NC Life Insurance Practice Exam Questions 2
After receiving notice of loss, the insurer must provide the insured claims A) 15 days. B) 20 days. C) 60 days. D) 90 days.
A) 15 days.
To sell variable life insurance policies, an agent must receive all of the following EXCEPT: A) A life insurance license. B) SEC registration. C) FINRA registration. D) A securities license.
B) SEC registration. Agents selling variable life products must be registered with FINRA, have a securities license, and must be licensed within the state to sell life insurance. SEC registration is for securities, not agents.
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? A. The proceeds will be split evenly between the two beneficiaries. B. The policyowner can specify the way proceeds are split in the policy. C. The way proceeds are split between beneficiaries is decided by which type of policy is chosen. D. Life insurance policies may have only one beneficiary.
B. The policyowner can specify the way proceeds are split in the policy.
Which of the following statements would best describe the difference between viatical settlements and accelerated death benefits? A. Viaticals use mortality tables; accelerated death benefits are determined by morbidity. B. Viaticals are funded by a third party; accelerated death benefits are provided by the insurer that issued the original policy. C. Viaticals are used to fund retirement; accelerated death benefits fund medical expenses. D. Viaticals require higher premiums.
B. Viaticals are funded by a third party; accelerated death benefits are provided by the insurer that issued the original policy.
When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? A State records В Medical records C Application D Interviews
C Application
In North Carolina, statutes, rules, and regulations that govern insurance companies, insurance transactions, and insurance agents are known as the A State Administrative Rules. B Code of Conduct. C Insurance Code. D State Constitution.
C Insurance Code.
Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? A) Subrogation B) Warranty C) Aleatory D) Adhesion
C) Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.
By what date must agents complete the required continuing education? A) By March 1st every even-numbered year B) By the first day of the licensee's birth month every year C) By the last day of the licensee's birth month every 2 years D) By December 31st each year
C) By the last day of the licensee's birth month every 2 years
The annuitant dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A) The insurance company will retain the cash value and pay back the premiums to the owner's estate. B) The money will continue to grow tax-deferred until the liquidation period, and then will be paid to the beneficiary. C) The beneficiary will receive the greater of the money paid into the annuity or the cash value. D) The owner's estate will receive the money paid into the annuity. 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.
C) The beneficiary will receive the greater of the money paid into the annuity or the cash value. 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.
An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice? A) Unfair Discrimination B) Defamation C) lllegal D) A legal advertising strategy
C) lllegal
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a) Installment refund b) Joint and survivor c) Pure life d) Life with guaranteed minimum
c) Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
An individual who sells insurance solely as a foreign military sales agent works with a a) Temporary license. b) Alien license. c) Restricted license. d) Military license.
c) Restricted license.
Which of the following is TRUE regarding an indeterminate premium whole life policy? A. The premium can be raised up to a guaranteed maximum rate. B. The premium is lower in the first year of the policy; then it is gradually raised every year. C. The premium is level throughout the life of the policy. D. The premium is usually higher in the first few years of the policy.
A. The premium can be raised up to a guaranteed maximum rate.
All of the following statements are true regarding credit life insurance EXCEPT: A) It may not be required of any borrower by any creditor. B) It may be required if the loan amount exceeds $50,000. C) It may be purchased by a borrower. D) It is insurance upon the life of a debtor.
B) It may be required if the loan amount exceeds $50,000. Credit life insurance is insurance upon the life of a debtor who may be indebted to any person or entity extending credit. Credit life, accident, and health insurance may not be required of any borrower by any creditor.
The policyowner 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? A. Cash option B. Reduction of premium C. Paid-up addition D. Accumulation at interest
B. Reduction of premium
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? A. Amount of interest B. Size of each installment C. Predetermined length of time stated in the contract D. Length of income period
B. Size of each installment
If an insurer becomes insolvent, which of the following would pay benefits to policyholders? A. A federal reserve fund B. The Guaranty Association C. The NAIC fund D. The State
B. The Guaranty Association
The interest earned on policy dividends is: A) Tax deductible. B) 40% taxable, similar to a capital gain. C) Taxable. D) Nontaxable.
C) Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.
