Chapter 6: Life Insurance Premiums, Proceeds, and Beneficiaries, Chapter 7: Life Insurance Underwriting and Policy Issue, Chapter 8: Group life, Chapter 9: Annuities, Chapter 10: Social Security
An individual most likely will have an insurable interest in insuring a person's life if A) an economic interest exists for the continuance of the insured's life B) a financial interest exists at the time of insured's death C) there is any blood relationship with the insured D) a business relationship exists
A) an economic interest exists for the continuance of the insured's life
Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary? A) interest only B) dividends only C) extended interest D) fixed period
A) interest only
The premium payment mode that results in the highest overall cost would be A) monthly B) quarterly C) semi- annual D) annual
A) monthly
An insurance applicant with a below-average likelihood of loss is typically considered to be a A) preferred risk B) subpar risk C) declined risk D) standard risk
A) preferred risk
If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if A) the insured outlived the beneficiary B) the beneficiary outlived the insured C) both the insured and beneficiary died at the same time D) the estate was listed as beneficiary
A) the insured outlived the beneficiary
A policyowner can receive an immediate payment before the insured dies by using a(n) A) viatical settlement contract B) buy-sell arrangement C) adhesion agreement D) spendthrift plan
A) viatical settlement contract
An applicant has revealed conditions that require more information. Which of the following is needed next? A) Physical examination B) Attending physician's statement C) Agent's report D) Credit report
B) Attending physician's statement
Which of the following is a requirement for ANY change in an insurance application? A) Change must be initialed by the agent B) Change must be initialed by the applicant C) Change must be approved by the insurer D) Change must be the notorized
B) Change must be initialed by the applicant
Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? A) Nonforfeiture clause B) Common disaster clause C) Spendthrift clause D) Accident indemnity clause
B) Common disaster clause
Which of the following types of information is NOT required for a life insurance application? A) Health history B) Ethnicity C) Occupation D) Hobbies
B) Ethnicity
Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in payments of $10,000 per month until the principal and interest has been paid out. Which option was chosen? A) Fixed period B) Fixed amount C) Life income D) Interest only
B) Fixed amount
How is the cost of a policy affected when a policyowner pays premiums more frequently? A) Not affected B) Increases C) Decreases D) Depends on the type of coverage
B) Increases
Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence? A) Section 1040 exchange B) Section 1035 exchange C) Nonforfeiture Option D) Spendthrift Option
B) Section 1035 exchange
A creditor would be allowed rights to life insurance policy proceeds if which of the following beneficiaries is chosen? A) The insured's mother B) The insured's estate C) The insured's children D) The insured's spouse
B) The insured's estate
Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined? A) Adverse calculation B) Underwriting C) Risk classification D) Actuarial determination
B) Underwriting
When does a life insurance policy typically become effective? A) When the policy is issued B) When initial premium is collected and policy is issued C) When the application is completed and signed D) When the completed application is signed and initial premium is collected
B) When initial premium is collected and policy is issued
A change in an insurance application requires A) an initial made by the producer B) an initial made by the applicant C) approval by the insurer D) submitting a new application
B) an initial made by the applicant
A report which is based on creditworthiness and personal characteristics that influences an insurance applicant's eligibility for life and health insurance is called a(n) A) MIB report B) consumer report C) agent's report D) medical report
B) consumer report
Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident? A) primary beneficiary's estate B) contingent beneficiary C) insured's estate D) children of the insured
B) contingent beneficiary
Mortality is calculated by using a large risk pool of A) hobbies and time B) people and time C) family history and geographical area D) insurance companies and agents
B) people and time
When an applicant applies for insurance, the process by which the insurer determines whether to issue a policy is called A) issuance B) underwriting C) regulation D) adverse selection
B) underwriting
An example of naming a beneficiary by class would be A) "To the children born of my union with Ned Jackson: David Jackson, Jennifer Jackson, and Scott Jackson" B) "To the child born of my union with Ned Jackson: Scott Jackson" C) "To the children born of my union with Ned Jackson" D) "To Ned Jackson"
C) "To the children born of my union with Ned Jackson"
Naming a contingent beneficiary as "all surviving children" is described by which term? A) Contingent designation B) Primary designation C) Class designation D) Tertiary designation
C) Class designation
All of these are typically sources of underwriting information for life or health insurance EXCEPT A) Consumer reports B) Medical Information Bureau (MIB) reports C) Disclosure authorization response D) Attending physician's statement (APS)
C) Disclosure authorization response
An insurance company needs to obtain personal information from a third party concerning an applicant. Which law do all insurers and their producers need to comply with? A) USA Patriot Act B) Personal Information Act C) Fair Credit Reporting Act D) McCarran-Ferguson Act
C) Fair Credit Reporting Act
