LIFE INSURANCE STATE EXAM

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level term A 20-year term policy is written to provide a level death benefit for 20 years.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

Which of the following is an agreement between an insured and an insurer, where the insurer agrees to indemnify the insured for specific losses in exchange for a premium?

The insurance contract Insurance contracts are defined as the agreements made between the two, where the insurer promises to indemnify(compensate) for covered losses, in exchange for a premium. The contract bounds both parties

The Washington Insurance Code regulation regarding policy replacement applies to which of the following types of transactions?

Immediate Annuity Contract Credit life insurance, group contracts, and policies issued and replaced by the SAME INSURER are exempt from replacement regulations.

If a producer has been found guilty of any violations of the provisions of the Insurance Code, in addition to or instead of the suspension, revocation, or refusal to renew a producer's license, the Commissioner may levy a fine upon the license, up to.

$1,000 per offense.

What is the penalty for the insurer who fails to refund premiums within 30 days after the free-look period?

10%

If the benefits from a life insurance policy are not paid to the beneficiary within 90 days, what is the minimum interest rate the insurer will have to pay on the 91st day?

11% Benefits payable that have not been paid to the beneficiary within 90 days of the receipt of proof of death will accrue interest, starting on the 91st day, at the stated rate (8% minimum) plus 3%.

Every order by the Commissioner suspending any insurance license must specify the period during which the suspension will be effective and may not last longer than

12 months.

Every licensed person in this state must reply to an inquiry by the Commissioner regarding the business of insurance within what time period?

15 business days

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days

What is the permitted maximum interest rate on policy loans?

8%

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

All of the following events will terminate a producer's appointment with an insurer EXCEPT

A new Commissioner is put into office.

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.

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

Admitted

Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated?

Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.

Which of the following is the basic source of information used by the company in the risk selection process?

Application

How many eligible employees must elect coverage before a policy can be placed for a Public Employee Association?

At least 75%

A policyowner 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 premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level?

Bail-out Some annuity contracts contain a bail-out provision. This provision allows the owner to surrender the annuity without charge if interest rates drop a specified amount within a certain timeframe.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender Once the cash surrender value is paid, the contract is over

Which of the following includes information regarding a person's credit, character, reputation, and habits?

Consumer report Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources.

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.

How often must an authorized insurer be examined?

Every 5 years

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium. Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid

For 20 years or until death, whichever occurs first. Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

What required provision protects against unintentional lapse of the policy?

Grace period The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

The death benefit under the Universal Life Option B

Gradually increases each year by the amount that the cash value increases.

In life insurance policies, cash value increases

Grow tax deferred. Generally life insurance cash values are only income taxed if the policy is surrendered (totally or partially) and the cash value exceeds the premiums paid.

Who makes up 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.

An insurer must pay interest on death benefits payable under the terms of a life insurance policy

Insuring the life of any person who was a resident of this state at the time of death. An insurer must pay interest on death benefits payable under the terms of a life insurance policy insuring the life of any person who was a resident of this state at the time of death.

The policyowner 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 policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which of the following is correct regarding credit life insurance?

It insures the life of a debtor.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue. 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.

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

It will increase because the insured will be 5 years older than when the policy was originally purchased.

Which statement is NOT true regarding a Straight Life policy?

Its premium steadily decreases over time, in response to its growing cash value. Straight Life policies charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.

An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?

Join during the open enrollment period

If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this?

Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21).

Which of the following settlement options in life insurance is known as straight life?

Life income The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary'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.

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.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

In which of the following instances would the premium be tax deductible?

Premiums paid by an employer on a $30,000 group term life insurance plan for employees As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

A producer has established a separate account for premiums collected on life insurance policies sold by the producer. Who is entitled to the interest earned on the deposits in the separate account?

Producer The separate account may be interest-bearing, and interest earned on the deposits held in the separate account may be retained by the producer.

