Exam

Walter purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. Walter was severely injured in an auto accident, and after 10 weeks of hospitalization, he died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

M is the owner of a $225,000 life policy with a triple indemnity rider for accidental death. When M is killed in a car accident, it is determined that the accident was his fault and that he was intoxicated at the time of the accident. The triple indemnity rider in M's policy specifies that the death must not be contributed to by the insured in any manner. In this case, the beneficiary will receive

$225,000. The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. Since M contributed to his death, the triple indemnity rider is void, but the beneficiary will still receive the policy's face amount.

According to the telemarketing sales rules, what are the permissible calling hours for telemarketing calls?

8am until 9pm (Permissible calling hours for telemarketers are between 8am and 9pm.)

Your customer doesn't mind paying a higher premium as long as he gets a life insurance product that would allow for a faster growth of the cash value. What kind of policy would you recommend?

An endowment policy (Because the cash value in an endowment has to build up faster since the funds are intended to be used while the insured is alive, the premium for an endowment is considerably more expensive than an ordinary straight life policy.)

When an insurance producer negotiates for an insurance contract on behalf of a client, the producer is acting as a(n)

Broker. (When an insurance producer negotiates for an insurance contract on behalf of a client, the producer is acting as a broker.)

Which of the following authorities is in charge of investigating claims held against licensees?

Commissioner The Commissioner has the power to conduct investigations, administer oaths, interrogate licensees, and issue subpoenas to any licensee or other person in connection with any investigation, hearing, or other proceeding.

The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a

Convertible Term Policy. (A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.)

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause. Exclusions are restrictions of coverage as stated in the policy.

In comparison with the other primary types of term insurance sold, what kind of premium does level term have?

Highest All other things being equal, of the three primary types of term insurance sold, level term has the highest premiums.

A licensed insurance producer may request a waiver of license renewal procedures under any of the following circumstances EXCEPT

His renewal forms were lost in the mail. A licensed insurance producer may request a waiver of license renewal procedures if he or she is unable to comply with those procedures due to military service or some other extenuating circumstance, such as long-term medical disability.

A Participating Insurance Policy may do which of the following?

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

A contract between a producer and an insurance company

Must be in writing and signed by both parties. (Contractual relations between a producer and an insurance company are conducted through a contract signed by both parties.)

Which of the following will be included in a policy summary?

Premium amounts and surrender values A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.

Who is responsible for the contents of life insurance advertising?

The insurer All advertisements are the responsibility of the insurer.

A small employer owns a group health insurance policy. The employer neglects to pay the premium by the payment due date. The employer fails to pay the premium yet again by the end of the grace period. Which of the following will happen?

The policy will terminate. If a group life or group health policy provides for automatic discontinuance of the policy for nonpayment of premium (after the grace period), the insurer is still liable for valid claims of covered losses incurred before the end of the grace period.

The Commissioner believes that an insurance rule or regulation has been violated, and decides to call a disciplinary hearing. How many days before a hearing must the Commissioner issue a notice to the person charged with a violation?

10 days The Commissioner must notify the accused 10 days prior to the hearing.

When an insurance producer sustains a spinal cord injury in a car wreck, he is rendered permanently disabled. In order to continue his business, his wife establishes an agreement with another producer to continue his business. This authorization will last for a maximum of

180 days. If a producer dies or is rendered disabled, a family member or an associate can enter in an agreement with another producer to continue the business. This agreement can last no longer than 180 days.

Within how many days of requesting an Investigative Consumer Report must an insurer notify the consumer in writing that the report will take place?

3 Investigative Consumer Reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested.

Licensees must notify the Department within how many days of any change of address?

30 All licensees must provide the Department with a current mailing address. They must notify the Department within 30 days of any change of address.

If a consumer requests additional information concerning an Investigative Consumer Report, how long does the insurer or reporting agency have to comply?

5 days Consumers must be advised that they have a right to request additional information concerning Investigative Consumer Reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Your client is 45 years old and currently owns life insurance, but is considering purchasing a new Universal Life policy. Which of the following scenarios would NOT involve replacement?

Allowing his one-year Term policy to expire Allowing a term policy to expire at the end of its term would not be considered a replacement. All the other scenarios would result in diminishing the existing policy's value.

If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a

Guaranteed insurability option. The Guaranteed Insurability option allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

What describes the specific information about a policy?

Policy summary (A policy summary describes the features and elements of the specific policy for which a person is applying.)

Wynona will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period and proof of insurability is provided. This is accomplished under the

Reinstatement provision. A lapsed policy may be reinstated within three years by paying back premiums, with interest, and proving insurability.

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

Return the application to the applicant for completion 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.

Which of the following is true regarding a Supreme Court decision?

The decision in U.S. vs. the South-Eastern Underwriters Association reversed the decision made in Paul vs. Virginia. In 1942, the Attorney General of the United States filed a brief on the Sherman Act against the South-Eastern Underwriters Association, a cooperative rating bureau, alleging that the bureau constituted a combination in restraint of trade. In 1944, the Supreme Court reversed its decision of Paul vs. Virginia, stating that insurance is interstate commerce and is therefore subject to regulation by the federal government. This decision stands today.

Harry is covered under an Accidental Death and Dismemberment policy with a principal amount of $50,000. Harry lost both arms in an auto accident. How much will the policy most likely pay?

The full benefit (100% of principal sum) due to loss of both limbs. (The policy would pay a percentage (one-half) for the loss of one limb, but in the case of accidental death or the loss of two parts, it will pay the full face amount (principal sum).)

