving (non-remarried) spouse reaches age 60. A. Elimination B. Waiting C. Blackout D. Probationary
Blackout
How does life insurance reduce financial loss upon the insured's death? A. By eliminating the risk B. By transferring the risk to the insurer C. Through reinsurance risk techniques D. Through applicant risk retention strategies
By transferring the risk to the insurer
Choose the FALSE statement regarding credit life insurance. A. A creditor could be a vendor of services B. Credit health insurance coverage must exceed the unpaid balance of the loan by 10% C. Group health and disability insurance can be issued to creditors for coverage on a debtor's life D. Credit insurance is term life insurance issued to a person that owes money
Credit health insurance coverage must exceed the unpaid balance of the loan by 10% *For credit life insurance, the initial amount of insurance cannot exceed the total contract indebtedness plus one month's payment. For credit accident and health insurance, the amount of coverage must not exceed the unpaid balance of a loan contract.
With a Variable Life Policy, which of the following is guaranteed? A. Dividends B. Cash value C. Death benefit D. Investment returns
Death benefit *In a VL policy a death benefit is guaranteed as long as all premiums are paid on time. There is both a guaranteed minimum death benefit and a higher stated face amount. The face amount and cash value are not guaranteed and could be higher or lower than expected.
When an insured decides to change her mode of premium payment from monthly to annually, the total premium due would:
Decrease
Flexible Premium Deferred Annuity
Flexible contributions may be made as often and in whatever amount the contract owner desires. However, most insurers set a minimum and a maximum amount for contributions. Benefits begin more than 1 year from the issue date.
Which of the following is TRUE about the termination of an insurance license? A. The Commissioner may fine a person up to $1,000 for violating an insurance law B. The Commissioner can suspend a license or impose a fine, but not both C. If a license has been revoked, the producer may not reapply earlier than 2 years from the revocation date D. A suspended license must be destroyed by the licensee upon notification from the Commissioner
If a license has been revoked, the producer may not reapply earlier than 2 years from the revocation date **The Commissioner can suspend a license and impose a fine up to $10,000 per violation, and upon suspension, the license must be delivered to the Commissioner.
Suicide Exclusion
If the life insured suicide within the first two years of the policy in force, No money will be given to beneficiary
Failure to repay a loan or loan interest will void a life insurance policy: A. If interest rates increase by more than 3% in any 1 year B. After the loan has been outstanding for more than 5 years C. After the insurer calls in the loan with 30 days advance notice D. If the total amount due equals or exceeds the policy's cash values
If the total amount due equals or exceeds the policy's cash values *Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.
Which of the following manufactures and sells insurance coverage in the form of insurance policies or contracts of insurance? A. Insurance agents B. Insurance agencies C. Insurance companies D. Applicants/insureds
Insurance companies
The Spendthrift provision states that the beneficiary: A. Must receive installments at the times and for the amounts as stated in the policy B. Determines the amount of each monthly installment C. Selects the settlement option on behalf of the insured D. May elect to receive a lump sum benefit instead of installments
Must receive installments at the times and for the amounts as stated in the policy
Status Clause Exclusion
No coverage for individuals with military status; typically covered thru gov already
Hazardous Hobbies or Avocation
No coverage if death is related to a hazardous hobby as stated in the policy, such as sky diving or hot air ballooning.
Hazardous Occupation Exclusion
No coverage if death is related to a hazardous occupation
Results Clause (War Clause) Exclusion
No coverage if death is the result of war declared or undeclared.
Ger has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select? A. Paid-Up Additions B. Paid-Up Option C. Acceleration of Endowment D. Fixed Amount
Paid-Up Additions *Ger's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash values and dividends as if the paid-up additional benefit was part of the original policy.
Dividend option: paid-up additions
Purchases single premium, additional permanent benefits at the insured's attained age. The additional insurance is paid out in addition to the face amount if the insured dies. While the insured is living, it generates cash value and dividends as if the paid-up additional benefit was part of the original policy.