When an insurer begins underwriting procedures for an applicant, what will be the main source for its underwriting information? A. State records В. Medical records C. Application D. Interviews
C. Application
Which of the following best describes an insurance company that has been formed under the laws of this state? A. Local B. Admitted C. Domestic D. Sovereign
C. Domestic
What do Modified Life and Straight Life policies have in common? A) Same amount of premium B) Graded premium C) Temporary protection D) Accumulation of cash value
D) Accumulation of cash value Modified Life and Graded-Premium Life policies are useful as a compromise between straight life and convertible term insurance since the premium is less than straightlife in the early years, but some cash value is being accumulated.
What is another name for interest-sensitive whole life insurance? A) Variable life B) Term life C) Adjustable life D) Current assumption life
D) Current assumption life
Which of the following individuals must have insurable interest in the insured? A) Beneficiary B) Underwriter C) Producer D) Policyowner
D) Policyowner
The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract? A) Conditional B) Adhesion C) Personal D) Unilateral
A) Conditional
Circulating deceptive sales material to the public is what type of Unfair Trade Practice? A) False advertising B) Defamation C) Coercion D) MisrepresentationThis is considered to be false, deceptive or misleading advertising.
A) False advertising This is considered to be false, deceptive or misleading advertising.
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? A) Level term B) Term to specified age C) Ordinary life policy D) Limited pay whole life
A) Level term A 20-year term policy is written to provide a level death benefit for 20 years.
Who pays the annual agent appointment fee? A) The insurer B) The Commissioner C) The policy owner who hires the agent D) The agent
A) The insurer Prior to April 1 of each year, the insurer must pay the agent renewal appointment fee to the Commissioner.
An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A. Underwriter's Report B. Inspection Report С. Medical Information Bureau's report D. Agent's Report
A. Underwriter's Report
An agent selling variable annuities must be registered with: A) FINRA B) Department of Insurance C) The Guaranty Association D) SEC
A) FINRA Because variable annuities are considered to be securities, a person must be registered with the FINRA and hold a securities license in addition to a life agent's license in order to sell variable annuities.
Which of the following is NOT a characteristic of universal life insurance? A. Cash account B. Fixed premium C. Unbundled premium D. Flexible death benefit
B. Fixed premium
After appointing an agent, how long does an insurer have to file with the Commissioner a notice of appointment? A) 15 days B) 30 days C) 45 days D) 60 days submitted.
A) 15 days
If a person holding a resident insurance license moves out of state, that person must surrender his or her license to the Commissioner within how many days of terminating their residence? A) 30 days B) 60 days C) 90 days D) 180 days
A) 30 days
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? A) The death benefit can be increased by providing evidence of insurability. B) The death benefit cannot be increased. C) The death benefit can be increased only when the policy has developed a cash value. D) The death benefit can be increased only by exchanging the existing policy for a new one.
A) The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase.
Which of the following features of the Indexed Whole Life policy is NOT fixed? A) Policy period B) Cash value growth C) Premium D) Death benefit
B) Cash value growth Under the Indexed Whole Life policy, the premium is fixed, and the death benefit is guaranteed. Cash value is dependent upon the performance of the equity index although a minimum cash value is guaranteed.
The two main categories of policy loan interest rates are A) Compound and variable. B) Fixed or variable. C) Simple or compound. D) Fixed and simple.
B) Fixed or variable. The two main categories of policy loan interest rates are fixed and variable.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits? A) Deferred interest annuity B) Immediate annuity C) Variable annuity D) Flexible payment annuity
B) Immediate annuity
Which of the following is NOT true regarding policy loans? A) A policy loan may be repaid after the policy is surrendered. B) Money borrowed from the cash value is taxable. C) Policy loans can be repaid at death. D) An insurer can charge interest on outstanding policy loans.
B) Money borrowed from the cash value is taxable.
Which of the following is NOT true regarding policy loans? A) A policy loan may be repaid after the policy is surrendered. B) Money borrowed from the cash value is taxable. C) Policy loans can be repaid at death. D) An insurer can charge interest on outstanding policy loans.
B) Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.
Which of the following disability riders in life insurance allows the policyowner to keep coverage in force without paying policy premiums after a qualifying event? A) Waiver of cost of insurance B) Waiver of premium C) Disability income benefit D) Accelerated benefit
B) Waiver of premium
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A) Representation B) Warranty C) Concealment D) Indemnity
B) 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.
Which of the following is NOT true regarding policy loans? A. A policy loan may be repaid after the policy is surrendered. B. Money borrowed from the cash value is taxable. C. Policy loans can be repaid at death. D. An insurer can charge interest on outstanding policy loans.
