Life Insurance
An insured, age 45, has a paid-up at age 65 whole life insurance policy with a death benefit of $150,000. The policy's cash value will be $150,000 at the insured's age
100 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
If $100,000 of life insurance proceeds were used in a settlement option that paid $13,000 per year for ten years, which of the following would be taxable annually?
$3,000 In this settlement arrangement, $10,000 per year would be income tax free (as principal) and $3,000 per year would be income taxable (as interest)
All of the following are dividend options in life insurance policies EXCEPT
A)* Interest only B) Accumulation at interest C) One-year term D) Reduction of premium Interest only is a settlement option, not a dividend option
Statements made by the applicants for insurance policies that are true to the best of their knowledge are known as
Disclosures Representation are statements that the applicant believes to be true, but they are not guaranteed
Which of the following would be considered a peril?
A) Driving too fast for conditions B)* Fire C) Playing gold in a thunderstorm D) Smoking Fire is a peril (a cause of loss). Hazards increase the chance a peril could occur
An insured has a terminal illness and needs access to half of his death benefit to pay for medical expenses. Which rider would meet the insured's current needs?
Accelerated (Living) Benefit The accelerated death benefit, or living needs rider, pays a portion of the death benefit before death if the insured has a terminal illness
If the agent feels that there could be misrepresentation on the part of the applicant for insurance, what must the agent do?
Inform the insurance company If the agent feels that there could be some misrepresentation, the agent must inform the insurance company
Which statement best describes "agreement" as it relates to insurance contracts?
A) Each party must offer something of value B)* Once party accepts the exact terms of the other party's offer C) All parties must be capable of entering into a contract D) The intent of the contract must be legally acceptable to both parties In insurance contracts, there must be a definite offer by one party, and this offer must be accepted in its exact terms by the other party. Agreement includes both an offer and its acceptance
Which of the following risk classifications would pay the lowest premium?
Preferred Preferred Risks are those individuals who meet certain requirements and qualify for lower premiums than the standard risk
If a life agent wants to sell variable life policies, what license must the agent obtain?
Securities Variable products are considered securities, and are regulated in part by the Securities and Exchange Commission (SEC); therefore, life agents selling variable life policies must also obtain a securities license
Which of the following types of insurance products would be appropriate for an individual with a low income and high insurance needs?
Term insurance Term life insurance is pure protection. It is the least expensive form of ordinary life insurance. It has the lowest cost-to-benefit ratio
What is the purpose of settlement options in life insurance?
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
Which nonforfeiture option allows a policyowner to use the existing cash value to purchase a policy of the same face amount as the original policy for as long as the policy will buy?
Extended term insurance The nonforfeiture option that results in a paid-up policy with the same face amount as the original policy is the extended term option
Which of the following distributions from a qualified retirement plan will incur a 10% tax penalty?
A) Made to the beneficiary B)* Before the participant's age 59 1/2 C) As part of a qualified rollover D) After the participants's age 70 1/2 If distributions are made before age 59 1/2, a 10% penalty is imposed, unless the circumstances qualify as exceptions to the early distribution rule, such as disability, divorce, or a qualified rollover among others
Which of the following would be the most likely to start a tax-sheltered annuity?
A) Military personnel B) Low-income individuals C) A self-employed business owner D)* Public school teachers A tax-sheltered annuity is a special tax-favored retirement plan available only to certain groups of employees, such as nonprofit charitable, educational, religious, and other 501c(3) organizations, including all employees in public education
To which of the following must insurance producers report changes of business or residence address?
A) The policyholders B)* The Department of Insurance C) The insurer D) The NAIC All licensed producers must notify the Department of Insurance of any change of address within the period of time specified in the state Insurance Code
An insurer is issued a cease and desist for misrepresentation. What is the insurer required to do to comply with the order?
A)* Stop the action in violation B) Pay a $1,000 fine C) Surrender its Certificate of Authority D) Discontinue all insurance transactions Cease and desist order means that the person must stop the improper action in violation
When a life insurance policy continues because of a payor benefit clause, it means
The owner of the policy is disable or has died A payor benefit is a feature of a juvenile policy. If the parent/guardian (owner) dies or becomes disabled, the premium is waived until the child reaches adulthood. The child's policy will continue in force during the waiver period
When the insured becomes disabled under the requirements of a life insurance policy, which of the following provisions keeps the policy in force even though the owner stops making the premium payments?
