Life Insurance Questions I Keep Getting Wrong

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

Universal Life

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

selection, classification, and rating of risks

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

A policy owner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic payment loan

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

Social Security was created to provide all of the following benefits EXCEPT

Unemployment income

The Replacement Regulation does NOT apply to situations in which the total existing coverage to be replaced represents less than how much of the face amount?

$5,000

The Replacement Regulation does NOT apply yo situations in which the total existing coverage to be replaced represents less than how much of the face amount?

$5,000

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?

$50,000

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

100

The Director informs a producer that its license has been terminated and immediately receives a request for the charges to be reviewed in court. Within what maximum number of days must the hearing be held?

30 Days

If an insured requests forms that are necessary to present a claim, within how many working days must the insurer provide the forms?

15

An investor buys a policy on an elderly person in order to sell it for a life settlement. This is an example of

A STOLI policy

According to the life insurance replacement regulations, which of the following would be an example of policy replacement?

A policy is reissued with a reduction in cash value

Which of the following correctly describes controlled business?

Anytime more than 50% of the total premiums collected by a producer comes from themselves, his or her spouse, employer, or own business

All of the following are true of the federal tax advantages of a qualified plan EXCEPT

At distribution, all amounts received by the employee are tax free

An insurance contract must contain all of the following to be considered legally binding EXCEPT

Beneficiary's consent

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time

Which of the following components must a life insurance policy have to allow policy loans?

Cash Value

To legally transact insurance in this state, an insurer must obtain which of the following?

Certificate of Authority

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

Conditions

Which of the following reports will provide the underwriter with information about an insurance applicant's credit?

Consumer Report

Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?

Depreciation period

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

Disclose commissions earned from the sale of the policy

When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered

Discrimination

Which nonforfeiture option has the highest amount of insurance protection?

Extended term

In the event of a terminal illness of injury, accelerated benefits pay earlier than scheduled a portion of the policy's

Face Amount

What does "level" refer to in level term insurance

Face amount

All of the following are dividend options EXCEPT

Fixed period installments

What type of premium do both Universal Life and Variable Universal Life Policies have?

Flexible

Insurance agents are prohibited from referring to themselves as all of the following EXCEPT

Insurance Producer

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

Which of the following is NOT a type of whole life insurance?

Level term

Variable Whole Life insurance is based on what type of premium?

Level-fixed

Variable life, group life, and annuities are EXEMPT under which rule?

Life Solicitation

The Replacement Regulation minimizes

Misrepresentation

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid

Which option for Universal life allows the beneficiary to collect the death benefit and csh value upon the death of the insured?

Option B

Traditional IRA contributions are tax deductible based on which of the following?

Owner's income

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?

Paid-up option

The policy owner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of Premium

An insured committed suicide one year after his life insurance policy was issued. The insurer will

Refund the premiums paid

Which of the following statements concerning Simplified Employee Pension (SEP) is INCORRECT?

SEPs are suitable for large companies

All of the following statements about equity index annuities are correct EXCEPT

The annuitant receives a fixed amount of return

Which of the following is an example of liquidity in a life insurance contract?

The cash value available to the policy owner

If a nonresident is applying for a license in Illinois and his home state does not require continuing education for Illinois residents,

The continuing education requirement will be waived in Illinois

All of the following statements concerning an employer sponsored non-qualified retirement plan are true EXCEPT

The employer can receive a current tax deduction for any contributions made to the plan

An agent wants to include an illustration written by his insurance company. Which of the following best describes the conditions under which she may use the illustration?

The illustration must stay exactly as it is

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

The payable premium amount steadily declines throughout the duration of the contract

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio

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

A group insurance policy was solicited by a limited insurance representative. Which of the following is true according to the disclosure regulation?

The representative's name and signature must appear on the master policy

Which of the following is NOT true of life settlements?

The seller must be terminally ill

Under what conditions must an insured sign a Notice Regarding Replacement of Life Insurance or Annuity form?

When replacing a policy with a different insurer that is under different ownership than the current company

A legally acceptable attempt by an existing insurer to dissuade a current policy owner from the replacement of existing life insurance is called

conservation

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

death benefit

Stranger-oriented life insurance policies are in direct opposition to the principle of

insurable interest

Which of the following is NOT a type of Whole Life insurance?

level term

The premium of a survivorship life policy compared with that of a joint life policy would be

lower

What is the other term for the cash payment settlement option?

lump sum

Another name for a substandard risk classification is

rated

All of the following are true regarding reinstatement of a lapsed producer license EXCEPT

A producer's license may be reinstated within 24 months without having to pass a written exam

Insurance policies are not drawn up through negotiations, and an insured has little to say abut its provisions. What contract characteristic does this describe?

Adhesion

Which of the following is the closest term to an authorized insurer?

Admitted

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance

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

Limited pay whole life

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that 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

A new life insurance policy is derived from a policy that was recently terminated. Which of the following terms best describes this policy?

Replacement

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

SEC registration

Equity indexed annuities

Seek higher returns

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment

What is the purpose of a suicide provision within a life insurance policy?

To protect the insurer from persons who purchase life insurance with the intention of committing suicide

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy

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

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

Temporary producer license can be issued to all of the following EXCEPT

a spouse of disabled licensed producer before and after the sale of the business

A full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

as of the application date

A prospective insured receives 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

Which of the following is an example of liquidity in a life insurance contract?

the cash value available to the Policyowner

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 the 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

In the event an insurer is found guilty of committing defamation, the insurer may be subjected to the maximum penalty of

$10,000

The director may refuse to issue a license if a licensee's aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during

2 calendar years immediately preceding the extension date of the license

The Director informs a producer that its license has been terminated and immediately receives request for the charges to be reviewed in court. Within what maximum number of days must the hearing be held?

30 Days

What is material representation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

The Director issued a written notice about a hearing for a business entity. The hearing is scheduled for May 1st. The affected business entity should receive the notice no later than

April 20th

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

As of the application date

Which of the following is INCORRECT regarding a $100,000 20-year level term policy?

At the end of 20 years, the policy's cash value will equal $100,000

Which of the following reports will provide the underwriter with the information about an applicant's credit?

Consumer report

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

J applied for a life insurance policy on January 10th. The policy was issued on January 31st. J's Agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18th. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?

February 28th, or 10 days after the time the policy is delivered

What required provision protects against unintentional lapse of the policy?

Grace Period

In life insurance policies, cash value increases

Grow tax deferred.

Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose

HR-10 (Keogh Plan

A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?

Immediate

The policy owner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policy owner choose?

Interest only option

Which of the following is NOT true regarding a Premium Fund Trust Account?

It could be used as a claim payment account

What is the main purpose of the Seven Pay Test?

It determines if the insurance policy is a MEC

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.

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance policies

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Medical Information

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called

Paid-Up Additions

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value

Who might receive dividends from a mutual insurer?

Policyholders

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required

All of the following are true regarding rebates EXCEPT

Rebates are allowed if it's in the best interest of the client

A father owns a life insurance policy on his 15 year old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insured'd premiums will be waived until she is 21

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company

Which of the following statements is correct regarding a whole life policy?

The policy owner is entitled to policy loans

If an insured continually used the automatic premium loan option to pay the policy premium

The policy will terminate when the cash value is reduced to nothing

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing

The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom?

The producer

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

What is the purpose of settlement options?

They determine how death proceeds will be paid

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities

On its advertisement, a company claims that is has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of

misrepresentation

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

The interest earned on policy dividends is

taxable