B. Money borrowed from the cash value is taxable.
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A. Joint and survivor B. Pure life C. Life with guaranteed minimum D. Installment refund
B. Pure life
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called A) Living need rider. B) Payor rider. C) Cost of living rider. D) Accelerated benefit rider.
C) Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.
Making statements that are false, maliciously critical, and designed to injure an insurance person or business is known as: A) Misrepresentation. B) False advertising. C) Defamation. D) Twisting.
C) Defamation.
How does the premium in a survivorship life policy compare to the premium in a joint life policy? A) It will be the same. B) It will be half the amount. C) It will be lower. D) It will be higher.
C) It will be lower.
A policyowner is able to change the beneficiary on a life insurance policy only if the beneficiary designation is A) Contingent. B) Irrevocable. C) Revocable. D) Primary.
C) Revocable.
In a survivorship life policy, when does the insurer pay the death benefit? A) Half at the first death, and half at the second death B) lf the insured survives to age 100 C) Upon the last death D) Upon the first death
C) Upon the last death Survivorship life pays on the last death rather than upon the first death
The face amount of an indexed whole life policy: A) Is half of the cash value. B) Remains the same as long as the policy is in force. C) Is double the cash value. D) Increases annually to keep pace with inflation.
D) Increases annually to keep pace with inflation.
An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? A) Refuse to pay the death benefit because of the misstatement on the application B) Pay a decreased death benefit C) Sue for the right to not pay the death benefit D) Pay the 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, even on the basis of a material misstatement of facts or concealment of a material fact.
D) Pay the 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, even on the basis of a material misstatement of facts or concealment of a material fact.
Who maintains the rights in an annuity? A) The beneficiary B) The insurance agent C) The insurer D) The owner
D) The owner
Which of the following best describes what the annuity period is? A) The period of time from the accumulation period to the annuitization period B) The period of time during which money is accumulated in an annuity C) The period of time from the effective date of the contract to the date of its termination D) The period of time during which accumulated money is converted into income payments
D) The period of time during which accumulated money is converted into income payments The annuity period is the time during which accumulated money is converted into an income stream.
Which of the following is a key distinction between variable whole life and variable universal life products? A) Variable whole life has a guaranteed death benefit. B) Variable universal life is regulated solely through FINRA. C) Variable whole life allows policy loans from the cash value. D) Variable universal life has a fixed premium.
D) Variable universal life has a fixed premium.
Which component increases in the increasing term insurance? A. Cash value B. Interest on the proceeds C. Premium D. Death benefit
D. Death benefit
Which of the following is NOT true regarding an annuity certain? a) Benefits stop at the annuitant's death. b) It will pay until a fixed amount is liquidated. c) It is a short-term annuity. d) There are no life contingencies.
a) 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 a certain fixed amount is liquidated. There are no life contingencies.
An insurance institution or agent that discloses information in violation of the information privacy and disclosure statutes of North Carolina will be liable for A. Only such damages as can be proven in a court of law. B. Damages sustained by the individual to whom the information relates. C. Any legal action brought by the client within 5 years. D. The legal costs incurred by the client.
B. Damages sustained by the individual to whom the information relates.
When changing a beneficiary through an endorsement method, what is the policyowner required to do? A) Request a policy endorsement from the agent B) Apply for a replacement policy C) Make the change and inform the insurer D) Submit a request for change to the home office of the insurer
D) Submit a request for change to the home office of the insurer In the endorsement method, the policyowner is required to send the request for change with the contract to the home office of the insurer.
An individual borrowed money at the bank to send his daughter to college. Instead of purchasing Credit Life insurance, he used an existing life insurance policy to secure the debt. This would be considered a/an: A) Collateral assignment. B) Temporary assignment. C) Change of beneficiary. D) Assignment of ownership.
A) Collateral assignment.
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. A portion of the benefit up to a limit is tax free; the rest is taxable income. B. Principal is tax free, but interest is taxed. C. The entire benefit will be received tax free. D. The entire living benefit is considered taxable income.
A. A portion of the benefit up to a limit is tax free; the rest is taxable income.
A Return of Premium term life policy is written as what type of term coverage? A) Renewable B) Level C) Increasing D) Decreasing
C) Increasing Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid.