Which of the following annuities does not have a traditional accumulation phase? A. Single premium deferred B. Single premium immediate C. Flexible premium deferred D. Periodic premium deferred
Single premium immediate **An immediate annuity essentially does not have an accumulation period and is used to generate immediate income. Income is generated within a year of the issue date.
Cash Surrender
Surrenders policy back to insurer, policy owner receives cash surrender value stated in policy less any outstanding loans/accrued interest. Any amount exceeding premiums paid into policy will be taxable as ordinary income. Insured no longer has coverage.
Which of the following is designed for someone with a large insurance need but with limited cash flow? A. Whole Life Insurance B. Variable Life Insurance C. Term Life Insurance D. Home Service Life Insurance
Term Life Insurance *Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower initially than Permanent Insurance.
What does the FCRA Fair Credit Reporting Act do?
The FCRA is designed to protect the public and requires the reporting agency to investigate disputed information. The applicant has the right to request a copy of the report from the reporting agency. This act protects confidential information.
The Guaranty Association's Notice of Policyholder Rights does NOT include which of the following information? A. The Guaranty Association's limits of liability B. Telephone number of the Association C. The producer cannot use the existence of the Association in order to sell the policy D. A warning that the Association may not cover the policy
The Guaranty Association's limits of liability
When an applicant completes the insurance application in its entirety and provides the producer with a premium check, what in effect has taken place?
The applicant is making an offer to the insurer
Choose the CORRECT statement about the appointment of a producer: A. The insurer cannot allow an application be submitted by a producer who is not appointed B. The appointment remains in force until the appointment or license is terminated C. The producer must be appointed within 60 days of the license approval date by the Commission D. The producer is appointed to represent the insured
The appointment remains in force until the appointment or license is terminated **A producer acting as an agent represents the insurer, not the insured. However, a producer acting as a broker represents the insured.
Which of the following statements about Indexed Life insurance is TRUE?
The interest credited to the policy is based off of the performance of a stock market index like the S&P 500 *The attraction of this policy is that potentially the interest credit can be higher than what a typically insurer's general account can pay by tying the potential interest credit to a stock market index. Based on the design of the policy, if the index falls in value there is no negative impact to existing cash values.
Clayton is asking his life insurance producer about any potential taxation issues related to his $100,000 personal Whole Life policy. All of the following are TRUE, except: A. Annual increases in the policy's cash value are not taxable at the time they are credited to the policy B. The interest that he pays on policy loans is tax-deductible C. Upon surrender of the policy, he will be taxed on any amount by which the cash value exceeds the cost basis (premiums paid) of the contract D. Since his policy is a personal policy, he cannot deduct the premiums he pays for the policy
The interest that he pays on policy loans is tax-deductible **The interest on policy loans is not tax-deductible.
If the insured becomes totally disabled, the company waives premiums for the duration of the disability if a _____________ is in force. A. Disability rider B. Premium payor benefit C. Paid up provision D. Waiver of premium rider
Waiver of premium rider
An insurer issues a policy as "other than applied for," requiring an additional premium of $100. When would an agreement come into being? A. When the insurer puts the policy into the mail B. When the producer receives the policy from the home office C. When the applicant agrees to the terms D. When the applicant accepts delivery of the policy and pays the additional premium
When the applicant accepts delivery of the policy and pays the additional premium
When is an entity buy-sell agreement plan used? A. When the entity needs an additional tax deduction B. When the owners are not in the financial position to buy the policies on their own C. When the entity buys life insurance on each of the owners D. When insurability is an issue
When the entity buys life insurance on each of the owners *Under an entity plan, a business entity enters into an agreement in which it is obligated to purchase the deceased's owner's interest. The entity typically buys life insurance policies on each of the owners and then would name itself as the beneficiary of each policy.
Contract of Adhesion
contract offered by a dominant party to a party with inferior bargaining power on a take-it-or-leave-it basis
Aviation Exclusion
fare-paying passengers on regularly scheduled commercial flights;applies most specifically to student pilots or those with a newly issued pilot's license with a limited number of hours of flying experience.
