MA Stimulator exam 1
when testing for the human immunodeficiency virus (HIV), Massachusetts law requires a consent form
that discloses who may receive a copy of the results
an insurable risk requires
that the chance of loss be calculable
The exclusion ratio determines
the amount of an annuity payment subject to income tax
what is payable to the policy owner if a whole life policy is surrendered prior to its maturity date?
the cash value
all of these statements concerning group credit life insurance are false EXPECT
the face amount is based on the outstanding loan balance
under the law of agency, the principal is considered to be
the insurer
A material change in a modified endowment contract (MEC) results in
the seven pay test, adjusted for cash value, being applied again
which of the following is NOT subject to the promise to pay in an insuring clause
How the premium is calculated
T is covered by an Accidental Death and Dismemberment (AD&D) policy that has an irrevocable beneficiary. What action will the insurance company take if T requests a change of beneficiary?
"Request of the change will be refused
a Massachusetts producer who has violated an unfair trade practice law. this producer may be fined up to _________ per violation
$1,000
first-time homebuyers are able to withdraw up to how much from their qualified IRAs without incurring the 10% early withdrawal penalty
$10,000
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
$200,000
an insured has a $25,000 whole life insurance policy with $6000 cash value available. under the extended term nonforfiture option, what is the amount of insurance available for the insured?
$25,000
the beneficiary of a life insurance policy is normally selected by whom
Policyowner
what is the maximum number of employees (earning at least $5,000) that an employer can have in order to start a SIMPLE retirement plan
100
a life insurance policy can be contested by the insurer only during the first ____ years of the contract
2
a survivorship life insurance usually covers how many lives?
2
An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?
20% is withheld for income taxes
how many days notice must a producer be given prior to a scheduled hearing
21 days
in order to renew a producers license, continuing education must be completed every
3 years
after the first 3 years of licensure, a producer must complete _____ credit hours of continuing education for each licensing period
45 hours
What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?
50%
according to ERISA regulations, a Summary Plan Description must be provided to a new plan member within ____ days of the members eligibility date
90
which of these is NOT an advantage of term life insurance
A cash benefit will be provided if the insured is alive at the end of the policy period
which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy
A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy
which of the following situations would allow funds to be deposited into a rollover IRA
An employee quits her job and receives $50,000 from her qualified plan
what qualifies as acceptance of an insurance contract offer
An issued policy
which statement is INCORRECT concerning a tax-sheltered annuity (TSA)?
Annual investment gains are included in participant's gross income
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Annuitant
An applicant submits a life insurance application where an investigative consumer report is used in the underwriting process. Which of these statements is true?
Applicant has a right to receive a copy of the report
traditional individual retirement annuity (IRA) distributors must start by
April 1st of the year following the year the participant attains age of 70 1/2
How may an insurance company classify an accidental death benefit on a life policy?
As an optional policy rider
In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?
Automatic premium loan
what is the tax treatment of benefit payments for a non-qualified annuity
Benefit payments are always fully taxable
which of these is true regarding the exchange of consideration among parties involved in an insurance contract
Can be unequal
which statement regarding the waiver of premium rider is accurate
Cash payment is not directly provided to the policyowner
which statement regarding universal life insurance is correct
Cash value accumulations have a guaranteed minimum interest rate
An employee welfare plan exempt from ERISA regulations would be
Church plans
which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions
Conduit IRA
Which report contains information regarding an individual's general reputation and credit standing?
Consumer report
An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?
Contract of utmost good faith
what effect does interest income have upon insurance premiums?
Decreases premium
which of the following is generally a form of group credit life insurance
Decreasing term insurance
which of these is NOT an underwriting responsibility of a life insurance agent
Determining the final rate classification
An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately has the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?
Distribution is subject to federal income tax withholding
an employer has a group life coverage for his employees. how would an employee in poor health be treated in this situation
Eligible for the same type of coverage as the other employees
which of these is NOT considered a type of limited payment whole life insurance
Endowment at age 70
An officer for a corporation takes out numerous unsecured loans from the company's qualified retirement plan. Which of these rules is the plan in violation of?