Which of the following settlement options in life insurance is known as straight life? A. Interest only В. Fixed amount C. Life income D. Fixed period
C. Life income
The death benefit under the Universal Life Option B A. Decreases by the amount that the cash value increases. B. Increases for the first few years of the policy, and then levels. C. Remains level. D. Gradually increases each year by the amount that the cash value increases.
D. Gradually increases each year by the amount that the cash value increases.
All of the following are dividend options EXCEPT A) Fixed-period installments. B) Accumulated at interest C) Reduction of premium. D) Paid-up additions.
A) Fixed-period installments.
Which Universal Life option has a gradually increasing cash value and a level death benefit? A. Term insurance B. Option B C. Option A D. Juvenile life
C. Option A
In Modified Life policies, what happens to the premium? A. It always remains level. B. It is higher during the first policy years. C. It varies at the beginning, but levels out by the end of the third year. D. It is level at the beginning and increases after the first few years.
D. It is level at the beginning and increases after the first few years.
Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? A. Key person agreement B. Split dollar agreement C. Buy-sell agreement D. Profit and loss agreement
C. Buy-sell agreement
By what date must agents complete the required continuing education? A. By March 1st every even-numbered year B. By the first day of the licensee's birth month every year C. By the last day of the licensee's birth month every 2 years D. By December 31st each year
C. By the last day of the licensee's birth month every 2 years
When an insurance producer conducts business under any name other than the producer's legal name, they must A. Notify the Commissioner within 30 days of using the assumed name. B. Notify the appointing insurance company within 30 days of using the assumed name. C. Notify the Commissioner before using the assumed name. D. Notify the Commissioner within 10 days of using the assumed name.
C. Notify the Commissioner before using the assumed name.
The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true? A. A corporation can be an annuitant as long as the beneficiary is a natural person. B. The contract can be issued without an annuitant. C. The annuitant must be a natural person. D. A corporation can be an annuitant as long as it is also theowner.
C. The annuitant must be a natural person.
Which of the following is INCORRECT regarding a $100,000 20-year level term policy? A) The policy premiums will remain level for 20 years. B) If the insured dies before the policy expired, the beneficiary will receive $100,000. C) The policy will expire at the end of the 20-year period. D) At the end of 20 years, the policy's cash value will equal $100,000.
D) At the end of 20 years, the policy's cash value will equal $100,000. Term policies do not develop cash values. All the other statements are
Which of the following is NOT fundable by annuities? A) Cash accumulation for any reason B) A person's retirement C) Estate liquidation D) Death benefits
D) Death benefits
The rules relating to the replacement of life insurance apply to which of the following types of life insurance? A) Group annuities B) Term life C) Credit life D) Group life
D) Group life
Where does a domestic insurer have its home office? A) In more than one state B) In any state in the U.S. C) In any town where it transacts its business D) In this state
D) In this state
When would a misrepresentation on the insurance application be considered fraud? A. Never: statements by the applicant are only representations. B. When the application is incomplete C. Any misrepresentation is considered fraud. D. If it is intentional and material
D. If it is intentional and material
Which of the following is an example of a producer being involved in an unfair trade practice of rebating? A) Telling a client that his first premium will be waived if he purchases the insurance policy today B) Inducing the insured to drop a policy in favor of another one when it is not in the insured's best interest C) Charging a client a higher premium for the same policy as another client in the same insuring class D) Making deceptive statements about a competitor
A) Telling a client that his first premium will be waived if he purchases the insurance policy today
An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? A) Pay a decreased death benefit B) Sue for the right to not pay the death benefit C) Pay the death benefit D) Refuse to pay the death benefit because of the misstatement on the application 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, even on the basis of a material misstatement of facts or concealment of a material fact.
C) Pay the 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, even on the basis of a material misstatement of facts or concealment of a material fact.
What 3 components must a legal contract contain?
1. Offer & acceptance 2. Consideration 3. Legal purpose
After appointing an agent, how long does an insurer have to file with the Commissioner a notice of appointment?
15 days
How long is the Commissioner able to issue a temporary license?
180 days
After terminating an agent, how long does an insurer have to file a notice with the Commissioner using the prescribed form?
30 days
What feature does Modified and Straight Life insurance have in comment?
Accumulation of cash value
The Commissioner of Insurance serves a term of office of how many years? A) 1 year B) 3 years C) 4 years D) 5 years
C) 4 years
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? A) Guaranteed insurability rider B) Change of insured rider C) Term rider D) Accidental death and dismemberment rider
C) Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.