The Misstatement of Age or Sex Provision
prevents the policy from automatically being voided, but protects the insurer's right to adjust the death benefit based on what the actual premiums paid would have purchased had the correct age been known.
The 31 days in which the employee may change his/her group policy to an individual policy upon termination and without evidence of insurability, is known as: A. The Contestable Period B. The Conversion Period C. Ownership Rights Provision D. Change of Policy Provision
Conversion Period **Conversion Period is the period in which an employee may convert the group term death benefit to an individual permanent policy upon termination and without evidence of insurability.
The Spendthrift provision states that the beneficiary: A. Determines the amount of each monthly installment B. Must receive installments at the times and for the amounts as stated in the policy C. May elect to receive a lump sum benefit instead of installments D. Selects the settlement option on behalf of the insured
Must receive installments at the times and for the amounts as stated in the policy
Dividend option: paid-up option
Pays off the policy more quickly than scheduled. If the company's overall performance declines, premiums may have to be resumed.
If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit? A. The treasury of the state where the insured resided B. The state Guaranty Association C. The insured's estate D. A tertiary trust
Insured's estate
What is the maximum an employee of an insurer being examined by the Division of Commerce may be fined for violating a written order? A. $2,500 B. $10,000 C. $1,000 D. $5,000
$10,000 *Any person who violates or aids in the violation of a written order pursuant to an examination of an insurance company may be fines up to $10,000 for each day the violation continues.
Chee has a $100,000 traditional whole life insurance policy with a $30,000 cash surrender value. What is the maximum loan Chee can obtain from the insurer using the policy as collateral for the loan? A. $100,000 B. $70,000 C. $30,000 D. $130,000
$30,000 **The policy can be used as collateral for a loan from the insurance company, but the loan amount is limited to the amount of cash value in the policy.
A policy of life insurance may not be backdated more than _________ before the original application was made. A. 3 months B. 1 year C. 60 days D. 6 months
6 months
Cash values within an ordinary straight whole life insurance policy _______ over time. A. Decrease B. Vary C. Remain constant D. Increase
Increase **Cash values increase over time as premium is paid in and interest is reflected in the cash values shown in the policy's nonforfeiture table.
Which of the following term policies cost the least (all other factors being the same)? A. Renewable and non-convertible B. Nonrenewable and convertible C. Nonrenewable and non-convertible D. Renewable and convertible
Nonrenewable and non-convertible **The fewer features a policy has the less it will cost the consumer
Which of the following is NOT considered an unfair claims settlement practice? A. Refuse to pay a claim without an investigation B. Requesting a group applicant's claims history for the past 3 years C. Denying a claim based on an altered application D. Compensating a health care provider for denying service
Requesting a group applicant's claims history for the past 3 years **It is an unfair claim settlement practice to request the claim history of a group applicant for more than the previous 3 years.
Statements made on the application by the applicant that are believed to be true to the best of his/her knowledge are: A. Representations B. Warranties C. Conditions D. Waivers
Statements made on the application by the applicant that are believed to be true to the best of his/her knowledge, but are not guaranteed to be true, are known as REPRESENTATIONS.
In order to charge a service fee on a contract, the applicant must agree to which of the following? A. The service fee must be in addition to the premium B. Service fees on contracts are not allowed C. The fee is negotiated directly with the insurer D. The service fee agreement may be a written or oral agreement
The service fee must be in addition to the premium
Which underwriting source is primarily used when an application reveals conditions for which more medical information is required? A. Attending Physician's Statement B. Agent's Report C. Medical Information Bureau Report D. Inspection Report
Attending Physician's Statement
If a beneficiary is designated as irrevocable, then all of the following require the irrevocable beneficiary's approval, except: A. Policy assignment B. Taking a policy loan C. Changing the mode of premium D. Reducing the coverage
Changing the mode of premium **The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits without consent of the beneficiary.