Exclusive benefit rule
Which benefit supplement added to a life insurance policy insures an entire family?
Family term rider
Which tax cost is normally associated with death?
Federal estate tax
Which tax is normally associated with an individual's death?
Federal estate tax
which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted
Fixed amount installment option
Tori has an annuity that pays her a $500 per month income benefit for life or for ten years, whichever is longer. What kind of annuity is this?
Fixed life annuity with period certain
how long does one premium payment cover in a single premium whole life policy
Full life of the policy
what is considered a valid reason for small corporations to insure the lives of its major stockholders?
Fund a buy-sell agreement
what is another name for a keogh plan
HR 10 plan
a single premium deferred annuity sometimes contains a bailout feature. which statement regarding this feature is correct
If the interest rate falls below a specified level, the surrender charge is waived
which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed
Incontestable clause
which statement regarding the certificate of insurance is accurate
Indicates evidence of an employee's insurance coverage
which statement is INCORRECT about the interest-only settlement option in a life insurance policy
Interest on proceeds must be paid by the beneficiary
which of these statements is NOT true regarding a cash value loan against a life insurance policy?
Interest payments made by policyowner are deductible
which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
which of the following is associated with an immediate annuity
Lack of an accumulation period
an arrangement where an individual is authorized to act on behalf of another person or company is established through
Law of Agency
How much is normally paid to a policyowner in a life (viatical) settlement?
Less than the death benefit
which of these is NOT a common life insurance nonforfeiture option
Life income annuity
Tim is confined to a nursing home but doesn't have a terminal illness. Which life insurance rider is designed to help pay for this type of expense?
Long-term care benefit rider
which of the following situations would an insurance agent need to guard against liability for professional errors and omissions?
Making a recommendation to a potential insured to replace existing coverage
what would be a valid reason for naming a trust as the beneficiary of a life insurance policy as opposed to naming an individual
Management of proceeds would be provided
A life policy that has premiums that are lower than normal during the early years is called
Modified life
all of these statements correctly describe an aleatory contract EXCEPT
Only one party makes any kind of legally enforceable offer
A signed good health statement may be collected by a life producer at the time of
Policy delivery
which of the following is a TRUE statement regarding universal life insurance
Policy indicates how much of each premium is used toward company expenses
which of the following is a true statement regarding universal life insurance
Policy indicates how much of each premium is used toward company expenses
Straight whole life insurance can be accurately described in all of these statements EXCEPT
Policy protection normally expires at age 65
what happens to a life insurance policy when the policy loan balance exceeds the cash value
Policy will no longer be in force
If an insured dies during the grace period without having paid the premium, how much will the insurer pay?
Policy's face amount minus any premiums due
Dividends from a mutual insurance company are paid to whom?
Policyholders
How are level term policies able to provide level premiums?
Premiums are averaged over the term of the policy
When must a producer provide disclosure about information practices to an applicant?
Prior to or at the time of signing the application
which of the following outlines the authority given to the producer on behalf of the insurer
Producer contract
Which benefit can be found in an equity indexed annuity, but not in a fixed annuity?
Protection against long-term inflation
which of these statements is NOT a characteristic of the law of large numbers
Rates can be calculated to compensate for losses
Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as
Reasonable expectations
what could be the potential result of taking out. a cash value loan under a life insurance policy?
Reduces the amount receivable upon surrender of the contract
a life insurance policyowner would like a dividend option that results in a limited current outlay of funds. which dividend option would be chosen
Reduction of premium payment
What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?
Responsible for acts by the producer that are authority only
which of the following would most likely purchase an immediate annuity?
Retiree having a lump sum to invest
What does a 401(k) plan generally provide its participants?
Salary-deferral option
Switching Life insurance policies without tax consequence is permitted under
Section 1035 rules
which of these is NOT considered the responsibility of a producer during the underwriting process
Selecting the final approval date
Assets that back the non-guaranteed values of variable life insurance products are held in which account?
Separate account set up by the insurer
When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?