When an insured makes truthful statements on the application and pays the required premiums, what is this know as?
Consideration
How long may an insurer defer loan requests?
Up to 6 months UNLESS it is an APL (automatic premium loan), in which the payment of due premiums must be honored immediately
Is conservation legal?
Yes
What 2 things make up legal purpose?
1. Insurable interest 2. Consent
How long does an agent have to file written comments concerning the substance of termination notification with the Commissioner and with the insurer?
30 days
How long is the replacement contract free look period?
30 days
Family Maintenance Policy
A combination of whole life insurance and level term insurance Provides permanent coverage (lump sum payment to beneficiary when the insured dies) and a monthly family maintenance portion for a set period of time following the insured's death.
How is group insurance written?
Annually renewable term insurance
The entire contract includes all of the following EXCEPT A) A copy of the application. B) Any riders or amendments. C) A buyer's guide. D) The life insurance policy.
C) A buyer's guide.
The reduction of premium option uses the dividend to reduce A) This year's premium. B) The previous year's premium. C) The premium on any other policy owned by the policyowner. D) Next year's premium.
D) Next year's premium.
Contributions to Roth IRAs are A) Tax deductible. B) Always subject to a 6% tax penalty. C) Paid with pre-tax dollars. D) Not tax deductible.
D) Not tax deductible. Contributions to Roth IRAs are not tax deductible, and excess contributions are subject to a 6% tax penalty.
Modified Life Policy Premiums
Lower originally -- usually for the first three of five years -- and are then raised and remain LEVEL for the duration of the policy. This arrangement can be helpful for a lower-income person who wants the benefits of cash value life insurance, but is currently unable to pay the higher cost. Type of whole life policy that charges a lower premium (similar to term rates) in the first few policy years, usually the first 3 to 5 years, and then a higher level premium for the remainder of the insured's life.
What two types of insurance makes up an adjustable plan?
Term + Permanent
What are you paid when you reach age 100 with a whole life insurance plan?
The face amount only
How are the principal and interest liquidated in a fixed period settlement?
They are BOTH liquidated over a certain period of time, dependent upon the contract
Is interest earned on policy dividends taxable?
Yes
A new homebuyer wants to purchase a life insurance policy that would protect his family against losing the home, should he die before the mortgage was paid. The most Inexpensive type of policy that would accomplish this need would be: a) Level term. b) Decreasing term. c) Increasing term. d) Flexible term.
b) Decreasing term.
Automatic Premium Loan
A policyowner fails to pay the premium due on his whole life policy after the 31-day grace period passes, but the policy remains in force. It is not part of the policy's nonforfeiture values or options, and typically the insured has to request this provision
Which of the following is true of the taxation of cash values in a business life insurance policy? A) Cash values grow tax deferred. B) Cash values are tax deductible. C) Cash values are not taxable. D) Cash values are taxed immediately.
A) Cash values grow tax deferred. The cash value of a business owned life insurance policy or an employer provided policy accumulates on a tax-deferred basis and is taxed in the same manner as an individually owned policy.
All of the following statements are true regarding an Ordinary (Straight) Life policy EXCEPT A) It does not have a guaranteed death benefit. B) It is funded by a level premium. C) It builds cash value. D) If the insured lives to age 100, the policy matures, and the face amount is paid to the insured.
A) It does not have a guaranteed death benefit. Straight Life (also called Ordinary Life or Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100, the policy endows (matures) and the face amount is paid to the insured at that time. During the insured's lifetime the straight life policy builds cash value. The insurer guarantees the cash value and death benefit under a straight life policy.
Which of the following best describes pure life annuity? A) It provides the highest monthly benefits. B) It continues payments to the beneficiary when the annuitant dies. C) It is also known as refund life annuity. D) It guarantees to pay out all the proceeds.
A) It provides the highest monthly benefits. The pure life annuity, also known as Life Only or Straight Life, pays the most since it only guarantees to pay for the rest of one's life without a minimum guarantee.
Dividends received on participating life insurance policies are A) Not taxable because they are a return of unused premiums. B) Taxable because they are a return on your investment. C) Not taxable because they are a return on your investment. D) Taxable because they are a return of unused premiums.
A) Not taxable because they are a return of unused premiums. Dividends on participating life insurance policies are not income taxable because they are a return of unused premiums.