Misrepresentation
Making a false or derogatory statement about an insurer's financial condition with intent to injure any person engaged in the insurance business is defamation, charging a different rate for the same class and risk is discrimination, and misrepresentation is forcing a person to lapse an existing policy by misstating the terms of the policy. **Forcing a person to lapse an existing policy by not stating the correct policy terms
Unilateral Contract
Only one party is legally bound to the contractual obligations. As long as all the conditions are met by the insured, the insurer makes an enforceable promise of future performance and can be charged with a breach of contract if those obligations are not met.
Which of the following is NOT a Dividend Option? A. Accumulate at Interest B. Paid in Cash C. Paid-Up Additions D. Reduced Paid-Up
Reduced paid-up *Reduced Paid-Up is a NONFORFEITURE option. The other answer choices are Dividend Options.
Which of the following is NOT a common rating classification? A. Substandard B. Standard C. Subrated D. Preferred
Subrated **3 classifications for risks are: standard, prefeerred, and substandard.
Which of the following would NOT be considered in determining a customer's suitability for life insurance? A The customer's income B The customer's need for insurance C The opinion of family and friends D The appropriateness of the offer of insurance for the group
The opinion of family and friends
Each licensed person must complete _____ credit hours of courses during each licensing period which includes at least _____ credit hours on ethics.
24/3
Typically, how many days can elapse before an overdue premium will cause a policy to lapse?
30 days (grace period)
When the owner of the policy and insurer must meet certain conditions in order for the health insurance policy to be enforceable, it is referred to as a(n):
Conditional contract **both parties to a contract must perform certain duties to make the contract enforceable.
Choose the FALSE statement regarding credit life insurance. A. Group health and disability insurance can be issued to creditors for coverage on a debtor's life B. Credit insurance is term life insurance issued to a person that owes money C. Credit health insurance coverage must exceed the unpaid balance of the loan by 10% D. A creditor could be a vendor of services
Credit health insurance coverage must exceed the unpaid balance of the loan by 10% **initial amount of insurance cannot exceed the total contract indebtedness plus one month's payment. For credit accident and health insurance, the amount of coverage must not exceed the unpaid balance of a loan contract.
As part of Social Security benefits, a one-time payment of $_______ may be made paid to a surviving spouse after a taxpayer's death.
Death benefits paid to the family of a covered worker is a one-time payment of $255 made after the taxpayer's death; paid to a surviving spouse or minor children if they meet certain requirements.
The surrender charge schedule for a variable universal life policy generally ________ over time. A. Fluctuates B. Remains the same C. Decreases D. Increases
Decreases **Over time the surrender charge schedule decreases to 0% generally after 10-20 years from policy issue.
Attending Physician's Statement (APS)
Designed to obtain more specific information about a particular medical problem revealed in the application or during the medical examination
Annuity income benefit payments are based on all of the following, except: A. Education level B. Gender C. Age D. Settlement option selected
Education level *Age, gender, settlement option selected, and dollar amount used to purchase the income payment benefit are all used in determining the amount of the income benefit payment.
The cash value in an Indexed Life insurance policy: A. Is declared by the insurer, based on the performance of the insurer's general account B. Is based on the performance of a designated quity index over a specified period of time C. Is based on the performance of Separate Accounts D. Is directly invested in an equity index
Is based on the performance of a designated quity index over a specified period of time **Unlike variable product owners, individuals who own indexed life do not put their capital at risk in the stock market. The insurer guarantees a minimum return, but does declare returns based on its performance. The yield is tied to the performance of an equity index between two designated dates.
A participating life insurance policy has a long-term care rider. The insured qualifies for the benefit. Where does the initial benefit money come from? A. It is an advance of the face amount of the policy B. From the policy's dividends C. From the cash values of the policy D. From the insurance company by policy loan
It is an advance of the face amount of the policy **The Long-Term Care Rider's initial benefit is from an advance of the death benefit, after which additional dollars are paid out by the insurer. The amount the insurer is responsible to pay out maximum is determined at the time the rider is acquired. The bigger the benefit the more the rider costs.