Settlement will be reduced
Sylvia purchased an annuity for $100,000 from the proceeds of an inheritance. No further payments are permitted and the income stream begins in 15 years. This contract is a(n)
Single Premium Deferred Annuity
XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?
Split-dollar
which of these is a true statement regarding survivor benefits under a qualified retirement plan
Survivor benefits can only be waived with the written consent of a married employee's spouse
How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?
Survivorship life policy is lower
How are monthly life annuity benefit payments treated under a tax sheltered annuity (TSA)?
Taxed as ordinary income in the year received
which statement regarding a fixed period settlement option is correct
The installment payment amount is determined by the total number of installments
which of the following is true regarding a person receiving a waiver of premium benefit
The insured must be disabled for a period of time
what determines how much an annuitant is paid for a variable annuity?
The market value variations of the securities backing it
which statement concerning a deferred annuity contract is correct?
The owner can be the beneficiary, annuitant, or neither
which of these is NOT a reason to buy term life policy
To accumulate savings
what is the effect of the market value adjustment in a market value adjustment annuity
Transfers some of the investment risk to the policyowner
How is a collateral assignment used in a life insurance contract?
Transfers specific ownership rights to a creditor
which of the following statements about universal life insurance is NOT true
Universal life insurance normally has a minimum guaranteed cash value for duration of the policy
when does interest income for a flexible premium deferred annuity get reported for federal income taxes
Upon receiving distributions from the contract
When would evidence of insurability be required for a person already covered with a variable universal life policy?
When the death benefit is increased
when does the producer give a premium receipt for a life insurance application
When the initial premium has been paid with the application
which of the following individuals is eligible to receive a temporary producers license
a designated employee who is replacing a deceased producer
in order for a prohibited person to sell insure in Massachusetts, he or she must have a(n)
a letter signed by the Superintendent
which of these is NOT considered to be an example of misrepresentation
a producer comparing the benefits of competing insurance policies
life insurance replacement can be best defined as
a transaction in which a new life insurance policy is purchased and an existing life insurance policy is surrendered
a life insurance policy owner has been diagnosed with a terminal illness. which of the following is often payable to a policy owner whose life expectancy is substantially reduced to illness
accelerated (living) benefit
a life insurance policy that has the ability to reduce the death benefit is called the
accelerated (living) benefit
A producer working for an insurance company may be personally liable for
acts performed which are prohibited in the agency contract
a Massachusetts residential producer has been convicted of a felony. under which circumstance may the producer resume engaging n insurance transactions
after the commissioner gives written consent
the higher mortality rate belongs to which group
age 70 males
an agent's authority to bind an insurer to an insurance contract may be granted in the
agent's contract and the insurance companies appointment
an absolute assignment of a life insurance policy results in
all incidents of ownership transferred to the assignee
which of these is NOT a valid contract exchange
an annuity exchanged for a life insurance policy
which is the following is NOT a reason for business to buy key person life insurance
an increased pension liability if the key employee dies
The surrender charge on many deferred annuity contracts are waived when the
annuitant dies or becomes disabled
Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of
apparent authority
if replacement was involved in the sale of a life insurance policy, a producer must provide a replacement notice no later than the
application date
before an individual is permitted to act as an insurance agent, he/she must hold a valid insurance license and be ______ by an authorized insurer
appointed
which of the following is NOT the responsibility of the insurer
assuming the liability for a producer's unauthorized acts
The IRS has a "minimum coverage" rule regarding qualified retirement plans. this rule states that each qualified plan is required to
benefit a broad cross section of employees
Who normally pays the premiums for group credit life insurance?
borrower
Taking a sum of money and decreasing it in size is called
capital liquidation
a source of supplement income for a life insurance policy owner can be derived from the
cash value
an order issued by the Superintendent that prohibits a specific practice listed in the order is called
cease and desist order
if the Superintendent has reason to believe a producer has violated Massachusetts insurance law, the Superintendent may issue a(n)
cease and desist order
which of these is NOT a punishment for committing an unfair and deceptive insurance practice?