The Commissioner may permit an agent to enter into reasonable arrangements with prospective insureds to charge a reduced fee in situations where services that are charged for are

Provided beyond the scope of customarily services in connection with the solicitation and procurement of insurance. The Commissioner may permit an agent or broker to enter into reasonable arrangements with insureds to charge a reduced fee in situations where services that are charged for are provided beyond the scope of services customarily provided in connection with the solicitation and procurement of insurance.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal. Annually Renewable Term policies' premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.

Under a group plan for an Association, the term "employee" may include

Retired employees of the association.

The following are features of the Indexed Universal Life EXCEPT

Sale of this product requires a securities license.

Group life insurance policies delivered in this state must contain all of the following provisions EXCEPT

Statements of the applicant are considered warranties. No policy of group life insurance can be delivered in this state unless it contains the following provisions, among others: the policyholder is entitled to a grace period of 31 days; the validity of the policy cannot be contested, except for nonpayment of premiums, after it has been in force for 2 years; a copy of the application must be attached to the policy. Statements of the applicant are considered representations, not warranties.

The initial amount of credit life insurance may NOT exceed

The amount to be repaid under the contract. The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness.

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

The beneficiary If the annuitant dies during the accumulation period, the beneficiary receives benefits from the annuity: either the amount paid into the plan or the cash value - whichever is greater.

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

The cash value available to the policyowner Liquidity in life insurance refers to availability of cash to the insured. Some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

Peril is most easily defined as

The cause of loss insured against

Which of the following is true regarding a waiver of a surrender charge on an annuity contract?

The charge may be waived if the annuitant is confined to a long-term care facility for at least 30 days. Annuity contracts provide for a waiver of surrender charges if the annuitant is confined to a Long-term Care facility for at least 30 days.

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy?

The full death benefit

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to

The insured's estate.

A producer has been convicted of a felony. How will that affect the producer's license?

The license may be revoked immediately.

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. The policy is owned by the employee.

If an insurer issued a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application.

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

The policyowner is entitled to policy loans. Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.

If a producer has procured insurance coverage for a policyowner through an unauthorized insurer, which of the following could happen?

The producer may be held personally liable for policy claims.

What is the purpose of settlement options?

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.

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

What is the purpose of the Washington Insurance Code regulation for life insurance policy disclosure?

To improve the buyer's understanding of the basic features of the policy purchased

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

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?

Universal 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.

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

Utmost good faith.

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage

Which of the following statements regarding the taxation of Modified Endowment Contracts(MEC's) is FALSE?

Withdrawals are NOT taxable. Any distributions from MEC's are taxable, including withdrawals and policy loans. Accumulations are tax deferred, Policy loans are taxable distributions, Distributions before age 59 1/2 incur a 10% penalty loss on policy gains.

If a licensee whose license has been temporarily suspended demands a hearing, the Commissioner must hold the hearing demanded as according to all the following statements EXCEPT

Within 30 days of the license effective date. If a licensee whose license has been temporarily suspended demands a hearing, the Commissioner must hold the hearing demanded within 30 days after receipt of the demand or within 30 days of the effective date of a temporary license suspension issued after such demand, unless postponed by mutual consent.

Any licensed person whose activities affect interstate commerce and who knowingly makes false material statements related to the business of insurance may be imprisoned for up to

10 years May be fined, imprisoned, or both.

How long does any person receiving written notification of the Commissioner's order have to respond and request a hearing?

90 days

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.

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent Authority(Perceived Authority)

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider 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 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.

In which of the following situations is it legal to limit coverage based on marital status?

It is NEVER legal to limit coverage based on marital status.

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 a right to request the info on the report.

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability.

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy.

Within how many days from a pretrial hearing must insurance producers report to the Commissioner any criminal prosecutions brought against them?

30 days

All of the following statements are correct regarding credit life insurance EXCEPT

Benefits are paid to the borrower's beneficiary.

Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?

Defamation Defamation is making statements that are false as to the financial condition of any insurer in order to smite them.

Which policy component decreases in decreasing term insurance?

Face amount Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.

All of the following are examples of risk retention EXCEPT

Premiums. Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

The purpose of insurance regulation is to

Promote the public welfare.

