MA LIFE INSURANCE EXAM STUDY GUIDE

All of the following statements about annuities are correct, EXCEPT: A.) An annuity converts a sum of money into a series of income payments. B.) The primary purpose of an annuity is to guarantee the accumulation of money over time. C.) Annuities are not life insurance. D.) Annuities are sold by life insurance agents and are issued by life insurance companies.

B.)

All the following statements about universal life insurance partial surrenders are correct EXCEPT: A.) Partial surrenders reduce the death benefit dollar-for-dollar. B.) They incur interest charges. C.) Insurers do not require policyowners to repay partial surrenders. D.) Policyowners can withdraw funds as long as the policy has a cash surrender value.

B.)

Lottery winners who want to receive their winnings in installment payments over a 20-year period will most likely be set up with: A.) a stream of income paid by the lottery commission from a fund consisting of the announced lottery prize B.) a structured settlement, using an immediate fixed annuity, that guarantees the distribution of payments over the specified period C.) an immediate variable annuity that offers the potential for the lottery winner to receive even more than the announced prize winnings D.) a deferred annuity from an insurance company that will annuitize in 20 years

B.)

Which one of the following statements about variable life insurance is correct? A.) Variable life policyowners can invest all of their premiums in the insurer's general account. B.) With a variable life insurance policy, the policyowner assumes most of the investment risk. C.) Variable life policyowners can choose flexible premium payment schedules. D.) Subaccounts are managed within the insurer's general account.

B.)

Pam is a vice president employed by Gulf, Inc., where she has $300,000 in coverage under the company's noncontributory group life insurance plan. What portion of that coverage is taxable to Pam? A.) $300,000 B.) $250,000 C.) $0 D.) $50,000

B.) $250,000 EMPOYER CONTRIBUTIONS ARE TAXABLE ABOVE $50,000!

Frank's first income payment under a variable annuity is $1,950. The value of each accumulation unit in each of the sub-accounts in Frank's contract is $10 at the time of annuitization. How many annuity units does Frank have? A.) 19 B.) 195 C.) 225 D.) 1950

B.) 195

A person who wants to convert group life insurance coverage to an individual policy must apply for the policy and pay the first premium within how many days of leaving the group plan? A.) 10 B.) 31 C.) 21 D.) 30

B.) 31

Which of the following types of qualified retirement plan can include life insurance in the plan funding? A.) SEP plan. B.) 412(i) plan. C.) 401(k) plan D.) 403(b) plan

B.) 412(i) PLAN

The death benefit of a fixed deferred annuity equals: A.) the sum of periodic income payments projected to the annuitant's life expectancy B.) the contract's accumulated value when death occurs C.) the face amount stipulated in the deferred annuity contract. D.) the sum of premiums paid into the annuity

B.) ACCUMULATED VALUE WHEN DEATH OCCURS

An endowment policy matures (endows) when its cash value equals its face amount, which may be: A.) no earlier than the insured's age 120 B.) at almost any age C.) only between ages 95 and 120 D.) no earlier than the insured's age 95

B.) AT ALMOST ANY AGE

For which of the following people would an annuity probably NOT be suitable? A.) Alan, age 42, who wants to save money outside of his 401k plan for extra retirement income, B.) Charlie, age 79, who is looking for a place to save the proceeds from the recent sale of his vacation home. C.) Deanna, age 24, who was recently awarded a large monetary settlement in a lawsuit and who wants to make sure the money lasts her entire life. D.) Barbara, age 64, who recently inherited a large sum of money and wants to use some of it to provide retirement income she can't outlive.

B.) CHARLIE

All the following statements about key employee life insurance coverage are correct EXCEPT: A.) The business applies for and owns the policy. B.) The key employee's family receives the death benefits. C.) The key employee has no ownership rights in the policy. D.) The amount of coverage typically reflects the financial loss that the business would suffer if the key employee died.

B.) KEY EMPLOYEE'S FAMILY RECIEVES BENEFIT NOT TRUE... BUSINESS RECEIVES IT.

