primerica exam 7
c)Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
#15. Which of the following is the most precise synonym for an "authorized" insurer? a)Licensed b)Legal c)Admitted d)Certified
a)6 months It is legal for Michigan insurers to backdate life policies, but this adjusted effective date can be no more than 6 months before the "actual" date.
#17. In order to reduce the premium, an insurer can backdate a life policy up to a)6 months b)1 year c)30 days d)90 days.
d)The cash value available to the insured Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.
#26. What are liquid resources in a life insurance contract? a)The cash value in an annuity b)The money in an IRA c)The money in a savings account d)The cash value available to the insured
b)Level fixed Variable Life insurance is a level fixed premium investment based product.
#78. Variable Life insurance is based on what kind of premium? a)Graded b)Level fixed c)Increasing d)Decreasing
a)Benefits are not taxed. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.
#73. Which of the following is true regarding the taxation of accelerated benefits? a)Benefits are not taxed. b)Benefits are eligible for a 50% tax reduction. c)Benefits are eligible for a 75% tax reduction. d)Benefits are taxed as income, up to an amount specified by the insurer
c)$1,000 If convicted for a false claim, an agent, collector, physician or other person could be fined up to $1,000
#42. If convicted for making a false report of disability to collect a claim payment from an insurer, an agent will be fined up to a)$2,000 b)$500 c)$1,000 d)$1,500 If convicted for a false claim, an agent, collector, physician or other person could be fined up to $1,000.
a)Insurers The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
#6. Who makes up the Medical Information Bureau? a)Insurers b)Hospitals c)Consumers d)Doctors
d)Equal to the original policy for as long a period of time that the cash values will purchase. With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.
54. When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount a)In lesser amounts for the remaining policy term of age 100. b)Equal to the cash value surrendered from the policy. c)The same as the original policy minus the cash value. d)Equal to the original policy for as long a period of time that the cash values will purchase.
d)Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.
94. Which of the following is a feature of a ariable annuity? a)Payments into the annuity are kept in the company's general account. b)Interest rate is guaranteed. c)Securities license is not required. d)Benefit payment amounts are not guaranteed.
c)False advertising False advertising is the illegal practice of advertising or circulating materials that are untrue, deceptive, or misleading.
92. An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of? a)Embellishment b)Defamation c)False advertising d)Fraud
c)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.
84. Which of the ollowing Life Insurance policies would be considered interest sensitive? a)Whole life b)Increasing term c)Universal life d)Adjustable life
a)Modified Life A Modified Life policy would be best. It charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy. These policies were developed to make the purchase of whole life insurance more attractive for individuals who have limited financial resources but will be able to afford higher premiums in the near future.
79. Bill just bought a new car,which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for Bill? a)Modified Life b)Limited Term c)Limited Pay d)Interest-sensitive Whole Life
a)Private insurers may be authorized to transact insurance by state insurance departments. Private insurers offer many lines of insurance. Government insurance programs, also known as "social insurance", cover areas that private companies cannot or will not, providing programs like Medicare, Social Security, and National Flood Insurance. Government programs are funded with tax dollars and serve national causes, in contrast with private insurers.
#35. Which of the following statements is an accurate comparison between private and government insurers? a)Private insurers may be authorized to transact insurance by state insurance departments. b)Insurance provided by the government is called "federal insurance." c)Private insurers offer fewer lines of insurance than government insurers. d)Private insurers provide insurance in areas where the government will not.
d)To keep the policy in force The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
19. What is the purpose of establishing the target premium for a universal life policy?a)To accumulate cash value faster b)To pay up the policy faster c)To cover all policy expenses d)To keep the policy in force
d)Solicit business as an insurance producer Licensed counselors may perform the following duties: audit or abstract insurance policies or annuities; provide advice, counsel, or opinions concerning benefits, coverage, terms, and advantages and disadvantages of a policy or annuity; and advertise and solicit business as an insurance counselor or consultant.