All of the following are true about variable products EXCEPT

The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers bear the investment risk.

After approval by the National Association of Insurance Commissioners (NAIC), the current Buyer's Guide cannot be used for longer than

6 months

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of an insured's death.

A minor son of the insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

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. Term policies do not develop cash values.

Which of the following statements is TRUE about a policy assignment?

It transfers rights of ownership from the owner to another person.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?

$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.

Within how many days of receipt of proof of death must the insurer pay the death benefit to the beneficiary to avoid paying an interest penalty?

90 days Benefits payable that have not been paid to the beneficiary within 90 days of the receipt of proof of death will accrue interest, starting on the 91st day, at the stated rate (8% minimum) plus 3%.

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

Automatic Premium Loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of provision that prevents the unintentional lapse of a policy due to nonpayment of the premium

All of the following information about a customer must be used in determining annuity suitability EXCEPT

Beneficiary's age. Beneficiary's age is not a suitability factor.

Which of the following is a feature of a variable annuity?

Benefit payment amounts are not guaranteed. Under a variable annuity, the issuing insurance company DOES NOT guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. AGENTS SELLING VARIABLE ANNUITIES MUST HAVE SECURITES LICENSE.

Which of the following is another term for the accumulation period an annuity?

Pay-In period The accumulation period is the period of time over which the annuitant makes payments(premiums) into an annuity.

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.

Which of the following is NOT true regarding an annuity certain?

Benefits stop at the annuitant's death Annuities Certain are short-term annuities which limit the amount paid to a certain fixed period or until certain fixed amount is liquidated. There are no life contingencies.

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash Option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

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

Consumer Reports Consumer reports include info regarding a consumer's credit, character, reputation, or habits collected by a reporting agency.

Which of the following will NOT be considered unfair discrimination by insurers?

Discriminating in benefits and coverages based on the insured's habits and lifestyle. Discriminating in benefits based on habits and lifestyle is acceptable.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase. With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

Both Universal Life and Variable Universal Life have a

Flexible premium. Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, so long as there is enough value in the policy to fund the death benefit.

Which of the following is NOT true regarding the accumulation period of an annuity?

It would not occur in a deferred annuity.

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT

The Type of Investment Typically, the owner of an adjustable life policy has the following privileges: increasing or decreasing the premium, changing the premium-paying period, increasing or decreasing the face amount of coverage, or changing the period of protection.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include info about the amount and frequency of premium payments.

Which of the following statements about group life is correct?

The cost of coverage is based on the ratio of men and women in the group. Group life insurance can be converted to an individual whole life, not a term, policy; the group life insurance premiums are usually lower than those of an individual policy; the group sponsor receives a master contract, while the participants receive certificates of insurance. The cost of the coverage is based on the average age of the group and the ratio of men to women.

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

Return the application to the applicant for completion

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates. The insurer sets premium rates based upon underwriting considerations.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium.

Once a producer's appointment is filed, within how many days will the Commissioner verify the appointment (for eligible producers)?

15 days

Upon reinstatement or renewal of a policy, after a written request by the insured, how soon must an insurer provide a copy of the policy application?

15 days

An individual has been diagnosed with Alzheimer's disease. He is insured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?

A portion of the benefit up to a limit is tax free; the rest is taxable income. When accelerated benefits are paid to a chronically ill insured, they are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured's gross income.

All of the following situations would be considered rebating EXCEPT

An agent invites a prospective insured to a baseball game and pays $75 for admission for both of them. Any advertisements or promotional programs by insurers must limit prizes, goods or merchandise amounts to $100 per person over a 12-month period. If incentives exceed the $100 maximum, the insurer is guilty of rebating.

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?

Human life value approach Human life value approach is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Another name for a substandard risk classification is

Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

S offers to refund his client's first premium in exchange for purchasing a life insurance policy. S is guilty of

Rebating

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

Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

Reduction of Premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Your client is planning to retire. She has accumulated $100,000 in a retirement annuity, and now wants to select the benefit option that will pay the largest monthly amount for as long as she lives. As her agent, you should recommend

Straight life. With the straight life option, the annuity payments cease at death. However, because there are no other guarantees that might incur additional charges, this option provides the highest monthly benefits for an individual annuitant.

