Insurance Policies and Buy-Sell Agreements, Exams of Insurance law

Download Insurance Policies and Buy-Sell Agreements and more Exams Insurance law in PDF only on Docsity! PRIMERICA LIFE INSURANCE EXAM QUESTIONS & ANSWERS 2024 UPDATE. 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 - Correct answer 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 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 - Correct answer B. reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems 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 - Correct answer 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 The causes of loss insured against in an insurance policy are known as A. perils B. losses C. risks D. hazards - Correct answer A. perils Perils are the causes of loss insured against in an insurance policy What documentation grants express authority to an agent? A. agents contract with the principal B. agent’s insurance license C. fiduciary contract D. state provisions - Correct answer A. agents contract with the principal The principal grants authority to an agent through the agent's contract Which of the following best describes an insurance company that has been formed under the laws of this state? A. domestic B. sovereign C. alien D. foreign - Correct answer A. domestic A company is domestic when doing business within the state in which it is incorporated Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? A. medical history B. sex C. age D. race - Correct answer D. race Age, medical history, and sex provide sound statistical date for determining the probability of loss. Race, religion, sexual orientation, etc. are the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory In insurance transactions, fiduciary responsibility means A. handling insurer funds in a trust capacity B. maintaining good credit record C. being liable with respect to payment of claims D. commingling premiums with agent’s personal funds - Correct answer A. handling insurer funds in a trust capacity An agent’s fiduciary responsibility includes handling insurer funds in a trust capacity Which of the following is the best reason to purchase life insurance rather than annuities? A. to liquidate a sum of money over a period of year B. to create regular income payments C. to liquidate a sum money over a lifetime D. to create an estate - Correct answer D. to create an estate With insurance, the death creates an immediate estate should the insured die A producer is helping a married couple determine the financial needs of their children in the event of one or both should die prematurely. This is a personal use of life insurance known as A. survivorship insurance B. juvenile protection provision C. survivorship protection D. life planning - Correct answer C. survivorship protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. disclose commissions earned from the sale of the policy B. explain the policy provisions, riders, and exclusions C. collect any premium due d. explain the rating procedures if the policy is rated differently than applied for - Correct answer A. disclose commissions earned from the sale of the policy A producer must explain policy provisions, exclusions, and riders at the time of the delivery, as well as the rating procedures especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement go continued good health 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 applicant D. the type of policy requested - Correct answer B. whether an insurable interest exists between the individuals An insurable interest must exist at the time of the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest. Ex: spouses, parents, children, and certain business relationships When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by A. a physician of the applicant's choice and at his expense B. a home office underwriter C. a paramedic or examining physician at the insurer's expense D. the agent - Correct answer C. a paramedic or examining physician at the insurer's expense The applicant may be allowed to select the physician or paramedic facility to perform the examination. The insurer pays the cost of such an examination The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called A. expenses B. legal reserve C. dividend accumulation D. premium tax - Correct answer A. expenses Loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation? A. needs approach B. blackout approach C. lump-sum approach D. human life value approach - Correct answer D. human life value approach Human life value approach is determined by the loss of the income that would result with the death of the insured, after making adjustments for expenses, inflation, etc. Which of the following is NOT required for a producer to tell a prospect? A. how the insurer would use any outside information regarding the applicant B. an explanation of products that the insurer is selling C. what requirements the producer needed to meet to obtain the insurance license D. from what outside sources the insurer would seek information, regarding the insured - Correct answer C. what requirements the producer needed to meet to obtain the insurance license Agents are required to inform prospects of the products they are selling, as well as their information collecting practices Which of the following statements concerning buy-sell agreements is true? A. premium paid are deductible as a business expense B. benefits received are considered income taxable C. buy-sell agreements pay in the event of a medical emergency D. buy-sell agreements are normally funded with a life insurance expectancy - Correct answer D. buy-sell agreements are normally funded with life insurance expectancy A buy-sell agreements is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy Who may complete a paramedical report? A. an underwriter B. a nursing assistant C. a registered nurse D. a spouse - Correct answer C. a registered nurse Paramedical reports are completed by paramedics or registered nurses. Full medical expectations are reserved for those wanting higher coverage or for those who have more complex medical history The term "illustrations" in a life insurance policy refers to A. a presentation of non-guaranteed elements of a policy B. a depiction of policy