The waiver of premium This is a type of an insurance protection on an insurance policy. Waiver of premium results in the insurance company giving up their right to premium payments during the period of the disability. The policy remains in force, in all respects, until the insured is no longer disabled or they die
A person is required to be licensed to do which of the following?
A) Perform executive duties for the insurer B) Create insurance advertisements C) Perform any duties for an insurer D)* Receive commissions Producers must be licensed in the appropriate line of authority in order to receive commissions for insurance transactions
Which statement about reinstatement is FALSE regarding a policy reinstatement provision?
A) Reinstatement will require proof of continued insurability B) A reinstated policy's premium is based upon the insured's original age C) Reinstatement requires payment of past due premium plus interest D)* A reinstated policy is incontestable A reinstated policy will be contestable again for another 2 years
An insured missed her premium payment on her cash value policy, and the grace period has lapsed. The policy is still in force because the insurer has deducted the cost of the premium from the policy's cash value. What provision allows this?
Automatic premium loan If included in a cash value policy, the automatic premium loan provision allows insurers to subtract the missed premiums from the cash value as a loan to keep a policy from inadvertently lapsing for nonpayment of premium
An individual has a $50,000 convertible term life insurance policy. If he chooses, he can
Convert to a whole life policy for the same face amount without proof of insurability Conversion allows a term policy to be changed into a cash value policy (often whole life). While the premium will increase for the same amount of death benefit, no evidence of insurability is required
All of the following are general requirements of a qualified plan EXCEPT
A) The plan must have a vesting requirement B)* The plan must be temporary C) The plan's benefit cannot discriminate in favor of the top employees D) The plan must be approved by the IRS Qualified plans must be permanent
What is the default nonforfeiture option when the policyowner neglects to select an option?
Extended term If a policyowner does not select a nonforfeiture option, extended term is the default option. This option maintains the same death benefit for the beneficiary, but the coverage is for fewer years
An insurer invests the cash value of a fixed annuity in which of the following?
General Account An insurer guarantees the cash value in a fixed product and, therefore, assumes the rick of the investment. Money in fixed products is held in the general account which is invested in relatively safe and low risk instruments such as bonds, mortgages, and real estate.
Which of the following are members of the Medical Information Bureau?
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
All of the following statements describe unfair trade practices EXCEPT
A) Offering special favors not specified in the policy B)* Discriminating against a group of individuals because of poor risk C) Making maliciously critical statements about the financial condition of another insurer D) Misrepresenting pertinent facts about coverage Discriminating against a group of individuals because they present a poor risk is not an unfair trade practice
All of the following informations needs to be included on an application for life insurance EXCEPT
A) The agent's statement, if applicable B) Life insurance with other insurers C)* Health insurance policies in force D) Medical information about the applicant The information about the applicant's health insurance policies is not material to a life insurance contract
A beneficiary decides to take a settlement option that will pay the largest amount per payment, knowing that after the beneficiary's death no monies will be paid out to nay descendants. The settlement option is
Life Income (Straight Life) The life income settlement option pays the beneficiary an income until his or her death. Since no further payments will be made to the survivors, the insurer can afford to pay a larger income versus the other options given
What is the purpose of the agent's report in the application process?
To provide additional information about the applicant to the underwriters The agent's (producer's) report is used by the agent to discuss his or her personal observations concerning the proposed insured. Since the agent/producer can be considered the most important source of information available to the underwriter, it is important that the agent include all pertinent facts concerning the applicant truthfully and honestly
Which of the following is NOT a feature of a whole life policy?
A) Permanent protection B) Nonforfeiture values C)* Increasing premium D) Cash value Whole life policies provide permanent protection, build cash value and offer nonforfeiture values. The premium, however, remains level for the life of the policy
An insured's flexible premium is invested into a separate account. What type of insurance product does the insured have?
Variable universal life Any universal policy is characterized by a flexible premium. Any variable product is characterized by the use of separate accounts.