Primerica Life Insurance Exam

According to the entire contract provision, what document must be made part of the insurance policy? a) Buyer's Guide b) Agent's report c)Outline of coverage d)Copy of the original application

Copy of the original application

If an annuitant dies before annuitization occurs, what will the beneficiary receive? a) Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount b) Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount c)Amount paid into the plan d)Cash value of the plan

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount Reason: If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.

If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may a) Require a higher premium. b) Prolong the open enrollment period. c)Increase medical requirements on existing members. d)Require evidence of insurability.

Require evidence of insurability.

Which of the following types of risk will result in the highest premium? A) Substandard risk b) Standard risk c)Preferred risk d)All risks pay equal premiums

Substandard Risk Reason: The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? a) Good health b) Adhesion c)Conditional d)Aleatory

Aleatory

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? A) Assumed b) Apparent c)Express d)Implied

Apparent: Apparent authority (also known as perceived authority) is the appearance, or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Which of the following will NOT be considered unfair discrimination by insurers? A) Discriminating in benefits and coverages based on the insured's habits and lifestyle B) Charging applicants with similar health histories different premiums based on their ethnicity C) Cancelling individual coverage based on the insured's marital status D) Assigning different risk classifications to applicants based on gender identity

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

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? a) It requires that someone who is not the primary beneficiary handles the estate. b) It determines who receives policy benefits if the primary beneficiary is deceased. c)It allows creditors to receive payment out of the proceeds. d)It ensures the policy proceeds will be split between the primary and contingent beneficiaries.

It determines who receives policy benefits if the primary beneficiary is deceased.

the causes of loss insured against in an insurance policy are known as a. perils b. losses c. risks d. hazards

Perils: perils are the causes of loss insured against in an insurance policy

An applicant wants to buy a policy that has a cash value element. Which type should she buy? a) Term b) Permanent c)Stock d)Investment

Permanent: Unlike term insurance, permanent insurance provides lifetime death protection and a savings or cash value option.

Which services are associated with Standard & Poor's and AM Best? A) Providing employment histories for investigative consumer reports b) Storing medical information collected by insurance companies c)Rating the financial strength of insurance companies d)Investigating violations of The Fair Credit Reporting Act

Rating the financial strength of insurance companies

If an agent fails to obtain an applicant's signature on the application, the agent must a) Return the application to the applicant for a signature. b) Sign the application for the applicant. c)Sign the application, stating it was by the agent. d)Send the application to the insurer with a note explaining the absence of signature.

Return the application to the applicant for a signature. Reasons: All applications must have the appropriate authorized signatures.

Which of the following policies would be classified as a traditional level premium contract? a) Adjustable Life b) Universal Life c)Variable Universal Life d)Straight Life

Straight Life

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A) The insured's spouse B) The policyowner C) The insurance company D) The contingent beneficiary

The contingent beneficiary

Which of the following would provide an underwriter with information concerning an applicant's health history?

The medical information bureau

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a) Adjustable life b) Term life c)Limited pay d)Universal life

Universal life Reason: Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

At times, it is possible for a life insurance agent to affect a savings of premium rates by backdating an application for life insurance. What is the maximum amount of time that an application may be backdated? A. It varies from insurer to insurer. B. 6 months C. One year D. It is not allowed.

6 Months No policy in this state can take effect more than 6 months prior to the original application date, therefore, allowing an agent to backdate a policy applicant's age if his/her birthday was less than 6 months ago.

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A) A debtor has an insurable interest in the life of a lender B) Business partners have an insurable interest in each other C) A married person has an insurable interest in their spouse D) An individual has an insurable interest in their own life

A debtor has an insurable interest in the life of a lender

All of the following are duties and responsibilities of producers at the time of application EXCEPT A) Change any incorrect statement on the application by personally initialing next to the corrected statement. B) Explain the nature and type of any receipt the producer is giving to the applicant C) Probe beyond the stated questions if the producer feels the applicant is misrepresenting or concealing information. D) Check to make sure that there are no unanswered questions on the application

Change any incorrect statement on the application by personally initialing next to the corrected statement.

An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of? A) False advertising b) Unfair claims c)Twisting d)Defamation

False advertising

Which of the following is NOT true regarding a nonqualified retirement plan?