benefits and guarantees C. pictures accompanying a policy D. charts and graphs - Correct answer A. a presentation of non-guaranteed elements of a policy The term "illustrations" means presentation of depiction that includes non-guaranteed elements of a policy of individual of group life insurance over a period of years Which is generally true regarding insured’s who have been classified as preferred risks? A. they can borrow higher amounts off of their policies B. they can decide when to pay their monthly premiums C. they keep a higher percentage of any interest earned on their policies D. their premiums are lower - Correct answer D. their premiums are lower B. the mortality expense C. the investment account D. the insured - Correct answer A. the coverage period Typically, the owner of an adjustable life policy has the following privileges: increasing or decreasing premium, changing the premium paying-period, increasing or decreasing the fat amount of coverage, or changing the period of protection Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid A. for 20 years or until death, whichever occurs first? B. until the policy owner reaches age 65 C. for 20 years D. until the policy owner’s age 100, when policy matures - Correct answer A. for 20 years or until death, whichever occurs first? under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. required a premium increase each renewal B. built cash value C. required proof of insurability ever year D. decreased death benefit each renewal - Correct answer A. required a premium increase each renewal Annually renewable term policies premiums are adjusted each year to the insured's attained age, however, the policy may be guaranteed renewable. Death benefits remain level, and switch any term policy, there are no cash values Both Universal Life and Variable Universal Life have a A. flexible premium B. level fixed premium C. decreasing premium D. increasing premium - Correct answer A. flexible premium Variable universal life, like universal life itself, has a flexible premium that can be increased or decrease as the policy owner chooses, so long as there is enough value in the policy to fund the death benefit All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? A. half the amount B. lower C. higher D. as high - Correct answer B. lower Survivorship life is much the same as joint life in that it insures 2 or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, residing in a lower premium Thant that which is typically charged for a joint life What policy would be classified as a traditional level premium contract? - Correct answer straight whole life The ownership provision entitles the policy owner to do all of the following EXCEPT? Asset premium rates B. receive a policy loan C. assign the policy D. designate a beneficiary - Correct answer A. set premium rates The insurer sets premium rates based upon underwriting considerations 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. accelerated benefit rider B. living need rider C. payer rider D. cost of living rider - Correct answer D. 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 increase in the cost of living Under which no forfeiture option does the company pay the surrender value and have no further obligations to the policy owner? A. cash surrender B. reduced paid-up C. paid-up options D. extended term - Correct answer a. cash surrender Once the cash surrender value is paid, the contract is over Which of the following is true about the premium on the children's rider in a life insurance policy? A. it decreases when an adopted child is added to the policy B. it remains the same no matter how many children are added to the policy C. it decreases when the oldest child remains the age of 21 D. it increases when a newborn baby is added to the policy - Correct answer B. it remains the same no matter how many children are added to the policy The premium does not change on the inclusion of additional children, it is based on an average number of children The automatic premium loan provision is activated at the end of the A. grace period B. free-look period C. elimination period D. policy period - Correct answer a. grace period Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force Which of the following explains the policy owner’s right to change beneficiaries, choose options, and receive proceeds of a policy? A. the Entire Contract Provision b. The Consideration Clause c. Agreement Rights d. Owner's Rights - Correct answer D. owner's rights Policy owners can learn about their ownership rights by referring to the policy 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 2 beneficiaries B. the policy owner can specify the way the 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 - Correct answer B. the policy owner can specify the way the proceeds are split in the policy The owner of a life policy may name any individual as a beneficiary for the policy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by the percentage specified in the policy An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an automobile accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as an attachment? A. $0 B. $100,000 C. $200,000 D. $100,000 plus the total of paid premiums - Correct answer C. $200,000 The beneficiary would most likely receive 2x the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies When an annuity is written, whose life expectancy is taken into account? A. annuitant B. beneficiary C. life expectancy is not a factor when writing an annuity D. owner - Correct answer A. annuitant The annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be Which of the following is a true comparison between annuities and life insurance? A. both annuities and life insurance use mortality tables B. annuities serve the same function as life insurance C. both provide a lifetime of income D. neither annuities or life insurance subject to income taxes - Correct answer A. both annuities and life insurance use mortality tables Annuities are not life insurance, they do not pay a face amount upon the death of the annuitant. In most cases, the payment phase stops upon the death of the annuitant. Annuities use mortality tables, which reflect a longer life expectancy than the tables