Which of the following annuity settlement options includes a life contingency? A.) fixed period option B.) life income with period certain option C.) fixed amount option D.) period certain-only option

B.) LIFE INCOME W/ PERIOD CERTAIN (FIXED AMOUNT/PERIOD ARE ONLY OPTIONS W/ LIFE CONTINGENCY)

Funds withdrawn from a market-value adjusted annuity (MVA) before its contract period ends are subject to which of the following? A.) interest adjustment B.) market-value adjustment and surrender charge C.) surrender charge only D.) withdrawal penalty

B.) MV ADJUSTMENT AND SURRENDER CHARGE

What must an annuity owner do to withdraw funds from his or her annuity contract? A.) The funds must remain in the contract until annuitization. B.) notify the insurer of the request to withdraw funds C.) provide proof of the owner's need for those funds D.) pledge a certain amount of collateral, and agree to a repayment schedule

B.) NOTIFY INSURER OF REQUEST TO WITHDAW

All the following statements regarding Section 529 prepaid tuition plans are correct EXCEPT: A.) Prepaid tuition plans let parents "prepay" a child's tuition at participating in-state public colleges and universities. B.) Prepaid tuition plans can be used to cover elementary and secondary school tuitions as well as college tuitions. C.) Prepaid tuition plans cover tuition and mandatory fees only (not room and board or books). D.) Prepaid tuition plans typically limit a child's choice of colleges to in-state schools.

B.) PREPAID PLANS CANNOT BE USED TO COVER ELEMENTARY AND SECONDARY SCHOOLS

Life insurance can provide both death benefits and living benefits. All the following are death benefit-related reasons for owning life insurance EXCEPT: A.) to create an estate B.) to supplement one's retirement income C.) to preserve an estate D.) to protect survivors against the income lost when an insured dies

B.) TO SUPPLEMENT RETIREMENT INCOME

The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policyowner: A.) the policy after it has lapsed for nonpayment of premiums without having to provide evidence of insurability B.) renew the policy with a higher face amount without having to provide evidence of insurability C.) renew the policy at lower current rates rather than guaranteed renewal rates D.) convert the term policy to a permanent life insurance policy

C.)

Unlike traditional fixed interest UL policies, many variable universal life policies offer a third death benefit option, which provides a guaranteed minimum death benefit equal to: A.) the policy's net amount at risk plus its cash value B.) the policy's net amount at risk plus its cash value plus the sum of premiums paid C.) the policy's net amount at risk plus the greater of the actual cash value or the sum of premiums paid D.) the policy's net amount at risk plus its cash value minus the sum of premiums paid

C.)

In choosing a qualified retirement plan funding instrument (e.g., a mutual fund, certificate of deposit, or deferred annuity), which of the following benefits or features is available only through an annuity? A.) the ability to convert accumulated savings into a guaranteed stream of income that cannot be outlived B.) tax-deferred accumulation C.) tax-deductible premiums D.) the ability to make monthly premium contributions

A.)

The Fair Credit Reporting Act (FCRA) of 1971 does which of the following? A.) sets procedures credit reporting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information B.) sets protocols agents must follow when requesting confidential financial information from applicants C.) monitors the code the MIB uses to send confidential information to insurers D.) sets procedures insurers must follow to make sure they use information effectively

A.)

The automatic premium loan (APL) provision does which of the following? A.) prevents a life insurance policy from lapsing if the policyowner fails to pay a premium B.) improves the policyowner's credit rating C.) provides liquidity if the insured wants to increase a policy's face amount D.) provides cash for emergencies and opportunities

A.)

For any given life policy death benefit amount, which of the following settlement options generally provides the largest monthly income to the payee? A.) straight life income settlement option B.) joint and survivor life income C.) life income with refund D.) life income with period certain

A.) STRAIGHT LIFE INCOME OPTION

what PERCENTAGE of applicants will insurers decline coverage W/ VEY HIGH substandard ratings?