#41. A licensed counselor MAY NOT perform which of the following duties?a)Audit or abstract insurance policies or annuities b)Provide opinions concerning benefits, coverage, terms, and advantages and disadvantages of a policy or annuity c)Advertise business as an insurance counselor or consultant d)Solicit business as an insurance producer
d)When the application is signed and a check is given to the agent The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.
#5. When is the earliest a policy may go into effect? a)When the first premium is paid and the policy has been delivered b)When the insurer approves the application c)After the underwriter reviews the policy d)When the application is signed and a check is given to the agent
d)50% tax on the amount not distributed as required When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.
#56. An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay? a)No penalties, since the owner is older than 59 ½ b)10% for early withdrawal c)15% d)50% tax on the amount not distributed as required
c)If the insured dies after the end of the term, there is no death benefit to the beneficiary. Term insurance is considered temporary protection because it only provides coverage for the term of years that is specified in the contract. If the policy is canceled or expires prior to the insured's death, nothing is payable.
31. Which of the following would be considered a disadvantage of term insurance? a)It cannot be renewed or converted to a permanent policy. b)If the insured dies during the term, the policy pays only the accumulated cash value. c)If the insured dies after the end of the term, there is no death benefit to the beneficiary. d)The policy provides the smallest amount of coverage for the highest premium.
a)Consists of completing 24 hours of CE each biennium. Michigan's continuing education requirement consists of completing 24 hours of CE each biennium, with at least 3 of those hours in Ethics.
96. In Michigan the state's continuing education requirement a)Conssts of completing 24 hours of CE each biennium. b)Must be completed by all licensed resident and nonresident producers. c)Cannot be extended or waived under any circumstances. d)Applies to life, annuity, and accident and health licensees only.
d)$8,000, 60 days Generally, IRA rollovers must be completed within 60 days from the time the money is taken out of the first plan. If the distribution from the first plan is paid directly to the participant, 20% of the distribution must be withheld by the payor.
55. An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? a)$8,000, 30 days b)$10,000, 60 days c)$10,000, 30 days d)$8,000, 60 days
a)Estate conservation Life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called estate conservation.
#2. Life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called a)Estate conservation b)Estate creation c)Survivor protection d)Survivorship insurance.
b)They determine how death proceeds will be paid. Settlement options are methods used to pay the death benefits to a beneficiary upon the insured's death, or to pay the endowment benefit if the insured lives to the endowment date.
#64. What is the purpose of settlement options? a)They provide the beneficiary with the income he/she cannot outlive. b)They determine how death proceeds will be paid. c)They are nonforfeitable guarantees built into the policy. d)They guarantee a return of excess premiums.
c)Beneficiary's age. To ensure suitability of annuity products, producers must obtain relevant information about the consumer's age, income, financial status, tax status, financial experience and objectives. Beneficiary's age is not a suitability factor.
#70. All of the following information about a customer must be used in determining annuity suitability EXCEPT a)Financial experience. b)Annual income. c)Beneficiary's age. d)Tax status. To ensure suitability of annuity products, producers must obtain relevant information about the consumer's age, income, financial status, tax status, financial experience and objectives. Beneficiary's age is not a suitability factor.
a)Notify the client about commissions earned from the sale of the policy. An agent must explain policy provisions, exclusions, and riders at the time of delivery. He/she must also collect any due premium and have the client sign the statement of continued good health.
32. An agent must do all of the following actions when delivering a policy EXCEPT a)Notify the client about commissions earned from the sale of the policy. b)Point out and explain any exclusions and riders. c)Collect any premium due. d)Explain the insured's rating class.
a)They earn lower interest rates than fixed annuities. Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, Equity Indexed Annuities have guaranteed minimum interest rates. The insurance company often keeps a predetermined percentage of the return and pays the rest to the annuity owner. Equity Indexed Annuities are less risky than variable annuities and earn higher interest rates than fixed annuities.