Which of the following is NOT the consideration in a policy? A) The application given to a prospective insured B) Something of value exchanged between parties C) The premium amount paid at the time of application D) The promise to pay covered losses
A) The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
All of the following benefits are available under Social Security EXCEPT A) Welfare benefits. B) Old-age and retirement benefits C) Disability benefits. D) Death benefits.
A) Welfare benefits. Social Security is an entitlement program, not a welfare program.
During policy solicitation, an insurer exaggerates the financial condition of one of its competitors, and makes it sound worse than it is. This is an example of an unfair trade practice of A) Misrepresentation. B) Defamation. C) Twisting D) False advertising.
B) Defamation. It is against the law for any person to make, publish, or circulate any oral or written statement or literature that is false, maliciously critical of or substantially misrepresents the financial condition of any insurer, and which is intended to injure any person engaged in the insurance business.
In a variable life insurance policy, all of the following assets are held in the insurance company's general account EXCEPT A) Face amount reserves. B) Incidental benefit amounts. C) Cash surrender values. D) Mortality reserves.
C) Cash surrender values. The insurer does not guarantee or participate in the investment risk of a variable life insurance policy. Because all underlying assets must be kept in the separate account, variable life insurance policies cannot provide a guaranteed cash surrender value.
What type of an interest rate is guaranteed in universal life policies?a A) Adjustable interest rate B) Current interest rate C) Contract interest rate D) Nominal interest rate
C) Contract interest rate The insurer guarantees a contract interest rate. A current interest rate is not guaranteed in the contract and may be higher because of current market conditions.
Ten years ago, an insured purchased a life insurance policy designed to pay his family $500 a month for 20 years. Last month, he was killed in an auto accident. The insurance company told his widow that she would receive $500 a month for the 10 remaining years on the policy. The insured had purchased what kind of a policy? A) Family Maintenance Policy B) Family Protection Policy C) Family Income Policy D) Decreasing Endowment
C) Family Income Policy A family income policy period begins on the date of issue. The policy then begins to count down each year until the end of the period (in this question, 20 years). As time passes, the overall amount of potential monthly payments that could be received from the policy decreases. The monthly benefit stays the same, but if the insured dies early in a policy, the family will receive more money over time than if the insured dies later or not during the pollcy period at all. In this question, the widow will receive $500 for 10 years rather than 20 years, so her overall benefit decreased. Of the above options, this is unique to the decreasing term setup of a family income policy.
What interest rate do you pay on a fixed annuity?
Either the minimum on the contract or the current interest rate, whichever is HIGHER
What are Family Policies also known as? What 3 things do they combine?
Family Policies (AKA Combination Policies) They combine Term, Whole Life, and Endowment Insurance
What is key person insurance unable to do?
It cannot pay the death benefit to the insured's estate
Are variable whole life premiums level or fixed?
Level fixed (both)
Gross premium equation
Net Premium + Expenses
Do you have to provide proof of insurability for annually renewable insurance?
No
A banker is ready to close on a customer's loan. The bank is prepared to offer the loan but only if the customer purchases an insurance policy from the bank in the amount of the loan. This is an example of: A. Defamation. B. Twisting. С. Coercion. D. Loading.
С. Coercion.
Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? A. Equity Indexed Universal Life B. Variable Universal Life С. Universal Life Option A D. Universal Life Option B
С. Universal Life Option A
The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? a) The death benefit can be increased only by exchanging the existing policy for a new one. b) The death benefit can be increased by providing evidence of insurability. c) The death benefit cannot be increased. d) The death benefit can be increased only when the policy has developed a cash value.
b) The death benefit can be increased by providing evidence of insurability.
Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated? A) Variable annuity B) Annuity certain C) Fixed annuity D) Refund life
B) Annuity certain
After a policy had been in effect for 18 months, a claim was submitted. The insurer determined that the insured had made a material misstatement on the application for coverage. The insurer would probably do which of the following? A) Cancel the policy B) Contest the claim C) Adjust any future premiums D) Pay the claim
B) Contest the claim
Which of the following is NOT a characteristic of universal life insurance? A) Cash account B) Fixed premium C) Unbundled premium D) Flexible death benefit
B) Fixed premium Universal life policies allow the policyowner to increase the amount of premium going into the policy and to later decrease it again. They may even skip a premium payment. The rest of the features apply to universal life
Fixed annuities provide all of the following EXCEPT A) Future income payments. B) Hedge against inflation. C) Equal monthly payments for life. D) Minimum guaranteed rate of interest.