It needs IRS approval

Pertaining to insurance, what is the definition of a fiduciary responsibility? a) Promptly forwarding premiums to the insurance company b) Helping insureds to file claims c)Performing reviews of insured's coverage d)Offering additional coverage to clients

Promptly forwarding premiums to the insurance company

Which of the following are generally NOT considered when underwriting group insurance? a) The size of the group b) The insureds' medical history c)The nature of the group d)The group's past claim experience

The insureds' medical history Reason: Group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary.

What happens if a deferred annuity is surrendered before the annuitization period? a) The insurer can only apply the surrender value toward another annuity. b) Deferred annuities cannot be surrendered prior to the annuitization period. c)The owner will receive the surrender value of the annuity. d)The owner will only receive a refund of premium.

The owner will receive the surrender value of the annuity. Reason: If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.

When is the earliest a policy may go into effect? A) After the underwriter reviews the policy B) When the application is signed, and a check is given to the agent C) When the first premium is paid, and the policy has been delivered D) When the insurer approves the application

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

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about a) Which individual will pay the premium. b) Whether an insurable interest exists between the individuals. c)The gender of the applicant. d)The type of policy requested.

Whether an insurable interest exists between the individuals.

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? a. mutual b. reciprocal c. nonprofit service organization d. stock A. mutual

funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. if all funds are paid out, no dividends are paid

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? A. Incontestable clause B. Grace period C. Reinstatement provision D. Waiver of premium provision

A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

A Straight Life policy has what type of premium? a) A decreasing annual premium for the life of the insured b) A variable annual premium for the life of the insured c)A level annual premium for the life of the insured d)An increasing annual premium for the life of the insured

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

Which of the following premium payment modes will incur the lowest overall payment? a) Annual b) Semi-annual c)Quarterly d)Monthly

Annual

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? a) Reduced paid-up b) Paid-up options c) Extended term d) Cash surrender

Cash surrender (Once the cash surrender value is paid, the contract is over.)

Which of the following would be considered an illegal inducement to purchase insurance?a)Mailing an agency brochure to a prospective clientb)Listing the insurance companies the agency represents in a letterc)Inviting prospective clients to the grand opening of the producer's new officed)Confirming future dividends in a life insurance proposal

Confirming future dividends in a life insurance proposal

Which of the following is NOT typically excluded from life policies? a) Death that occurs while a person is committing a felony b) Death due to war or military service c)Death due to plane crash for a fare-paying passenger d)Self-inflicted death

Death due to plane crash for a fare-paying passenger Reason: Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

If an insured changes his payment plan from monthly to annually, what happens to the total premium? A) Doubles B) Increases C) Decreases D) Stays the same

Decreases

When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of a) Misrepresentation. b) Discrimination. c)Nothing, unless the remarks were in writing d)Defamation.

Defamation

In insurance transactions, fiduciary responsibility means a) Handling insurer funds in a trust capacity. b) Maintaining a good credit record. c)Being liable with respect to payment of claims. d)Commingling premiums with agent's personal funds.

Handling insurer funds in a trust capacity.

Which of the following is TRUE of a qualified plan? a) It has a tax benefit for both employer and employee. b) It does not need to have a vesting schedule. c)It may discriminate in favor of highly paid employees. d)It may allow unlimited contributions.

It has a tax benefit for both employer and employee.

Which of the following is NOT true regarding the accumulation period of an annuity? It would not occur in a deferred annuity. It is the period during which the annuity payments earn interest. It is the period over which the owner makes payments into an annuity. It is also known as the pay-in period.

It would not occur in a deferred annuity. (The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity)).

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A) Law of Masses B) Law of Averages C) Law of Group Evaluation D) Law of Large Numbers

Law of Large Numbers

Your client wants both protection and savings from the insurance and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a) Interest-sensitive whole life b) Life annuity with period certain c)Increasing term d)Limited pay whole life

Limited pay whole life

Your client wants both protection and savings from the insurance and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a) Interest-sensitive whole life b)Life annuity with period certain c)Increasing term d)Limited pay whole life

Limited pay whole life: Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices? a) Exaggerating the benefits provided in the policy b) Stating that the competitors will arbitrarily increase their premiums each year c)Making comparisons between different policies d)Stating that the insurance policy is a share of stock

Making comparisons between different policies

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.

Money borrowed from the cash value is taxable. Reasons: 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.

