Quiz

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report...

Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.

Which of the following is NOT one of the basic types of coverages that are available, based on how the face amount changes during the policy term?

Renewable (WRONG) There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, increasing, and decreasing. Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy.

If an agent fails to obtain an applicant's signature on the application, the agent must?

Return the application to the applicant for a signature. All applications must have the appropriate authorized signatures.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal Life Universal Life policies allow for policyholder to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

Which of the following is TRUE regarding the annuity period?

It may last for the lifetime of the annuitant The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specific period of time depending on the benefit payment option selected.

A prospective insured received a conditional receipt but dies before the policy is issued, the insurer will?

Pay the policy proceeds only if it would have issued the policy. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

A domestic insurer issuing variable contracts must establish one or more?

Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

What is the maximum penalty for habitual willful noncompliance with the Fear Credit Reporting Act?

$2,500 An individual willfully violated this Act enough to constitutes a general pattern or business practice will be subject to a penalty of up to $2,500.

Which of the following types of policies will provide permanent protection?

Whole life Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of insurance company?

An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk. Aleatory

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT? A. Erase the incorrect answer and record the correct answer. B. Draw a line through the first answer, record the correct answer, and have the applicant initial the change. C. Note on the application the reason for the change. D. Destroy the application and complete a new one.

Erase the incorrect answer and record the correct answer. An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

Most agent try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a?

Premium Receipt When collecting the initial premium, the agent should issue the applicant a premium receipt.

Which type of life insurance policy generated immediate cash value?

Sigle Premium Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment to the insurer.

Under 20-pay whole life policy, in order for the policy to pay the health benefit to a beneficiary, the premiums must be paid for.....?

For 20 years or until death, whichever occurs first Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

Buyer's guide The Buyer's guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

A producer agent must do all of the following when delivering a new policy to the insured

A producer must explain policy provisions, exclusion, and riders at the time of delivery, as well as the rating procedures, especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

If a policy include a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant?

With the policy If a life insurance policy contains a free-look period of 10 days, the buyer's guide can be delivered with the policy. If it doesn't the buyer's guide must be delivered prior to accepting the initial premium.

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)?

Inspection An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.

The insured is also the policyowner. What age must the insured attain in order to receive the policy's face amount?

100 Whole life insurance policies mature when the insured reaches the age of 100. The cash value at that time is scheduled to equal the face amount; therefore, when the insurance company pays the face amount, it also, in effect, pays the cash value.

An applicant who receives a preferred risk classification qualifies for?

Lower premiums than a person who receives a standard risk. The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.

Which of the following documents delivered to the policy owner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?

A policy summary A policy summary usually includes all the listed information, and must be delivered along with a new policy.

Which of the following is NOT an essential element of an insurance contract?

Counteroffer In order for instance contract to be legally binding, they must have four essential elements:agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

Representations are written or oral statements made by the applicant that are?

Considered to be true to the best of the applicant's knowledge. Statements made by an applicant that they believe to be true.

Annually renewable term policies provide a level death benefit for a premium that

Increases annually Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured.

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A Under option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.

Which of the following best defines target premium in a universal life policy?

The recommended amount to keep the policy in force throughout its lifetime. 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.

Which of the following would be considered a nonmusical instance application?

An application on which the medical information is completed by the applicant and the agent only. An application on which all of the questions, including medical history questions, do not need to be completed by medical professionals, and may be completed by the applicant and the agent.

Which of the following statement if NOT true concerning insurable interest as it applies to life insurance? A. A debtor has an insurable interest in the life of a lender B. Business partners have an insurable interest in each other C. A husband or wife has an insurable interest in their spouse D. An individual has an insurable interest in his or her own life

A. A lender has an insurable interest in the life of a debtor, but only to the extent of the debt. The debtor does not have an insurable interest in the life of the lender.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent initial premium, and no conditional receipt is issued. When will coverage begin?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the applicant will most likely need to fill out a Statement of Good Health.

Which of the following best details the underwriting process for life insurance?

Selection, classification, and rating of risks The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying that is known of the individual against the insurer's standards and guidelines for insurability and premium rates.

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured and matures at the insured's age 100 is called.....

Single premium whole life Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception.

Which of the following is TRUE for both equity indexed annuities and fixed annuities?

They have a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rate than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

Which statement if NOT true regarding a Straight Life Policy?

Its premium steadily decreases over time, in response to its growing cash value. (WRONG) Straight Life policies charge a level annual premium throughout the insured's lifetime and provide level, guaranteed death benefit.

An insure contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional A conditional contract requires both the insurer and policy owner to meet certain conditions before the contract can be executed, unlike other typed which put the burden of condition on either the insurer or the policyowner.

A Universal Life Insurance policy is best described as a/an....

Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash amount. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

Which of the following would help prevent a universal life policy from lapsing?

Target premium 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.

Variable Life Insurance is based on what kind of premium?

Level fixed Variable Life insurance is a level fixed premium investment based product.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age of 65. What would be the right policy for this client?

Limited pay whole life. Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Which of the following us an example of limited-pay life policy?

Life Paid-up at Age 65 Limited Pay Whole Life premiums are all paid by the time insured reached age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.

The Federal Fair Credit Reporting Act.....

Regulates consumer reports.

If an agent wishes to sell variable life policies, what license must the agent obtain?

Securities Variable products are governed in part by the Securities and Exchange Commission; therefore, agents selling variable life policies must also secure a securities license.

In an annuity, the accumulated money is converted into a steam of income during which time period?

Annuitization period The "annuitization period" (annuity period) is the time during which accumulated money is converted into an income stream.

Which is the appropriate action by the insurer if a prospective insured submitted an incomplete application?

Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion.

Part 2 of the application for life insure provides questions regrading all of the following EXCEPT A. Other insurance coverages. B. Family health history. C. Alcohol and tobacco consumption. D. Recent surgeries.

A. Other insurance coverages. Part II of the application contains questions regarding the applicants' health history. Part I of the application includes questions regarding current coverage being applies for as well as any other insurance coverage with the same or other insurers.

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

Beneficiary If the annuitant dies during accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

Who makes up the Medical Information Bureau?

Insurers MIB 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.

All of the following are true regarding a decreasing term policy EXCEPT....

The payable premium amount steadily declines throughout the duration of the contract. Premium remain level with a decreasing term policy: only the face amount decreases.

The death protection component of Universal Life Insurance is always

Annually Renewable Term A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.

When would a 20-pay whole life policy endow?

When the insured reaches age 100 A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in five years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal.

The Medical Information Bureau (MIB) was created to protect?

Insurance companies from adverse selection by high risk persons. The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with he name and address of the consumer reporting company?

Fair Credit Reporting Act The Fair Credit Reporting Act governs what information can be collected and how the information can be used.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date earlier than the date of the issuance of the policy. Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for. This rule will not apply if a policy is declined, rated, or issued with riders excluding specific coverages.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

What describe the specific information about a policy?

Policy Summary A policy summary described the features and elements of the specific policy for which a person is applying.

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

Universal Life - Option A Universal Life Option A (Level Death Benefit option) policy must maintain a specified "corridor" or gap between the cash value and the health benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insure principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer if the promise to pay in the event of loss.

The term "fixed" in a fixed annuity refers to all of the following EXCEPT.....

Death benefit A fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guarantees the specified dollar amount for each payment and the length of the payout period. Annuities do not provide a death benefit.

Which of the following best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments. The annuity period is the time during which accumulated money is converted into an income stream.