B) Hedge against inflation.
In variable life and variable universal life insurance policies, who decides where premiums will be invested? A) Producer B) Policyowner C) Department of Insurance D) Insurance company
B) Policyowner
A whole life policy's cash value will equal the face amount when the insurec reaches what age? A) 65 B) 70½ C) 72 D) 100
D) 100
In North Carolina, life insurance policies are incontestable after what time period? A) 30 days B) 6 months C) 1 year D) 2 years
D) 2 years
All insurers must keep records of each complaint received and the insurer's response for: A) 1 year. B) 2 years. C) 3 years. D) 5 years.
D) 5 years.
Which of the following best describes annually renewable term insurance? A) It requires proof of insurability at each renewal. B) Neither the premium nor the death benefit is affected by the insured's age. C) It provides an annually increasing death benefit. D) It is level term insurance.
D) It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to: A) Purchase a term rider to attach to the policy. B) Pay back all premiums owed plus interest. C) Receive payments for a fixed amount. D) Purchase a single premium policy for a reduced face amount.
D) 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.
A 403(b) plan, commonly referred to as a TSA, is available to be used by: A) Government workers. B) Postal employees. C) Self-employed persons. D) Teachers and not-for-profit organizations
D) Teachers and not-for-profit organizations Tax sheltered annuities, commonly referred to as 403 (b) plans are designed for teachers and not-for-profit organizations.
A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy? A) Level Term Policy B) Family Protection Policy C) Universal Life Policy D) Family Income Policy
B) Family Protection Policy Family protection insurance combines protection for all members of a family into one policy. It usually provides a permanent plan of insurance on the base insured, and term riders on other members of the family. Because they are all covered under a single policy, there is only one policy fee.
Under a straight life annuity, if the annuitant dies before the principal amount is paid out, the beneficiary will receive: A) The remainder of the principal. B) Nothing: the payments will cease. C) Guaranteed minimum benefit. D) The amount paid into the annuity.
B) Nothing: the payments will cease. Straight or pure life annuity will pay a specific amount of income for the remainder of the annuitant's life. This payment will cease at death, regardless of the amount of principal that hasn't been paid out. There is no refund or payments to survivors.
How are the funds exceeding the premium paid on a nonforfeiture cash surrender taxed?
The funds are taxed as ordinary income
What is a fixed period settlement also known as?
Period certain
Concerning the Family Protection Policy, all of the following statements are true EXCEPT A) Convertible term riders cover both the spouse and all children. B) Additional children born after the policy is issued are covered automatically at no extra cost. C) Children, upon reaching the age of majority, are permitted to convert to an individual policy with proof of insurability. D) This type of policy consists of whole life on the base insured and riders on the others.
C) Children, upon reaching the age of majority, are permitted to convert to an individual policy with proof of insurability.
Which of the following is NOT true regarding policy loans? A) An insurer can charge interest on outstanding policy loans. B) A policy loan may be repaid after the policy is surrendered. C) Money borrowed from the cash value is taxable. D) Policy loans can be repaid at death.
C) Money borrowed from the cash value is taxable. Money borrowed from the cash value is not taxable. Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.
Under an extended term nonforfeiture option, the policy cash value is converted to: A) A lower face amount than the whole life policy. B) A higher face amount than the whole life policy. C) The same face amount as in the whole life policy. D) The face amount equal to the cash value.
C) The same face amount as in the whole life policy. 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.
Graded Life Policy Premiums
Start out lower and gradually rise on a continuous basis rather than (like Modified Life Policies) jumping to a higher amount after several years. Typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy. At a specified point, the premiums become level and that level amount is paid for the duration of the policy. The disadvantage of the Graded Premium arrangement is that it can take 10 or 20 years before the premiums generate any significant cash value. And, like the modified premium arrangement, Graded Premium policies cost more in the long run than similar policies without the graded feature.
What are the 4 types of buy-sell agreements, and how are each defined?