An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information? a) Receive a signed statement from the insured which authorizes the investigation b) Sign a waiver that the information will be kept confidential c)Present the insured with a Disclosure Authorization Notice d)Receive written permission from the Department of Insurance

Present the insured with a Disclosure Authorization Notice

Another name for a substandard risk classification is A) Controlled B) Declined C) Elevated D) Rated

Rated

Which nonforfeiture option provides coverage for the longest period of time?a) Paid-up option b) Accumulated at interest c)Reduced paid-up d)Extended term

Reduced paid-up

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the a) Contingent beneficiary. b) Irrevocable beneficiary. c)Revocable beneficiary. d)Secondary beneficiary.

Revocable beneficiary.

#4. All of the following are beneficiary designations EXCEPT a) Primary. b) Specified. c) Tertiary. d) Contingent.

Specified (Beneficiary designations determine the order in which benefits will be paid primary or contingent, which includes secondary and tertiary.)

An employer offers group life insurance to its employees for the amount of $10,000. Which of the following is true? a) The cost of coverage is a deductible expense by the employer. b) The value of insurance will be deducted from the employees' compensation. c)The cost of coverage paid by the employer is taxed to the employees. d)The cost of coverage paid by the employer is tax deductible by the employees.

The cost of coverage is a deductible expense by the employer.

When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed? a) The insurance company's general account b) Forwarded to an investor c)Each contract's separate account d)The annuity owner's account

The insurance company's general account

What happens if a deferred annuity is surrendered before the annuitization period? a) The insurer can only apply the surrender value toward another annuity. b) Deferred annuities cannot be surrendered prior to the annuitization period. c)The owner will receive the surrender value of the annuity. d)The owner will only receive a refund of premium.

The owner will receive the surrender value of the annuity.

A temporary producer license could be issued without examination to all of the following EXCEPT.

The spouse of a retiring insurance producer

In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a) The premium. b) The amount of insurance. c)The type of investment. d)The length of coverage.

The type of investment.

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? a) A legal (but unethical) contract b) Unilateral c)Adhesion d)Conditional

Unilateral

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than A. Prior to filling out an application for insurance. B. With the policy. C. Upon issuance of the policy. D. Within 30 days after the first premium payment was collected.

With the policy (If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.)

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of a) Concealment. b) Waiver. c)Fraud. d)Breach of warranty.

concealment Reason: In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is A) Personal B) Unilateral C) Conditional D) Aleatory

Conditional

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a) Representation b) Adhesion c)Consideration d)Good faith

Consideration

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the a) One-year term option. b) Paid-up option. c)Accelerated endowment. d)Paid-up additions.

One-year term option Reason: The dividend is utilized to purchase one-year term insurance.

Which of the following is the most common way to transfer risk?

Purchase Insurance

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay? a)50% tax on the amount not distributed as required b) No penalties, since the owner is older than 59 ½ c)10% for early withdrawal d)15% for early withdrawal

50% tax on the amount not distributed as required Reason: When immediate annuities are used to pay IRA benefits, distributions must begin no later than age 70½ in order for the annuitant to avoid penalties. The penalty is 50% of the shortfall from the required annual amount.

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.

A policy loan may be repaid after the policy is surrendered.

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?a)Ownership provision b) Collateral assignment c)Insurable interest d)Modification clause

Collateral assignment

Michigan's continuing education requirement has each of the following characteristics EXCEPT a) It requires satisfactory completion of at least 24 hours of approved training every biennium. b) Other than the 3 hours of ethics, licensees may take courses in any line. c)It allows for up to 15 excess credit hours to be carried forward to the next reporting period. d)At least 3 hours must cover ethics.

It allows for up to 15 excess credit hours to be carried forward to the next reporting period. Reason: Up to 12 excess credit hours of CE may be carried over to the next review period.

What is a definition of a unilateral contract? a) If one party makes a condition, the other party can counteroffer. b) One-sided: only one party makes an enforceable promise. c)Two or more parties go into a contract understanding there may be an unequal exchange of value. d)One author: the company wrote the contract; the insured must accept it as written.

