TEST 3

To sell variable life insurance policies, an agent must receive all of the following EXCEPT

A SEC registration. Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.

A participating insurance policy may do which of the following?

Pay dividends to the policyowner A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable?

$3,000 The difference between the premiums paid and the cash value would be taxable. In this example, the difference between the premiums paid ($15,000) and the cash value ($18,000) is $3,000.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be

Authorized. 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.

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of?

False advertising False advertising is the illegal practice of advertising or circulating materials that are untrue, deceptive, or misleading.

The two types of assignments are

Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Which of the following is an example of a producer being involved in an unfair trade practice of rebating?

Telling a client that his first premium will be waived if he purchased the insurance policy today. Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal.

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Promptly forwarding premiums to the insurance company. Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost. Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Which of the following insurance products will be subject to the regulation on life insurance solicitation?

A term life policyThe regulation on life insurance solicitation does not apply to the sale of annuities, credit life and group life insurance, variable life insurance policies, and life insurance policies issued in connection with pension and welfare plans that are subject to ERISA.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

An individual wants to purchase a life insurance policy. His agent asks if the transaction will involve replacing any existing life insurance policies. If the customer replies, "Yes," which of the following best describes the agent's next step?

The agent must provide a replacement notice to the applicant. In a replacement transaction, an agent must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the agent.

An agent's client needs additional insurance which the agent's own insurer cannot provide. The agent has to solicit additional coverage from another authorized insurer. This coverage is known as.

Excess A licensed life agent may place excess or rejected risks within the agent's licensing authority with another insurer without being required to have an appointment with that insurer. Excess business is that portion of a risk above the limits of that which the agent's own insurer will accept.

A licensed agent must complete how many hours of continuing education in the agent's line of authority every licensing period?

5Out of the 24 CE hours, agents are required to complete a 5-hour update course specific to the license held.

Which of the following premium payment modes will incur the lowest overall payment?

Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

During replacement of life insurance, a replacing insurer must do which of the following?

Obtain a list of all life insurance policies that will be replaced The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.

Which of the following is among the regulations set forth by the Florida Replacement Rule?

Providing a written comparison and summary statement The Florida Replacement Rule established that, when replacing life insurance contracts with new contracts, the agent is required to give the applicant a written comparison and summary statement at the request of the policyholder.

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must

Respond to the consumer's complaint. The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report.

Which of the following entities is responsible for agent licensing and administrative supervision?

The Office of Insurance Regulationhe Office of Insurance Regulation is responsible for all activities concerning insurers, including licensing and certificates of authority, rates, policy forms, claims, solvency, administrative supervision, and any other related provisions of the Insurance Code.

How will a life insurance beneficiary designation naming a spouse be changed by divorce?

The beneficiary designation will be voided.

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.

An insured submits a proof of loss form within 10 days of a loss. The insurer, however, does not acknowledge the form for 3 months. Which of the following violations has the insurer committed?

Unfair claims settlement Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements are completed and submitted by insureds is an example of unfair claims settlement.

In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?

Blackout Period .The interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 is called a "Blackout Period". No benefits are paid during this time.

Who does the secondary notice provision protect?

Elderly insureds The secondary notice provision protects elderly insureds, and prevents the policy from lapsing for nonpayment of premium after the grace period without the insurer notifying the policyowner and a designated secondary addressee of the impending lapse in coverage.

Which of the following policy components contains the company's promise to pay?

Insuring clause. The insuring clause contains the company's promise to pay.

Who might receive dividends from a mutual insurer?

Policyholders A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT?

The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance.

Which of the following would be required to be licensed as an insurance producer?

A salaried employee who advertises and solicits insurance A person does not require an insurance producer license if he or she only advertises without intent to solicit insurance. However, once there is solicitation, a license is required.

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

Which of the following authorities grants and revokes licenses?

Department of Financial Services. The Department is responsible for issuing, reissuing, and terminating licenses.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT

Dividends from a mutual insurer. Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.

What kind of policy issues certificates of insurance to insureds?

Group insurance. Individuals covered by group life insurance do not receive a policy, but receive a certificate of insurance from the master policy.

What type of insurance would be used for a Return of Premium rider?

Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary. Which of the following would provide an underwriter with information concerning an applicant's health history? The Medical Information Bureau. An agent's report and inspection report provides personal information. Medical exams provide information on current health. Only the MIB will provide information about an applicant's medical history.

No insurance policy form can be issued, delivered, or used in this state unless it has been

Filed with and approved by the Office of Insurance Regulation. Prior to the use of any policy or contract form, application form, rider, or endorsement, insurers must submit the forms and all changes to the Office and have the forms approved.

All of the following are requirements for life insurance illustrations EXCEPT

They must be part of the contract. An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured. beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

In order to maintain an insurance license, an agent will need to satisfy Florida's continuing education requirement of

24 hours of continuing education in every 2-year period. In order for an agent to maintain his/her license, 24 hours of continuing education credits must be earned every 2 years.

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Licensed life insurance agents are expected to be familiar with which of the following laws?

All of the insurance laws and regulations. While the other laws may have particular significance, an agent should be generally aware of all insurance laws.

What is reinsurance?

An agreement between a ceding insurer an assuming insurer. The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer.

Who is a third-party owner?

An employee in a group policy. A policyowner who is not the insured Third-party owner is a legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it.

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.

All of the following are Nonforfeiture options EXCEPT

Interest only. Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option.

What kind of policy allows withdrawals or partial surrenders?

Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.

What does "level" refer to in level term insurance?

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.

If an employer decides to change its life insurance policy to a similar one with a different insurer, which of the following describes the extent that replacement regulations will be exercised?

Replacement regulations will not apply in this situation. If a new life insurance policy is provided under a group life insurance policy covering employees or members of an association, replacement regulations do not apply.

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 the 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.

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

An agent's appointment has been denied. Which of the following is true?

State taxes may be refunded upon a written request. Appointment fees are nonrefundable. However, if the applicant submits a written request within 60 days after the denial or disapproval of an appointment, the department will refund any state or county taxes received in connection with the application for the appointment.

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.

Who does the secondary addressee provision protect?

The insured over the age of 64 The secondary notice/addressee provision protects elderly insured. Coverage for persons age 64 and older that has been in force for at least 1 year cannot lapse for nonpayment of premium after expiration of the grace period without the insurer notifying the policyowner and a specified secondary addressee (if designated in writing by the policyowner) of the impending lapse in coverage.

When a group policy terminates, every individual insured under the policy will be entitled to have an individual policy if the insured has been insured by the group policy for at least how many years prior to policy termination?

5 years When a group policy terminates, every individual insured under the policy at the date of such termination who has been so insured for at least 5 years prior to such termination date will be entitled to have issued to him by the insurer an individual policy of life insurance.

Which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount?

Flexible life .The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

When replacing life insurance, the duties of the replacing insurance company include all of the following EXCEPT

Maintaining a copy of the Notice Regarding Replacement and all sales proposals used for at least 5 years. Replacing insurers must maintain copies of the Notice Regarding Replacement and all sales proposals used for at least 3 years or until the conclusion of the next regular audit by the insurance department, whichever is later.

An agent transacts business for Insurer A and Insurer B, both selling life insurance, and for Insurer C, selling health insurance. How many appointments must the agent hold?

Three - one for each insurer. An agent must have a separate appointment for each insurer.

What is the purpose of a disclosure statement in life insurance policies?

To explain features and benefits of a proposed policy to the consumer. Disclosure statements will help the applicants to make more informed and educated decisions about their choice of insurance.

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 policyholders 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.