There are several types of buy-sell agreements that can be used for partnerships and corporations: Cross Purchase - used in partnerships when each partner buys a policy on the other Entity Purchase - used when the partnership buys the policies on the partners Stock Purchase - used by privately owned corporations when each stockholder buys a policy on each of the others Stock Redemption - used when the corporation buys one policy on each shareholder
What is the difference between a straight life policy and a 20-pay whole life policy? a) Premium payment period b) The benefit settlement option c) The face amount and cash value d) Policy maturity date
a) Premium payment period A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
An annuity has accumulated the cash value of $70,000, of which $30,000 is from premium payments. The annuitant dies during the accumulation phase. The beneficiary will receive: a) $30,000. b) $70,000. c) $100,000 (combination of the cash value and premiums paid. d) A survivor benefit determined by the insurance company.
b) $70,000. If the annuitant's death occurs during the accumulation period, the beneficiary will receive the amount of premiums paid into the plan or the cash value, whichever is greater. In this case, the beneficiary will receive $70,000.
When a whole life policy is surrendered for its nonforfeiture value, what is the automatic option? a) Reduced paid up b) Extended term c) Paid up additions d) Cash surrender value
b) Extended term The automatic nonforfeiture option is extended term.
Variable life insurance is regulated by all of the following entities EXCEPT a) The Department of Insurance and/or Financial Services. b) The Financial Industry Regulatory Authority (FINRA) c) The U.S. Department of Treasury d) The Securities and Exchange Commission (SEC).
c) The U.S. Department of Treasury Variable products are comprised of both insurance and securities. As a result, they are regulated by the SEC, FINRA, and the state department regulating insurance.
All insurers, agents and brokers doing insurance business in North Carolina must maintain complete and accurate records of the business conducted. The first offense of failure to comply with the provision of the law may result in a) License revocation for one year. b) Imprisonment for up to 3 years. c) License suspension for up to 6 months and participation in a continuing education course on insurance regulations. d) License suspension or revocation for up to 6 months.
d) License suspension or revocation for up to 6 months. Violation of the provision dealing with records retention may result in suspension or revocation of a license for a period of not less than one month or more than six months for a first offense.
Which of the following is TRUE regarding the accumulation period of an annuity? A) It is limited to 10 years. B) It is a period during which the payments into the annuity grow tax deferred. C) It is also referred to as the annuity period. D) It is a period of time during which the beneficiary receives income The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
B) It is a period during which the payments into the annuity grow tax deferred. The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.
According to the Common Disaster clause, if the insured and primary beneficiary are killed in the same accident and it cannot be determined who died first, which of the following will be assumed? A) The estate of the primary beneficiary and the contingent beneficiary split benefits equally B) The insured died before the primary beneficiary. C) The primary beneficiary died before the insured. D) The deaths occurred at the same time.
C) The primary beneficiary died before the insured. According to the Common Disaster clause, if it cannot be determined who died first, the insured or the primary beneficiary, it will be assumed the primary beneficiary died first, so the proceeds go to the contingent beneficiary. Proceeds will go the insured's estate only if there is no contingent beneficiary.
Family Income Policy
Combines Whole Life insurance with a Decreasing Term Rider (written on the breadwinner) Example: If one purchases a 20-year family income policy and dies five years after the policy is issued, the decreasing term portion of the plan would provide his or her surviving family with a monthly income for 15 years. At the end of the 15-year period, the whole life death benefit would be paid to the family.
What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? A) Life with guaranteed minimum B) Installment refund C) Joint and survivor D) Pure life
D) Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors.
The premiums paid by the employer in a business life insurance policy are: A) Tax deductible by the employee. B) Always taxable to the employee. C) Never taxable to the employee. D) Tax deductible by the employer.
D) Tax deductible by the employer. The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the employer as a business
Which of the following is true regarding taxation of accelerated benefits paid under a life insurance policy? A) They are considered taxable income. B) They are taxable to the insured's estate. C) They are tax deductible. D) They are received tax free.
D) They are received tax free. When accelerated benefits are pald under a life insurance policy to a terminally ill insured, the benefits are received tax free.
Family Protection Policy
Policy that provides protection for all family members. Term insurance for children (to age 21, when they can convert to permanent w/o evidence of insurability) and spouse (to age 65.) Children born following the date that the policy takes effect are covered for the first 30 or 31 days, at which time the policy owner has to add the newborn child to the policy for continued coverage.
Among the applicants in the same class and life expectancy, which of the following factors can be used to determine premium rates? a) Marital status b) Race c) Occupation d) Ancestry
c) Occupation