One-sided: only one party makes an enforceable promise. Reason: An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

Which Universal Life option has a gradually increasing cash value and a level death benefit? a) Option A b) Juvenile life c)Term insurance d)Option B

Option A

Traditional IRA contributions are tax deductible based on which of the following? a) Owner's age b) IRA limit c)Owner's income d)How long the plan has been in force

Owner's income

Pertaining to insurance, what is the definition of a fiduciary responsibility? A) Helping insureds to file claims b) Performing reviews of insured's coverage c)Offering additional coverage to clients d)Promptly forwarding premiums to the insurance company

Promptly forwarding premiums to the insurance company Reason: Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in a) Recession of the policy. b) Adjustment in the amount of death benefit. c)No change whatsoever. d)Automatic lapse.

Adjustment in the amount of death benefit Reason: 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.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? A) When the insured dies, the primary and contingent beneficiaries share death benefit equally B) With the primary beneficiary's written consent C) If the insured died from accidental means D) If the primary beneficiary predeceased the insured

If the primary beneficiary predeceased the insured

A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy? a) Joint limited annuity b) Joint life c)Joint and survivor d)Life with period certain

Joint Life Reason: Joint life annuity settlement option pays benefits to two or more annuitants but stops upon the death of the first.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the a) Paid-up additions. b) One-year term option. c)Paid-up option. d)Accelerated endowment.

One-year term option. Reason: The dividend is utilized to purchase one-year term insurance.

Which services are associated with Standard & Poor's and AM Best? a) Storing medical information collected by insurance companies b) Rating the financial strength of insurance companies c)Investigating violations of The Fair Credit Reporting Act d)Providing employment histories for investigative consumer reports

Rating the financial strength of insurance companies Reasons: Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies.

An insured decides to surrender his $100,000 Whole Life policy. The premiums paid into the policy added up to $15,000. At policy surrender, the cash surrender value was $18,000. What part of the surrender value would be income taxable? a)$50,000 b) $18,000 c)$15,000 d)$3,000

3,000

What happens if a deferred annuity is surrendered before the annuitization period? A. The owner will only receive a refund of premium. B. The insurer can only apply the surrender value toward another annuity. C. Deferred annuities cannot be surrendered prior to the annuitization period. D. The owner will receive the surrender value of the annuity.

Deferred annuities cannot be surrendered prior to the annuitization period. (If a deferred annuity is surrendered prior to annuitization, the surrender value of the annuity is guaranteed according to the nonforfeiture provision.)

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a) In lesser amounts for the remaining policy term of age 100. b) Equal to the cash value surrendered from the policy c)The same as the original policy minus the cash value d)Equal to the original policy for as long as the cash values will purchase.

Equal to the original policy for as long as the cash values will purchase. Reason: 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.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a) The same as the original policy minus the cash value b) Equal to the original policy for as long as the cash values will purchase. c)In lesser amounts for the remaining policy term of age 100. d)Equal to the cash value surrendered from the policy

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.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called a) Guaranteed insurability. b) Waiver of cost of insurance. c)Accelerated benefits. d)Cost of living.

Guaranteed insurability. Reason: Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? a) If the primary beneficiary predeceased the insured b) When the insured dies, the primary and contingent beneficiaries share death benefits equally. c)With the primary beneficiary's written consent d)If the insured died from accidental means

If the primary beneficiary predeceased the insured Reason: The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

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) Defamation b) Illegal c)A legal advertising strategy d)Unfair Discrimination

Illegal Reason: It is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly.

Which of the following statements is TRUE concerning the Accidental Death Rider? a) This rider is only available to insureds over the age of 65. b) It is only available in group insurance. c)It will pay double or triple the face amount. d)It is also known as a triple indemnity rider.

It will pay double or triple the face amount. Reason: The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Your client wants both protection and savings from the insurance and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a) Limited pay whole life b) Interest-sensitive whole life c)Life annuity with period certain d)Increasing term.

Limited pay whole life Reason: Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

Which services are associated with Standard & Poor's and AM Best?a)Providing employment histories for investigative consumer reports b)Storing medical information collected by insurance companies c)Rating the financial strength of insurance companies d)Investigating violations of The Fair Credit Reporting Act

Rating the financial strength of insurance companies Reasons: Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies.

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? a) Grace period b) Reinstatement provision c)Waiver of premium provision d)Incontestable clause

Reinstatement provision Reason: A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

What is the purpose of key person insurance? A. To provide health insurance to the families of key employees B. To insure retirement benefits are available to all key employees C. To maintain an account that insures the owner of a company remains solvent D. To lessen the risk of financial loss because of the death of a key employee

To lessen the risk of financial loss because of the death of a key employee (A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contacts. A business can lessen the risk of such loss by the use of key person insurance.)