#39. Which of the following is NOT true regarding Equity Indexed Annuities? a)They earn lower interest rates than fixed annuities. b)The insurance company keeps a percentage of the returns. c)They have guaranteed minimum interest rates. d)They are less risky than variable annuities.
a)Annuities payments Some parts of an annuities payment are taxable, while others are not. The return of the principal paid in is nontaxable. The portion that is taxable is the actual amount of payment, less the expected return of the principal paid in. This relationship is called the "exclusion ratio"
98. Which concept i associated with "exclusion ratio"? a)Annuities payments b)Dividend distribution c)How exclusion riders affect an insurance premium d)Policy provisions
d)Partner A Insurable interest must exist at the time of application; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists.
#34. Partner A in a business buys a life insurance policy on Partner B to protect herself against a financial loss if he should die. Two years after the partnership is dissolved Partner B dies. Who will receive the death benefit? a)Estate of Partner B b)Beneficiary will be determined by state probate court if Partner B did not have a will. c)No Death Benefit will be paid as there was no insurable interest at death. d)Partner A
a)Fixed period installments. Fixed period installments option is not one of the dividend options.
#85. All of the following are dividend options EXCEPT a)Fixed period installments. b)Accumulated at interest c)Reduction of premium. d)Paid-up additions.
a)Face amount Level term policies maintain level death benefit (or face amount) throughout the term of the policy. In level term insurance, the premium also remains consistent over the years, unlike the premiums of many policies, which increase as the policyholder ages.
#29. What does "level" refer to in level term insurance a)Face amount b)Premium c)Cash value d)Interest rate
d)Hazards Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.
#60. Events or conditions that increase the chances of an insured loss occurring are referred to as a)Exposures. b)Risks. c)Perils. d)Hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.
a)Guaranteed and Current The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.
#61. A Universal Life insurance policy has two types of interest rate that are called a)Guaranteed and Current b)Option A and Option B c)Fixed and Variable d)Minimum and Target
d)Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.
#65. An insurd receives an annual life insurance dividend check. What term best describes this arrangement? a)Reduction of Premium b)Annual Dividend Provision c)Accumulation at Interest d)Cash option
b)Family term rider A single rider that provides coverage on every family member is called a "family rider"
#90. Which rider, hen attached to a permanent life insurance policy, provides an amount of insurance on every family member? a)Additional insured rider b)Family term rider c)Spouse rider d)Children's rider
b)Universal Life The Waiver of Cost rider is found in Universal Life policies. If the insured becomes disabled, the Waiver of Cost rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.
#97. The Waiver of Cost rider is found in what type of insurance? a)Juvenile Life b)Universal Life c)Whole Life d)Joint and Survivor
a)Taxation on accumulation Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.
81. All of the following would be different between qualified and nonqualified retirement plans EXCEPT a)Taxation on accumulation b)Taxation of withdrawals c)Taxation of contributions d)IRS approval requirements
d)It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
69. Which of the following is NOT true regarding a nonqualified retirement plan?a)Excess over cost base is taxed. b)It can discriminate in offering its benefits and selecting participants. c)Tax on accumulation is deferred. d)It needs IRS approval.
c)Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities.
#38. Which of the following products requires a securities license? a)Equity Indexed annuity b)Deferred annuity c)Variable annuity d)Fixed annuity
c)Proof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.
83. A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? a)Her parents' federal income tax receipts b)Medical exam and parents' medical history c)Proof of insurability is not required. d)Medical exam
b)It is level at the beginning and increases after the first few years Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.
67. In Modified Life policies, what happens to the premium? a)It varies at the beginning, but levels out by the end of the third year. b)It is level at the beginning and increases after the first few years. c)It always remains level d)It is higher during the first policy years. Modified Life policies charge lower premiums (similar to term rates) during the first few policy years, usually the first 3 to 5 years, and then higher level premiums for the remainder of the insured's life. The higher subsequent premiums are typically higher than straight life premiums would be for the same age and amount of coverage.
d)Yes, but not unfairly The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
23. Are insurance company underwriters allowed to discriminate? a)No, higher risks pay higher premium b)No, discrimination is an unfair practice c)Yes, but only for gender d)Yes, but not unfairly
b)Policy summary A policy summary describes the features and elements of the specific policy for which a person is applying.
51. What describes the specific information about a policy? a)Producer's report b)Policy summary c)Illustrations d)Buyer's guide