community service
which of these is NOT considered a federal punishment for unfair and deceptive insurance practices
community service
life settlement brokers are NOT allowed to
complete transactions prior to being approved a license
the insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all the policy conditions. this makes the policy a(n)
conditional contract
The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of
consideration
an annuity's accumulation period may
continue after the purchase payments stop
Interest is credited to a fixed annuity no lower than the
contract guaranteed rate
the policy provision that permits an employee to change from group life coverage to an individual life policy is called the
conversion provision
which of the following does NOT involve a life settlement transaction
converting term life coverage to whole life insurance
Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the
cost basis
the main purpose of a an annuity is to
create a stream of income
which of the following disability buy-sell agreements is best suited for businesses with a limited number of partners
cross purchase agreement
what happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up
decreases
an individual, age 45, would like to help pay for his daughter's college expenses in 10 years. which annuity would be appropriate for this individual
deferred annuity
group life plans sold in Massachusetts typically contain a conversion option. if the insured elects this option, the new policy
does NOT require evidence of insurability
which of the following is considered an activity of daily living when determining an accelerated life insurance benefit
eating
When using the needs approach for life insurance planning, a lump sum may be created to provide for all of the following EXCEPT
employee benefits
Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. this attached agreement is called
endorsement
who do insurers require a minimum number of employees participate in a group insurance plan
minimize adverse selection
Death benefits from a life insurance policy are normally considered to be
exempt from federal income tax
when determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus
expenses and withdrawals
the powers directly given to a producer in an agency contract are called
express
when an applicant applies for a large amount of the life insurance coverage, which of the following would likely NOT be an underwriting requirement
eye examination
which settlement option makes minimum guaranteed dollar payments over a stated number of years
fixed period
an annuity contract may be returned for a full refund during the
free look period
which life insurance policy provision allows a policy owner to cancel the policy and receive a full refund within a limited time period after policy delivery?
free-look period
a large corporation pension plan purchased an accumulation contract where all of the participating employees received certificates of participation. what is this contact called?
group deffered annuity
a life annuity with period certain is characterized as
guaranteeing benefit payments for a stated minimum number of years
a producer's license may only be suspended or revoked if the producer
has been afforded a right to hearing
a life insurance applicant is tested for the Human Immunodeficiency Virus (HIV). the applicant MUST be informed that the testing
helps determine the insurability of the applicant
XYZ Corp has implemented a qualified retirement plan. This plan may NOT discriminate
in favor of highly compensated employees
a policy owner has just borrowed from a life insurance policy's cash value. which of these statements is true?
in the event of death, the loan amount is deducted from the policy proceeds
a 55 yr old recently received a $30,000 distribution from a previous employer's 401k plan, minus $6,000 for income tax withholding. which federal taxes apply if none of the funds were rolled over?
income taxes plus a 10% penalty tax on $30,000
A business may purchase an annuity for all of the following reasons EXCEPT
informally Funding a non-qualified deferred compensation plan
what happens when an initial offer is answered with a counter offer
initial offer is void
When premiums are determined, one factor would be the expenses of the
insurer
who is required to notify the producer in the event of appointment termination
insurer
After an insurance application has been originated, the producer normally
is the major personal contact to the insured
which of these is NOT true of the war exclusion
it applies to civil insurrections
a life insurance beneficiary died after receiving only six payments under the policy's life income settlement option. what happens with the remaining balance of the death proceeds?
kept by the insurance company
Death proceeds of a credit life insurance policy are typically paid to the
lender
A policy owner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age.if she dies and the insurer discovers the mistatement of age,how much will the insurance company pay?
less than the face amount
during the early years of a whole life insurance policy, the cash value will normally
less than the total premiums paid
What type of premiums are associated with individual mortgage protection life insurance policies?
level premiums
After the extended term life nonforfeiture option is chosen, the available insurance will be
level term for a stated period of time
the annuitant in a single premium deferred annuity (SPDA)
makes only one premium payment
according to the Federal Fraud and False Statements Acts, which of these is considered to be an intentional violation?