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? a. retention b. reduction c. transfer d. avoidance B. reduction

Reduction: the insured's change in lifestyle and habits would likely reduce the chances of health problems

Which of the following statements about group life is correct? a) The premiums are higher than in an individual policy because there is no medical exam. b) The group sponsor receives a Certificate of Insurance. c)The policy can be converted to an individual term insurance policy. d)The cost of coverage is based on the ratio of men and women in the group.

The cost of coverage is based on the ratio of men and women in the group. Reason: 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.

All of the following are true of key person insurance EXCEPT a) The plan is funded by permanent insurance only. b) There is no limitation on the number of key employee plans in force at any one time. c)The employer is the owner, payor and beneficiary of the policy. d)The key employee is the insured.

The plan is funded by permanent insurance only.

Which of the following is TRUE of a qualified plan? A. It may discriminate in favor of highly paid employees. B. It may allow unlimited contributions. C. It has a tax benefit for both employer and employee. D. It does not need to have a vesting schedule.

It has a tax benefit for both employer and employee. (A qualified plan is approved by the IRS, which then gives both the employer and employee benefits in deductibility of contributions and tax deferral of growth.)

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT a) An offer to share in commissions generated by the sale. b) Dividends from a mutual insurer. c)An offer of employment. d)Stocks, securities, or bonds.

Dividends from a mutual insurer.

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.

Money borrowed from the cash value is taxable. Reason: 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.

In this state, a temporary license may be issued for any of the following reasons EXCEPT a) A producer's time in the military service. b) A producer's retirement. c)The death of a producer. d)A producer's disability.

A producer's retirement. Reason: A temporary license is not available for a producer's retirement.

A producer who fails to separate premium monies from his own personal funds is guilty of a) Larceny. b) Embezzlement. c)Theft. d)Commingling.

Commingling

The mode of premium payment a) Is the method used to compute the cash surrender value of the policy. b) Does not affect the amount of premium paid. c)Is defined as the frequency and the amount of the premium payment. d)Is the factor that determines the amount of dividends in a policy.

Is defined as the frequency and the amount of the premium payment. Reason: The mode refers to the frequency the policyowner pays the premium: monthly, quarterly, semiannually, or annually. The amount of premium will change accordingly.

Which of the following statements is TRUE concerning the Accidental Death Rider? a) This rider is only available to insureds over the age of 65. b) It is only available in group insurance. c)It will pay double or triple the face amount. d)It is also known as a triple indemnity rider.

It will pay double or triple the face amount.

what documentation grants express authority to an agent? a. agents contract with the principal b. agents' insurance license c. fiduciary contract d. state provisions

agents contract with the principal; the principal grants authority to an agent through the agent's contract

If an insurer terminates a producer, the Commissioner will receive a notification. Within how many days of this notification must the producer be sent a copy? a)10 b)15 c)30 d)7

15 days Reasons: A copy of the notice to the Commissioner must be sent to the producer in question within 15 days.

When a reduced paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A) It is reduced to the amount of what the cash value would buy as a single premium. b) It is increased when extra premiums are paid. c)It decreases over the term of the policy. d)It remains the same as the original policy, regardless of any differences in value.

It is reduced to the amount of what the cash value would buy as a single premium.

What type of annuity activity will cause immediate taxation of the interest earned? a) Changing a settlement option b) Failing to make a planned contribution c)Surrendering the annuity for cash d)Using the contract as collateral for a loan

Surrendering the annuity for cash

Which of the following is NOT the consideration in a policy? a) The promise to pay covered losses b) The application given to a prospective insured c)Something of value exchanged between parties d)The premium amount paid at the time of application

The application given to a prospective insured

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? A. Guaranteed insurability option B. Dividend options C. Guaranteed renewable option. D. Nonforfeiture options

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

Which of the following persons is required to hold a producer license? a) A person who administers employee benefits b) A person who negotiates insurance contracts c)A person who creates insurance advertisements d)A person who takes messages related to claims

A person who negotiates insurance contracts

In an annuity, the accumulated money is converted into a stream of income during which time period? A) Conversion Period B) Annuitization Period C) Payment Period D) Amortization Period

Annuitization Period

Which of the following statements is TRUE concerning the Accidental Death Rider? a) It is also known as a triple indemnity rider. b) This rider is only available to insureds over the age of 65. c)It is only available in group insurance. d)It will pay double or triple the face amount.