ABOUT 2 PERCENT

Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy? A.) Under a partial surrender, the death benefit is not affected by the amount of the surrender. B.) A partial surrender is the same as a cash withdrawal under a universal life insurance policy. C.) Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender. D.) A partial surrender is a loan against the policy's cash surrender value.

C.)

Ann is beneficiary of an annuity owned by Jim, who is also the annuitant. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity? A.) Ann's will receive income for 20 years. B.) Ann will receive lifetime income. C.) Ann's right to any funds will be based on the income payout option Jim selected. D.) Ann will receive the annuity proceeds.

C.) BASED ON PAYOUT OPTION JIM SELECTED

The period after the youngest child turns age 16, during which no Social Security benefits are payable to a surviving spouse until he or she reaches age 60, is called the: A.) survivor period B.) early retirement period C.) blackout period D.) dependency period

C.) BLACKOUT PERIOD

In accordance with Section 1035 of the Tax Code, which of the following exchanges is permitted on a tax-free basis? A.) a market-value adjusted annuity for a whole life insurance policy B.) a variable annuity for a variable life insurance policy C.) a deferred market-value adjusted annuity for an immediate variable annuity D.) an equity-indexed annuity for an equity-indexed life insurance policy

C.) DEFERRED MVA FOR IMMEDIATE VA

Using the "needs approach" to determining lump-sum cash needs at death, a producer should consider all the following expenses EXCEPT: A.) estate taxes and estate settlement costs B.) the insured's debt C.) future food, clothing, and housing expenses D.) final medical and funeral expenses

C.) FOOD, CLOTHING, HOUSING EXPENSES

Which of the following will happen if the outstanding balance of a whole life insurance policy loan, including accrued interest, ever exceeds the policy's cash value? A.) The policy will remain in effect. B.) The policy will automatically go on the extended term option. C.) The insurer will cancel the policy. D.) The policy will be surrendered for cash.

C.) INSURER WILL CANCEL POLICY

George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called? A.) the agent B.) the beneficiary C.) the annuitant D.) the owner

C.) THE ANNUITANT

How frequently must an insurer that issues variable annuities value the assets of the separate account used to pay benefits? A.) at least annually B.) at least quarterly C.) at least semi-annually D.) at least monthly

D.) AT LEAST MONTHLY

Which of the following does not constitute unfair discrimination with respect to life insurance? A.) refusing the application of a blind person B.) requiring an applicant to take a genetic test C.) limiting coverage for a victim of domestic violence D.) charging a higher premium on the basis of a genetic condition

D.) CHARGING HIGHER PREMIUM ON BASIS OF GENETIC CONDITION

Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments? A.) retirement annuities B.) single-premium immediate annuities C.) immediate annuities D.) deferred annuities

D.) DEFERRED ANNUITIES

Who is the tertiary beneficiary in the following beneficiary designation: "Sally Grant, wife of the insured, if she survives the insured; otherwise Jim Grant, son of the insured, if he survives the insured; otherwise Frank Grant, brother of the insured." A.) Jim Grant S.) Sally Grant C.) the insured's estate D.) Frank Grant

D.) FRANK GRANT

When received in a lump sum, how are life insurance death benefits commonly taxed to the beneficiary? A.) They are generally tax free to the beneficiary, but only to the extent of the policy's gain. B.) They are generally taxable as income to the beneficiary, but only to the extent of the policy's gain. C.) They are generally fully taxable as income to the beneficiary. D.) They are generally income tax free to the beneficiary.