A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed? A) A flat tax of 10% is owed on all proceeds B) Federal income tax is owed if proceeds exceed $250,000 C) No federal income tax is owed on life insurance proceeds D) Tax liability owed depends on the type of life insurance policy
C) No federal income tax is owed on life insurance proceeds
What must an applicant do in order to authorize the release of an attending physician report? A) Give verbal consent B) Write a letter to the MIB C) Sign a consent form D) Agree to a physical examination
C) Sign a consent form
Which scenario would most life insurance policies exclude coverage for? A) A tourist traveling aboard on a major airline carrier B) An individual who has a hobby racing cars once a month C) An airline pilot who flies for a commercial carrier D) A soldier on leave at home
B) An individual who has a hobby racing cars once a month
Pam is the primary beneficiary of a life insurance policy and wants to let the death benefit accumulate and receive only the monthly investment proceeds. Which settlement option should she choose? A) Lump sum option B) Interest Option C) Life income option D) Fixed amount option
B) Interest Option
What would be an expense factor in an insurance program? A) Premiums collected B) Mortality costs C) Opportunity costs D) Investment interest
B) Mortality costs
Which of the following describes the number of deaths in a year compared to the number of people in a select group? A) Law of large number ratio B) Mortality rate C) Morbidity rate D) Risk ratio
B) Mortality rate
What is the primary feature of a viatical settlement? A) No interest on policy loans B) Reduced death benefit prepayment C) Longer contestable period D) Lower premiums
B) Reduced death benefit prepayment
What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured? A) Policy Dividend B) Specified amount of money C) Policy's cash value D) Funeral expense fund
B) Specified amount of money
How are death benefits that are received by a beneficiary normally treated for tax purposes? A) taxable at the beneficiary's current tax bracket B) Subject to state and local taxes only C) Exempt from federal income taxes D) Taxable as a capital gain
C) Exempt from federal income taxes
All of these are settlement options for life insurance policies EXCEPT A) Life income B) Lump sum C) Extended term D) Fixed period
C) Extended term
What happens to the total amount of premium paid for an insurance policy when the payment frequency increases? A) No difference in cost B) Decreases C) Increases D) Depends on the type of coverage
C) Increases
When calculating life insurance premium rates, which component would an agent's commission fall under? A) Morbidity B) Mortality C) Insurer's expenses D) Occupation
C) Insurer's expenses
What is the purpose of the Medical Information Bureau (MIB)? A) To accept or decline insurance applicants B) To set the premium rates for insurers C) To help underwriters evaluate risk D) To perform physical examinations on applicants
C) To help underwriters evaluate risk
An underwriter's primary responsibility to an insurer is to protect against A) natural selection B) inverse selection C) adverse selection D) risk selection
C) adverse selection
When an insurance company requests an attending physician's report, the request must be accompanied by a A) conditional receipt B) buyer's guide C) copy of the signed authorization D) policy illustration
C) copy of the signed authorization
An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of A) rebating B) coercion C) fraud D) twisting
C) fraud
A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs A) in the same state as the original transaction B) within a 12 month period C) from insurer to insurer and no cash is received by the policyowner D) from agent to agent as long as the agents are licensed in the same line
C) from insurer to insurer and no cash is received by the policyowner
The probability of death, listed by year, is demonstrated in A) risk tables B) frequency tables C) mortality tables D) morbidity tables
C) mortality tables
A beneficiary change can occur A) only upon the request of the revocable beneficiary B) only on specified dates within the policy C) normally at any time during the policy term D) at no time
C) normally at any time during the policy term
Statements made by an insurance applicant on an application are considered to be A) irrevocable B) warranties C) representations D) guarantees
C) representations
Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause? A) protection clause B) creditor clause C) spendthrift trust clause D) beneficiary trust clause
C) spendthrift trust clause
Premiums are best described as A) money paid by the insurer for settling a claim B) money paid by the insured to acquire a policy's benefits C) the amount an insured pays per unit of coverage D) commissions payable to the writing agent
C) the amount an insured pays per unit of coverage
A field underwriter's main task is A) assign a risk classification to the insured B) report medical information to the Medical Information Bureau (MIB) C) to ensure an applicant's medical information is accurate and complete D) to approve or decline an applicant
C) to ensure an applicant's medical information is accurate and complete
Tonya has replaced her whole life policy with an annuity without incurring a tax penalty. This transaction is called a(n) A) Modified Exchange B) Endowment Exchange C) 1040 Exchange D) 1035 Exchange
D) 1035 Exchange
Which of the following signatures is not required on an individual insurance application? A) Producer B) Applicant C) Insured D) Insurer
D) Insurer
Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this? A) Tertiary B) Contingent C) Revocable D) Irrevocable
D) Irrevocable
A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation? A) Contingent beneficiary B) Tertiary beneficiary C) Revocable beneficiary D) Irrevocable beneficiary