It will pay double or triple the face amount. Reason: The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a) Standard risk pays a higher premium than a substandard risk. b) Standard risk requires extra rating. c)Standard risk is also known as high exposure risk. d)Standard risk is representative of the majority of people.

Standard risk is representative of the majority of people. Reasons: Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.

In this state, a temporary license may be issued for any of the following reasons EXCEPT a) A producer's time in the military service. b) A producer's retirement. c)The death of a producer. d)A producer's disability.

A producer's retirement Reason: A temporary license is not available for a producer's retirement.

In this state, a temporary license may be issued for any of the following reasons EXCEPT a) A producer's retirement. b) The death of a producer. c)A producer's disability. d)A producer's time in the military service.

A producer's retirement. Reason: A temporary license is not available for a producer's retirement.

A key person insurance policy can pay for which of the following? a) Workers' compensation b) Hospital bills of the key employee c)Costs of training a replacement d)Loss of personal income

Costs of training a replacement

An insurance producer did not renew her license when it was due, so the license lapsed. Two months prior to that, the producer sold several insurance policies and was still awaiting commissions. Now that the producer is no longer licensed, which of the following is true regarding the commissions from the sale of insurance policies? a) Deferred commissions may be paid to the producer for policies sold while the producer was licensed. b) Commissions will be prorated for the time between the sale and the license lapse. c)Commissions may be paid to another licensed producer who may write a personal check to this producer. d)Commissions will be forfeited since the producer is no longer license.

Deferred commissions may be paid to the producer for policies sold while the producer was licensed. Reason: Deferred commissions may be paid to a producer who is no longer licensed, as long as the person was licensed during the sale, solicitation, or negotiation of the insurance product.

If an annuitant dies before annuitization occurs, what will the beneficiary receive? a) Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount b)Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount c)Amount paid into the plan d)Cash value of the plan

Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A) The same as the original policy minus the cash value B) Equal to the original policy for as long as the cash values will purchase C) In lesser amounts for the remaining policy term of age 100 D) Equal to the cash value surrendered from the policy

Equal to the original policy for as long as the cash values will purchase

What kind of policy does NOT typically require proof of insurability? A) Term Insurance B) Individual insurance C) Group Insurance D) Variable universal life

Group Insurance

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following> A) Guaranteed Surrender Value B) No Payments C) Annuity Dividends D) Full premium refund without any changes

Guaranteed Surrender Value

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 c)Medical Information Bureau's report d)Agent's Report

Inspection Report Reasons: Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

The Medical Information Bureau (MIB) was created to protect a) Insurance departments from lawsuits by policyowners' b) Insureds from unreasonable underwriting requirements by the insurance companies. c)Medical examiners that perform insurance physical examinations. d)Insurance companies from adverse selection by high-risk persons.

Insurance companies from adverse selection by high-risk persons.

A policy that does not pay dividends to policy owners is a A) Mutual Life Policy B) Nonparticipating Policy C) Participating Policy D) Whole Life Policy

Nonparticipating Policy

All of the following would be different between qualified and nonqualified retirement plans EXCEPT a) IRS approval requirements b) Taxation on accumulation c)Taxation of withdrawals d)Taxation of contributions

Taxation on accumulation Reasons: Taxation on accumulation is deferred in both types of plans. The rest of the characteristics would differ.

Which of the following may NOT be included in an insurance company's advertisement?

That its policies are covered by a state Guaranty Association

Which of the following is NOT the consideration in a policy? a) The premium amount paid at the time of application b) The promise to pay covered losses c)The application given to a prospective insured d)Something of value exchanged between parties

The application given to a prospective insured

In insurance, an offer is usually made when a. an applicant submits an application to the insurer b. the insurer approves the application and receives the initial premium c. the agent hands the policy to the policyholder d. an agent explains a policy to a potential applicant A. an applicant submits an application to the insurer

in insurance, the offer is usually made by the applicant in the form of an application. acceptance takes place when an insurer's underwriter approves the application and issues a policy