D.) GENERALLY INCOME TAX- FREE TO BENEFICIARY

The premiums that a company pays for corporate-owned life insurance (COLI) on the lives of its employees are generally: A.) tax deductible up to a corporate limit set by the IRS annually B.) taxable to the corporation C.) tax deductible up to an IRS limit per employee that is changed annually D.) not tax deductible

D.) NOT TAX DEDUCTIBLE

Under the transfer-for-value rule, which of the following ownership transfers of a life insurance policy is a taxable transfer? A.) a sale of the policy to a corporation in which the current owner is an officer or shareholder B.) a sale of the policy to a business partner of the current owner C.) sale of the policy to the insured person D.) sale of the policy to the current owner's brother

D.) SALE OF POLICY TO CURRENT OWNER'S BROTHER

Why do endowment contracts not enjoy the same favorable tax treatment as life insurance? A.) They do not pay benefits if the insured dies before the contract matures. B.) Their cash values equal the contract's death benefit when the policy is issued. C.) They do not build cash values. D.) They mature before age 120.

D.) THEY MATURE BEFORE AGE 120

If a policy's FACE AMOUNT is $100,000, w/ a $30,000 CASH VALUE, how much will FACE AMOUNT be if he PARTIALLY SURRENDERS $15,000?

$50,000, amount deducted from FV is PERCENTAGE PROPORTIONAL to the deduction in CV.

What is the typical life insurance contract's reinstatement provision period? A.) three to five years, but may be longer depending on the case and the laws of the state that control the policy B.) to age 65 C.) six months D.) one year

A.) 3-5 YEARS

A two-tiered fixed annuity is designed to credit a higher rate of interest to: A.) annuity owners who annuitize the contract B.) annuity owners who maintain their annuity beyond its surrender charge period C.) annuity owners who make automatic premium payments of a minimum amount into the annuity D.) annuity owners who surrender the annuity and roll over the funds to a new deferred annuity

A.) OWNERS WHO ANNUITIZE THE CONTRACT

How long may an insurer defer payment of a cash surrender benefit from an annuity? A.) 6 months B.) 3 months C.) 12 months D.) 1 month

A.) SIX MONTHS

Whether a variable annuity's monthly income rises, falls, or stays level depends largely on which of the following? A.) the number of annuity units calculated for the annuity B.) the annuity settlement option selected by the annuity owner C.) 2000 CSO Mortality Table D.) the assumed interest rate (AIR) selected by the contract owner

AIR SELECTED BY CONTRACT OWNER

All the following statements regarding the automatic premium loan (APL) are correct, EXCEPT: A.) The policy's cash value must be at least equal to the unpaid premium for the automatic premium loan to be made. B.) Under the APL, a policy loan is created to pay a premium on its due date. C.) Some policies prohibit automatic premium loans from paying any more than a total of 12 monthly premiums. D.) Some policies prohibit automatic premium loans from paying consecutive premiums.

B.)

Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums? A.) cash surrender option B.) reduced paid-up option C.) partial surrender provision D.) extended term option

B.) REDUCED PAID-UP OPTION

Carl is owner and insured of a life insurance policy. If he were to die without having selected a settlement option, which of the following option(s) is available to the beneficiary? A.) The beneficiary must leave the cash value with the insurer to accumulate interest for a period specified in the policy. B.) The beneficiary must choose a settlement option that does not include a life contingency. C.) The beneficiary may choose from all settlement options that would have been available to Carl. D.) The beneficiary must take the cash value as a lump-sum payment only.

C.)

Cindy, age 51, withdraws $15,000 from her 401(k) plan so that she can buy a new boat. All the following statements regarding this are correct, EXCEPT: A.) Unless Cindy qualifies for an exemption, the distribution will be subject to a 10 percent premature distribution penalty. B.) Cindy must pay any taxes owed on the withdrawal in the year it is distributed. C.) Cindy can avoid any penalty taxes if she can demonstrate to the IRS that the boat was essential to her financial well-being. D.) Cindy can withdraw this money only if it represents her contributions or fully vested employer contributions.

C.)