Switchin Inc. is replacing its current group health insurance contract with one that is largely similar but is under a different company. Both plans have similar pre-existing condition requirements and elimination periods. Which of the following is true?

The new contract must honor the time that employees have already applied toward the old contract. The succeeding insurer in a replacement contract must apply deductibles and waiting periods to the requirements of the current plan.

Which of the following is true regarding license cancellation and reinstatement?

To cancel a license, the license needs to be returned to the Insurance Department. It can be reinstated by filling out an application and paying a fee. A license can be cancelled at any time, simply by returning the license to the Insurance Department and requesting cancellation. A license can be reinstated by completing an application and paying a fee.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy. With the paid-up additions option, the dividends are used to purchase a single premium, additional permanent policy.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

What is reinsurance?

An agreement between a ceding insurer and 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."

All of the following are examples of third-party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan.

All of the following statements concerning Waiver of Premium riders are correct EXCEPT

An insured who has recovered from a disabling injury will be required to repay the insurer for any premiums that were waived. Premiums which are waived under the rider do not require repayment upon the insured's recovery.

A long stretch of national economic hardship causes a 7% rate of inflation. Devonne notices that the face value of her life insurance policy has been raised 7% as a result. What is the name of the provision that caused this change?

Cost of Living Rider The Cost of Living Rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This provision allows for the relative value of the policy to remain constant over time, despite changes in the economy. The Cost of Living Rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

When an employee terminates coverage under a group insurance policy, coverage continues in force

For 31 days. An employee has 31 days under the conversion privilege to convert to an individual policy.

An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act?

Illegal under any circumstances When a company criticizes the financial situation of another company, with the intention of injuring that company, it has committed an illegal trade practice called "defamation."

When Y applied for insurance and paid the initial premium on August 14, his agent issued a conditional receipt. Y was killed in an automobile accident on August 22, before the policy was issued. The insurance company found nothing negative in his application and has no reason to reject the risk or classify it other than as standard. In this case, the insurance company will

Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable, and the policy would be issued exactly as applied for, either on the date of the application was signed or the date of the medical exam, if one is required. If the applicant dies between the date of application or medical exam, the coverage is retroactively effective, as long as the applicant was insurable.

What is the special significance 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.)

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium. (In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.)

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?

Lower (Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.)

An insurer incorporated in which of the following locations would be considered a foreign insurer in Washington D.C.?

Maryland A foreign insurer is an insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. An insurer that is incorporated and that operates in Washington D.C. would be considered domestic.

An insured purchased an insurance policy 5 years ago. Last year she received a dividend check from the insurance company which was not taxable. This year she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Mutual Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Which of the following is INCORRECT regarding whole life insurance?

Policy loans are tax deductible. Policy loans are not tax deductible.

Which type of beneficiary is changeable at any point?

Revocable Revocable beneficiaries can be changed at any point. Irrevocable beneficiaries must give permission to the policyowner in order for the beneficiary to be changed.

Which of the following is a person or organization that is allowed to write business in New Jersey for insurance companies that do not possess a certificate of authority in New Jersey, if no authorized insurers in New Jersey offer the specific type of insurance in question?

Surplus lines agent A surplus lines agent is allowed to write business in New Jersey for insurance companies that are not authorized New Jersey insurers. No authorized insurers in New Jersey can offer the specific type of insurance in question.

Which statement regarding the One-Year Term Dividend Option is true?

The dividend is used to purchase an additional policy in the amount of the cash value. With the One-Year Term Option, the dividend itself, not the interest on the dividend, is used to purchase a one-year term insurance in the amount of the cash value. When the policyholder dies during that period, the beneficiary receives the death benefit of both the original policy and the additional one-year term policy.

An insurer goes bankrupt and is unable to pay on any of its insured's claims. Which of the following will happen?

The insureds' claims will be paid by a state-based program. The New Jersey Life and Health Guaranty Association was created to protect policyowners, insureds, and beneficiaries under life insurance policies, health insurance policies, annuity contracts, and supplemental contracts when insurers fail to perform contractual obligations due to financial impairment.

An applicant for a producer's license has successfully completed all of the steps necessary to obtain the license. The soon-to-be producer does not want to wait until he receives his license in order to begin working. Which of the following is possible?

The person can obtain a temporary work authority. (After completing all the procedural steps required for obtaining a producer license, an applicant may have to wait some time before the license is actually issued. An applicant may begin working as a producer immediately, after completing all the required procedures, by obtaining a temporary work authority.)

An individual purchased a Whole Life Insurance policy and named his wife as the owner. After 20 years the policy has cash values of $12,000. Who has the right to the cash values?

The policyowner The policyowner owns the cash value and also has the right to name the beneficiary.

Which life policy is designed to provide the policyowner a hedge against the effects of inflation?

Variable life (Because variable life policies invest in the insurer's separate accounts and allow the policyowner to choose specific investment strategies, the interest rates will fluctuate depending upon the performance of the investments. The policy value, therefore, should reflect the effects of inflation upon the economy.)

Fred is the owner of a whole life insurance policy. Some of the details involving benefit payments are not expressed in the policy, but the insurer proposed an arrangement 10 years ago. Fred has still not agreed formally to the terms of the proposal, and the policy will soon mature. Which of the following is true?

When the policy matures, the insurer will hold Fred's money in its general fund until it can come to a formal agreement with Fred. (Insurers' agreements must either be written in the policy or agreed to in writing by both the insurer and insured. If the policyholder has not made an agreement and the policy matures, the insurer can hold the proceeds of the policy under an agreement with the beneficiaries. When this happens, the insurer can hold the funds as part of its general assets.)