Any life insurance policy that accumulates cash values must include a provision for policy loans after a certain period of time. In the state of Washington, that period of time is

After 3 full years of premium payments. Any life insurance policy that accumulates cash values must include a provision for policy loans after 3 full years of premium payments.

Which of the following best describes annually renewable term insurance?

It is Level Term Insurance Annually renewable term is a form of level term insurance that offers the MOST insurance at the LOWEST cost.

Which of the following allows insurers to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit If the payor(usually parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive premiums until minor has reached a certain age.

The Federal Fair Credit Reporting Act

Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

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.

Which of the following premium modes would result in the highest annual cost for an insurance policy?

Monthly

Where would the underwriter find relevant information not presented by the applicant but communicated by the producer?

Application The agent's report is part of the application. This allows the agent to communicate with the underwriter and provide information on the applicant known by the agent that may assist in the underwriting process.

Which of the following is correct regarding the premium funds received by a producer in the fiduciary capacity?

Funds may be kept in a separate account. ALL funds representing premiums received by a producer in his or her fiduciary capacity must be accounted for and maintained in a separate account, from ALL other business and personal funds.

Which term describes an individual who is domiciled and licensed as a resident producer in a state other than Washington?

Nonresident producer

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

Other insurance coverages Part 2 of the application contains questions regarding the applicant's health history. Part 1 contains questions regarding current coverage being applied for as well as any other insurance coverages.

All advertisements are the responsibility of the

Insurer. The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.

A producer is selling a client a Variable Life Insurance policy and as an inducement shows the client a projection based upon shares or dividends paid on a similar policy. This is

Misrepresentation.

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable. True: An insurer can charge interest on outstanding policy loans, A policy may be repaid after the policy is surrendered, Policy loans can be repaid at death.

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do?

Pay the death benefit

All of the following are the types of term insurance depending on how the face amount changes during the policy term EXCEPT

Renewable. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate.

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

The payable premium amount steadily declines throughout the duration of the contract. Premiums remain level with a decreasing term policy; only the face amount decreases.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

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.

A producer did not do his research and placed insurance coverage through an unauthorized insurer. When this becomes known, what may the Commissioner do?

Order a policy replacement.

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

Increasing Term There are several types of whole life policies. The first 3: Straight Life, Limited Payment(LP), and Single premium, are the BASIC forms of whole life. Increasing term is a type of TERM INSURANCE.

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection? Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor. A joint and survivor option pays while either beneficiary is still living.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?

Predicted needs of the family after the insured's death. The Human Life Value Approach to determining the value of an individual's life requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money.

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?

The policyowner can specify the way proceeds are split in the policy. The owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by the percentage specified in the policy.

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

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 This option must maintain a specified gap between the cash value and the death benefit, as required by the IRS.

Which of the following products requires a securities license?

Variable Annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission(SEC) in addition to state Insurance regulations. For that reason, a person must hold a securities license.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2,500

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce

Without receiving written consent from an insurance regulatory authority. Title 18, US Code, sections 1033-1034 makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce without receiving written consent from an insurance regulatory authority.

Which of the following is TRUE regarding the annuity period?

It may last the lifetime of the annuitant The "annuity period" is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter specified period of time depending on the benefit payment option selected.

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

Lump Sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

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 insurers are owned by stockholders who have the usual rights of ownership, including the right of voting?

Stock Only stock insurance companies are owned and controlled by stockholders.

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT

The insured's age at death. The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be.

If an insurer continually uses the automatic premium loan option to pay the policy premium.

The policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid from the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

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.

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

They are tax free to terminally ill insured. When accelerated benefits are paid under a life insurance policy, they are received tax free by terminally ill insured, and tax free up to a limit for chronically ill insured.

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income. The insurer surrenders the policy at its current cash value. Only any excess of value is taxable as income.