Using a deferred annuity for short-term accumulation goals may result in all the following consequences EXCEPT: A.) a possible penalty tax upon distribution B.) income taxation of the interest earnings upon distribution C.) loss of accrued interest earnings upon distribution D.) possible surrender charges upon distribution

C.) LOSS OF ACCRUED INTEREST EARNINGS

Which of the following statements about the tax treatment of funds received through a qualified viatical settlement is correct? A.) The insured pays state income tax but no federal income tax. B.) The insured pays no taxes in any form. C.) The insured pays no federal income tax but may have to pay state income tax. D.) The insured pays capital gains tax but no federal or state income tax.

C.) NO FEDERAL BUT PAYS STATE TAX

Which of the following correctly identifies qualified educational expenses that can be covered under a Section 529 PREPAID tuition plan? A.) tuition only B.) tuition, mandatory fees, and room and board only C.) tuition and mandatory fees only D.) tuition, mandatory fees, room and board, and books

C.) TUITION AD MANDATORY FEES ONLY

A whole life insurance policy matures, or endows, when: A.) the policy's cash value equals its loan value. B.) the premiums the owner has paid equal the policy's cash value C.) the premiums the owner has paid equal the policy's face amount D.) the policy's cash value equals its face amount

D.)

All the following statements regarding the "spendthrift clause" of a life insurance policy are correct EXCEPT: A.) The spendthrift clause keeps the beneficiary from changing the settlement option chosen by the policyowner. B.) The spendthrift clause keeps the beneficiary's creditors from forcing the insurer to pay them the death benefit. C.) The spendthrift clause protects death benefits only until they are paid to the beneficiary, at which point they are no longer protected. D.) The spendthrift clause keeps beneficiaries from claiming any death benefits until the insurer checks their personal and business credit histories.

D.)

Which of the following is guaranteed under most variable annuity contracts? A.) a minimum interest rate B.) level monthly income payments C.) each sub-account's net asset value D.) a death benefit, if the owner or annuitant dies before the contract is annuitized

D.) DEATH BENEFIT IF OWNER DIES BEFORE CONTRACT IS ANNUITIZED.

If a whole life insurance policy lapses due to non-payment of the premium, which of the following is NOT an option that is available to the policyowner? A.) use the cash value to purchase a term life insurance policy B.) use the cash value to purchase a paid-up whole life insurance policy C.) receive a full refund of premiums paid for the policy D.) receive the policy's cash value in a lump sum payment

D.) RECIEVE FULL REPUND OF PREMIUMS

In accordance with Section 1035 of the Tax Code, all the following exchanges are permitted on a tax-free basis EXCEPT: A.) A deferred annuity exchanged for a whole life insurance policy. B.) A deferred variable annuity exchanged for an immediate fixed annuity. C.) A variable life insurance policy exchanged for a deferred fixed annuity. D.) A universal life insurance policy exchanged for a whole life insurance policy.

DEFERRED ANNUITY EXCHANGED FOR A WHOLE LIFE INSURANCE POLICY.

Which of the following correctly describes the disability income benefit rider available with life insurance policies? A.) A disability income benefit rider pays a monthly income equal to the policy premium if the insured becomes disabled. B.) A disability income benefit rider distributes the policy's death benefit in the form of monthly payments if the insured becomes disabled. C.) A disability income benefit rider distributes the policy's cash value in the form of monthly payments if the insured becomes disabled. D.) It pays a monthly income determined by a formula specified in the policy if the insured becomes disabled, without impacting the policy's cash value or face amount.

D.)

Under the "bring-back rule," the death benefit of a life insurance policy that was transferred to a third party by the insured is included in the insured's estate if made within A.) 5 years prior to the insured's death B.) 7 years prior to the insured's death C.) 10 years prior to the insured's death D.) 3 years prior to the insured's death

D.) 3 YEARS PRIOR TO INSURED'S DEATH

What is the maximum amount of time most states allow insurers to delay paying cash surrender values? A.) one week B.) nine months C.) one month D.) six months

D.) 6 MONTHS

Mark wants to terminate his policy and exercise a nonforfeiture benefit option. He must notify the insurer of his intent and surrender the policy within how many days? A.) 30 B.) 90 C.) 10 D.) 60

D.) 60 DAYS