D) Irrevocable beneficiary
Insurance premium is determined by each of the following factors EXCEPT A) Mortality B) Interest C) Expenses D) Liquidity
D) Liquidity
Which of these is the automatic mode of settlement for life insurance policy proceeds? A) Fixed period B) Interest only C) Extended term D) Lump-sum
D) Lump-sum
What is involved when a life insurance policy has been backdated? A) Setting a policy's effective date prior to a preexisting condition B) Redating a policy after it has been issued C) Reinstating a lapsed policy D) Making the policy effective on an earlier date than the present
D) Making the policy effective on an earlier date than the present
All of these are considered key factors in underwriting life insurance EXCEPT A) Tobacco use B) Health history C) Age D) Marital status
D) Martial status
When calculating life insurance premium rates, which component is affected by an insured's age and gender? A) Insurer's expense B) Morbidity C) Investments D) Mortality
D) Mortality
Preferred risk policies with reduced premiums are issued by insurance companies because the insured has A) a higher face amount than average B) a better ability to pay premiums over a long period of time C) worse than average mortality or morbidity experience D) better than average mortality or morbidity experience
D) better than average mortality or morbidity experience
Field underwriting performed by the producer involves A) assigning a risk classification to be insured B) providing commission information to the applicant C) approving or declining an applicant D) completing the application and collecting initial premium
D) completing the application and collecting initial premium
Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called A) estate funding B) capital withholding C) capital gains D) estate conservation
D) estate conservation
Underwriters can acquire information from all of the following sources EXCEPT A) Medical Information Bureau (MIB) B) consumer reports C) attending physician's statements D) genetic testing
D) genetic testing
Level premium term life insurance policies A) build cash value in a separate account B) automatically convert to permanent insurance at a predetermined date C) automatically renew at predetermined dates D) have premiums that are averaged over the policy period
D) have premiums that are averaged over the policy period
The Medical Information Bureau consists of A) insurance agents B) health care providers C) doctors D) life and health insurance companies
D) life and health insurance companies
A life insurance claim which involves a per capita distribution of policy proceeds would be payable to the A) estate of the insured only B) estate of the deceased beneficiaries only C) named contingent beneficiaries only D) named living primary beneficiaries
D) named living primary beneficiaries
An insurance producer is often responsible for field underwriting during the application process. All of these are possible field underwriting roles EXCEPT A) providing disclosure information to the applicant B) collecting initial premium C) policy delivery D) providing commission information to the applicant
D) providing commission information to the applicant
A spendthrift clause in a life insurance policy A) permits the beneficiary to borrow from a policy's cash value B) evenly distributes benefits among all named living beneficiaries C) assigns a policy's face amount to the insured's estate if the beneficiary dies before the insured D) restricts the ability of the beneficiary to assign benefits
D) restricts the ability of the beneficiary to assign benefits
Signatures for an insurance application MUST be obtained by the producer from all of the following sources EXCEPT A) the producer B) the insured C) the policyowner D) the beneficiary
D) the beneficiary
Which of these premium payment frequencies is not typically available to a policyowner? A) Bi-weekly B) Monthly C) Quarterly D) Semi-annual
A) Bi-weekly
An insurer has a right to screen applicants for HIV in which of the following ways? A) Blood test for HIV B) Inquiring about risky sexual behavior C) Inquiring about sexual orientation D) Automatically declining an application due to sexual orientation
A) Blood test for HIV
Which of the following is NOT a risk classification that an underwriter would use? A) Dividend risk B) Standard risk C) Preferred risk D) Substandard risk
A) Dividend risk
Which of the following is NOT a component of determining policy premiums? A) Dividends B) Mortality C) Interest D) Expenses
A) Dividends
Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid? A) Individual B) Group C) Class D) Estate
A) Individual
A beneficiary receives only the death benefit earnings in which settlement option? A) Interest option B) Life option C) Stock option D) Fixed amount option
A) Interest option
What is the price of insurance for each exposure unit? A) Rate B) Premium C) Rating D) Expense
A) Rate
Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors? A) Spendthrift Clause B) Protection Clause C) Viatical Clause D) Settlement Clause
A) Spendthrift Clause
Which of the following does a life insurance policy summary normally include? A) The policy's cash value B) Agent's report C) Policyowner's MIB report D) Stated beneficiary
A) The policy's cash value
A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract? A) Viatical settlement agreement B) Funding medium agreement C) Split dollar plan D) Buy-sell plan
A) Viatical settlement agreement
Which of the following is NOT an insurer policy expense? A) Rent B) Salaries C) Commissions D) Premiums
D) Premiums
Which of the following statements is CORRECT regarding an individual applying for life or health insurance? A) The applicant waives all privacy rights B) The applicant's family medical history is always required C) The applicant's medical history is irrelevent D) The applicant's medical history may be analyzed and reported