Nonforfeiture: Reduced Paid-Up
Present cash value used to buy single premium, permanent paid-up policy of reduced face amount. This option provides longest period of coverage provided by nonforfeiture option; coverage (reduced in face value) continues through age 100.
Mutual insurance companies are owned by: A. Directors B. Policyowners C. Stockholders D. Beneficiaries
The ownership of mutual insurance companies rests with the POLICY OWNERS
Aleatory Contract
a contract where the values exchanged may not be equal but depend on an uncertain event
The Guaranty Association for life and health insurance will pay UP TO all of the following claims EXCEPT: A. $500,000 for net cash surrender values and withdrawals B. $250,000 for the present value of annuity benefits including net cash surrender and net cash withdrawal values C. $410,000 for the present value of a structured settlement annuity D. $500,000 for health insurance benefits and net cash surrender values
$500,000 for net cash surrender values and withdrawals **If the insurer in insolvent, the Association will pay a maximum of $500,000 for all policies issued on one life by the same insurer, and up to $500,000 in life benefits and $130,000 in net cash surrender values and withdrawal values for life insurance.
Joint Life
The annuity is payable to 2 or more named annuitants while both are living. Upon the death of the first annuitant, the benefits stop.
Dividend option: Accumalate at Interest
dividends are retained by the insurer and the interest rate paid the policyowner is compounded annually.
Preferred Risks
individuals whose mortality experience is expected to be better than average
Nonforfeiture: Extended Term
present cash value used to buy single premium term policy as same face amount for as long a period it will buy, expressed as combo of yrs and days. This option provides largest death benefit and is sometimes referred to as Automatic (or Default) Option if no other option selected. Insured no longer has rights to cash value under this option, and policy expires prior to age 100.
Dividend option: Cash
receives declared dividends in form of check on/near each policy anniversary
Which of the following is false about a nonresident producer? A. The home state of a nonresident producer must be on a reciprocal basis with Minnesota B. A producer licensed in another state who applies for a license within 120 days after moving to Minnesota is exempt from prelicensing education and exam requirements C. The nonresident producer must hold a resident license in good standing in the home state D. The nonresident producer must submit the required application and fee
A producer licensed in another state who applies for a license within 120 days after moving to Minnesota is exempt from prelicensing education and exam requirements **Answer: within 90 days
A Variable Annuity is different from a Fixed Annuity because it must be sold with which of the following documents? A. Regulator approved sales literature B. A prospectus C. A copy of the insurer's business formation documents D. A copy of the producer's licensing exam test score
A prospectus
What are the two types of life insurance assignments? A. Absolute and collateral B. Revocable and irrevocable C. Entire amount and percentage amount D. Complete and partial
Absolute (permanent) and collateral (temporary)
Viatical Settlement
An arrangement that allows someone living with a life threatening condition (life expectancy of 2 yrs or less) to sell their existing life insurance policy and use the proceeds when and where they are most needed, before death.
When the life insurance policy's cash value equals the face amount of the policy and the proceeds are paid to the policyowner, this is known as the policy's _________.
Endowment
____________ individuals pay a FICA tax amount equal to the total of an employer and employee payment. A. Unemployed B. Part-time employed C. Employed D. Self-employed
Self-employed
The insurer must notify the Commissioner within __________ after the termination is effective. A. 30 days B. 10 days C. 24 hours D. 5 days
30 days *An insurer terminating a producer's appointment must notify the Commissioner, stating the reason, within 30 days after the termination's effective date.
A life insurance policy form must be submitted at least ________ prior to the date the insurer desires to use the form. A. 90 days B. 30 days C. 60 days D. 2 weeks
60 days *Life and health insurance policy forms or rate proposals must be submitted to the Commissioner at least 60 days prior to the desired use, and if disapproved, the insurer may request a hearing within 10 days.