making false entries in a company's books
A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid
mandatory income tax withholding on the amount transferred
field underwriting by a producer
may result in the disclosure of hazardous activities of the applicant
an insurer may contest the validity of a life insurance policy during the policy's first two years for all of these reasons EXCEPT
misstatement of age
life insurance premiums are computed on what three factors
mortality, interest, expenses
if the Commissioner requests access to a producer's business records, the producer
must provide access to the records upon request
an agent whose actions exceed the authority granted by a contact is
not backed by the insurer
Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were
not distributed to life annuitants who died before life expectancy
which element of a contract constitutes a definite and unqualified proposal by one party to another
offer
insurance interest involves what assumption
one person benefits from another persons continued life
the authority to change the beneficiary in an individual annuity lies with the
owner
employers often purchase life insurance on a key employee in order to
pay for finding and training a replacement if the employee dies prematurely
which of the following can be defined as loss
peril
which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)
policy loans
a law of large numbers enables an insurer to
predict losses
what typically changes at the re-entry option date found in some term life policies
premium
a life insurance producer is required to give a disclosure notice about information practices to an applicant
prior to or at the time of signing the application
the automatic premium loan provision can be accurately described as
provision that provides a policy loan to pay any premiums by the end of the grace period
A Keogh Plan is a
qualified retirement plan for the self employed
during an annuity's liquidation phase, the annuitant normally
receives benefit payments at regular intervals
ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk
reduction
When a lapsed policy's premium has been paid current, it has the potential of being
reinstated
Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will
remain a constant dollar amount for the duration of the annuity period
what is the accounting measurement of an insurance company's future obligations to its policy owners
reserves
which of the following would prevent a person from obtaining a Massachusetts resident producer license
residing in a state outside of Massachusetts
which of the following can be defined as "the potential for loss?"
risk
A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a
risk retention group
a stock insurance company is owned by its
shareholders
which of these is NOT considered to be an element of insurable risk
speculative risk
which life insurance policy provision prohibits a beneficiary from "commuting, encumbering, withdrawing, or assigning" any portion of the proceeds prior to an actual receipt from the company
spendthrift clause
which entity is responsible for regulating claims settlement practices of the insurer
state insurance departments
what happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guaranteed period
subject to market value adjustment
an insurer will typically asses a back-end load on a deferred annuity that is cancelled during the early contract years. what is this back-end load referred to as
surrender charge
if an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally
tax deductible to the business
The interest credited to the cash values of personally-owned non-qualified annuities is considered
tax deferred
The interest paid during an annuity's payout period is considered
taxable as ordinary income
how does a continuous premium whole life policy differ from a limited whole life poliyc
time period in which premiums are paid
the reason for backdating a policy is
to obtain a premium rate based on an earlier age
A business becoming incorporated is an example of risk ____.
transfer
a hold-harmless clause is an example of risk
transfer
a producer must report which of the following actions to the superintendent
using an assumed name
a terminally ill policy owner decides to sell his life insurance policy at a discount to help support his family. this sale is called a
viatical settlement
a policy owner with a terminal illness who sells his life insurance policy to a third party is called a
viator
an insurance company can be liable for a producer's unauthorized acts
when the agency contract is unclear concerning the authority given
an individual working part-time has a gross income of $5,000 for the year. if this individual has an IRA, what is the maximum deductible IRA contribution allowable
$5,000
a "premature" distribution from a modified endowment contract (MEC) incurs a penalty tax of
10%
how long can an insurer legally defer paying the cash value of a surrendered life insurance policy?
6 months
Notice of information practices must be given to a policyholder at least
Every 3 years
Who is normally considered to be the owner of a 403(b) tax-sheltered annuity?
The participating employee
who is the beneficiary in a life insurance policy
The stated person or entity who is designated to receive the death proceeds
group term insurance is typically issued as
level term insurance
which of the following is a potential punishment given to a producer found guilty of an unfair method of competition
license suspension and revocation
who is required to notify the superintendent of a licensees change of address
licensee