D) The applicant's medical history may be analyzed and reported
Which of the following would be a valid reason why a policy premium would be higher than the standard premium? A) The insurer is not a member of the MIB B) The agent quoted the wrong price C) The insured does not have the necessary financial reserves D) The insured does not meet established underwriting requirements
D) The insured does not meet established underwriting requirements
What happens when an insurance policy is backdated? A) The policy's elimination period is waived B) The time frame for reinstating a lapsed policy is extended C) The policy's probation period is earlier than the present D) The policy's effective date is earlier than the present
D) The policy's effective date is earlier than the present
The risk selection process is primarily given to which insurance company department? A) Administration B) Legal C) Marketing D) Underwriting
D) Underwriting
What guarantees that the statements supplied by an insurance applicant are true? A) Assurance B) Promise C) Representation D) Warranty
D) Warranty
Which of these factors help determine an insured's life insurance premium? A) insured's salary B) marital status C) place of residence D) avocation (hobby)
D) avocation (hobby)
Over the course of a year, which premium payment mode is most expensive? A) Monthly B) Quarterly C) Semi-Annually D) Annually
A) Monthly
Which of the following is NOT an important reason for a life insurance application? A) The application identifies who is the applicant, insured, owner, payor, and beneficiary B) If the proposed insured is someone other than the applicant, both the proposed insured and the applicant must sign the application C) The beneficiary must sign the application before the insurer will issue the policy D) Statements made in the application are considered to be representations
C) The beneficiary must sign the application before the insurer will issue the policy
How does life insurance create an immediate estate? A) Cash value may be borrowed upon at any time B) Nonforfeiture options are immediately available C) The insured's estate receives the death benefit D) After first premium is paid, the face amount may be available to the beneficiary
D) After first premium is paid, the face amount may be available to the beneficiary
An attending physician's statement would be appropriate for which life insurance purpose? A) Attending physician's statements are mandatory during the application process B) At the request of the applicant to assist in the underwriting decision C) At the request of the producer to assist in the underwriting decision D) At the request of the insurer to assist in the underwriting decision
D) At the request of the insurer to assist in the underwriting decision
In which of the following relationships would there NOT be an insurable interest? A) Parent to child B) Business partner to business partner C) Brother to sister D) Business owner to business customer
D) Business owner to business customer
What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day? A) Claim will be denied by insurer B) Claim will be paid if money was received by the insurance company C) Claim will be paid if underwriter has received the application D) Claim will be paid if application is approved
D) Claim will be paid if application is approved
Which of these is affected by the frequency of an insurance policy's premium payments? A) Settlement options B) Cash value C) Death benefit D) Cost
D) Cost
What is created after policy proceeds are obtained in a lump sum and then immediately invested? A) Viatical Settlement B) Emergency Fund C) Lump Sum Fund D) Estate
D) Estate
Which of the following is NOT a life insurance settlement option? A) Lump sum option B) Fixed amount option C) Life income option D) Extended term option
D) Extended term option
Which of these is considered a major tax advantage of life insurance? A) Tax credits are available for life insurance premiums paid B) Annual earnings are tax free C) Premiums are tax deductible by an employee if paid for by an employer D) Income tax is typically not owned on proceeds paid directly to a beneficiary
D) Income tax is typically not owned on proceeds paid directly to a beneficiary
The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement? A) An agent establishes insurable interest B) An individual does not have insurable interest on his or her own life C) Insurable interest only pertains to business arrangements D) Insurable interest can be based on the love and affection of individuals related by blood or law
D) Insurable interest can be based on the love and affection of individuals related by blood or law
What are members of the Medical Information Bureau (MIB) required to report? A) The face amount of the policy applied for B) The premium of the policy applied for C) The underwriting methods used to acquire personal information D) Medical ailments discovered during the underwriting process
D) Medical ailments discovered during the underwriting proces
Which of these is likely to occur when life or health insurance is being applied for? A) The Medical Information Bureau (MIB) will determine the risk classification B) The agent is required to report all medical information to the Medical Information Bureau (MIB) C) Physical examinations are required D) Medical history from the insured may be reviewed and reported
D) Medical history from the insured may be reviewed and reported
All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT A) Agent's report B) Medical Information Bureau (MIB) C) Inspection reports D) National Association of Insurance Underwriters
D) National Association of Insurance Underwriters
A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification? A) Standard B) Substandard C) Acceptable D) Preferred
D) Preferred