If overdue premiums are not paid by the end of the grace period, a traditional Whole Life policy will automatically: A. Be reduced in face amount by the amount of the overdue premium B. Be cash surrendered C. Be canceled with no value D. Become extended term
Become extended term **The automatic option at the end of the grace period for a traditional Whole Life policy is the extended term nonforfeiture option. This will keep the original face amount in place for a certain number of years and days as indicated on the table inside the policy.
The nonforfeiture option that, if exercised, terminates all coverage is: A. Extended Term B. Reduced Paid-Up C. Cash Surrender D. Paid-up Additions
Cash Surrender
Which of the following provisions commence at the time of the delivery of the policy to the insured?
Free look period **The insured/owner has the right to examine the policy for 10 days (this may vary by state) after receipt of delivery. If returned within that period, a full refund of premium is granted. It is the insurer's responsibility to prove date of receipt.
Misappropriation or conversion of funds is? A. Improperly withholding the beneficiary's funds B. Charging different rates for the same risks C. Misstating death benefits D. Falsely altering any document relating to private business
Improperly withholding the beneficiary's funds **answer: improperly withholding, misappropriating, or converting a policyholder's or beneficiary's money, or engaging in fraudulent, coercive, or dishonest practices.
Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy? A. Endowment B. Cash surrender C. Policy loan D. Partial surrender
Partial surrender; typically available only on universal life insurance types of policies.
All of the following are TRUE regarding qualified plans, except: A. Employer contributions are not taxable to the employee until withdrawn B. Plans can discriminate in favor of highly compensated employees C. Distributions taken prior to age 59 1/2 are subject to tax and a tax penalty D. Employer contributions are immediately tax-deductible
Plans can discriminate in favor of highly compensated employees **In an ERISA-qualified plan, there can be no discrimination in favor of highly compensated employees.
Standard Risks
Reflect average exposures and fall into a normal range
Life Income Period Certain
The annuity benefit is payable for life, or for a specified period of time, whichever is longer. If the annuitant lives beyond the stated period, benefits continue for life of the annuitant. If the annuitant dies prior to the end of the period certain, a beneficiary receives the balance of the payments for the remaining time period.
Life Income with Refund (Installment or Cash Refund)
The annuity benefit is payable for the lifetime of the annuitant. Upon death, if an annuitant has not received an amount equal to the total of all payments made into the annuity (not the growth), the balance is refunded to the beneficiary as a lump sum, cash refund, or in installments, sometimes referred to as the installment refund.
Life Income Joint & Survivor
The annuity benefit is payable in one payment to 2 or more annuitants until the last surviving annuitant dies. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or a reduced benefit, such as 2/3 or 1/2 of the original amount, until the survivor dies. Depending on which option is selected, these options may be referred to as Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and ½ Survivor.
Choose the CORRECT statement about the appointment of a producer: A The appointment remains in force until the appointment or license is terminated B The insurer cannot allow an application be submitted by a producer who is not appointed C The producer is appointed to represent the insured D The producer must be appointed within 60 days of the license approval date by the Commission
The appointment remains in force until the appointment or license is terminated **A producer acting as an agent represents the insurer, not the insured. However, a producer acting as a broker represents the insured.
Which of the following is FALSE regarding the process of conducting a hearing regarding the violation of an insurance law? A. The Commissioner may bring an action in court to enforce compliance with the law B. Hearings are held within 10 days after the Commissioner receives a request for a hearing C. The order automatically becomes permanent if a hearing is not requested within 14 days D. The Attorney General may be asked to handle the matter in question
The order automatically becomes permanent if a hearing is not requested within 14 days **If no hearing is requested within 30 days after a Cease and Desist order is served, the order becomes permanent until vacated by the Commissioner.
Choose the FALSE statement about the expiration of an insurance license. A. The producer must complete continuing education requirements before the renewal date B. The producer has a 31 day grace period after the renewal date to pay the renewal fee C. If the license lapses, the producer can reinstate within a year of the due date without passing another exam D. The renewal fee for a lapsed license is twice the unpaid renewal fee
The producer has a 31 day grace period after the renewal date to pay the renewal fee **The insurance license will expire on the renewal date if the renewal fee is not received by the due date.