used in life insurance Annuities can be used to fund which of the following? A. variable life insurance B. group life insurance C. estate creation D. retirement plans - Correct answer D. retirement plans Since annuities are a popular means to provide retirement plans, they are often used to fund qualified retirement plans Which of the following is a feature of a single premium immediate annuity? A. it is purchased through periodic payments B. income payments start at age 65 C. it is also referred to as a deferred annuity D. income payments start within one year - Correct answer D. income payments start within one year A Single Premium Immediate annuity is paid in a single premium. The annuity payments begin within a year of the date of the purchase. A deferred annuity can be punched with either a lump sum or through periodic payments, but the benefit is not paid until after one year or more has lapsed Which of the following would most directly affect the purchasing power of death benefits paid on a fixed annuity? A. company investment performance B. guaranteed minimum payout C. economic inflation D. interest rations - Correct answer C. economic inflation In times of inflation, benefits have less purchasing power. Since costs increase as a result of inflation, more money is required to purchase something that had previously cost less. Likewise, in the event of deflation, the purchasing power of benefits increase. The other options listed would affect the amount of money available to the annuity owner, but they would not actually affect the purchasing power of benefits paid Which of the following is NOT true regarding the annuitant? A. the annuitant receives the annuity benefits B. the annuitant must be a natural person C. the annuitant cannot be the same person as the annuity owner D. the annuitant’s life expectancy is taken into consideration for the annuity - Correct answer C. the annuitant cannot be the same person as the annuity owner While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written> since the annuitant’s life expectancy is taken into consideration, the annuitant must be a natural person When a fixed annuity owner pays his/her insurance company a monthly annuity premium, 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 - Correct answer A. the insurance company's general account Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative investments to insure a guaranteed rate to the annuity owners An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase? A. payment for 15 years B. payments for 20 years C. payments for life D. nothing - Correct answer A. payments for 15 years With any period certain, death of the annuitant within the state period will provide payments to the beneficiary only for the remainder of the period certain The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A. joint life annuity B. life income with period certain C. life income with refund D. joint and survivorship - Correct answer B. life income with period certain If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain The annuity purchased with multiple payments, whose benefit is paid more than one year after the purchase is known as which type of annuity? Inflexible premium immediate annuity B. single premium deferred annuity C. flexible premium deferred annuity D. single premium immediate annuity - Correct answer C. flexible premium deferred annuity The flexible premium deferred annuity (FPDA) is purchased with multiple payments, such as a portion of each paycheck. The benefit payment begin sometime after a one year from the date of purchase B. it ensures that the policy benefits are paid out in 7 years C. it guarantees interest minimum D. it determines if the insurance policy is an MEC - Correct answer d. it determines if the insurance policy is an MEC The seven pay test determines whether an insurance policy is "over funded" or if it’s a modified endowment contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of the net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest If a company has a simplified employee pension plan, what type of plan is it? A. the same as an IRA, with the same contribution limits B. an undefined contribution plan for large business C. a qualified plan for a small business D. the same as a 401(k) plan - Correct answer C. a qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer for self-employed. A SEP is an employer sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount If taken as a lump sum, life insurance proceeds to beneficiaries are passed A. part tax-free and part taxable B. without interest C. free of federal income taxation D. tax-deductible - Correct answer C. free of federal income taxation Life insurance proceeds to beneficiaries are passed free of federal income taxation if taken as a lump sum distribution. If the proceeds are taken as other than lump sum, part of the proceeds will be tax free and part will be taxable. When paid in installments, part of the proceeds contains principal and some interest, so the interest portion is subject to federal income taxation When must an IRA be completely distributed when a beneficiary is not named? A. due date of beneficiary tax return including extensions b. December 31 of the year following the year of the owner’s death C. due date of the deceased owners first tax return including extensions d. December 31 of the year that contains the 5th anniversary of the owners death - Correct answer D. December 31 of the year that contains he 5th anniversary of the owner's death If the owner dies before distributions have begun, the entire interest must be distributed in full on or before December 31 of the calendar year that contains the 5th anniversary of the owners death, unless the owner named a beneficiary In life insurance policies, cash value increases A. are only taxed when the owner reaches age 65 B. grow tax deferred C. are income taxable immediately D. are taxed annually - Correct answer B. grow tax deferred Generally life insurance cash values are only income taxed if the policy is surrendered totally or partially and the cash value exceeds the premiums paid According to agency law, the producer always represents the A. insurance company B. client C. public D. state insurance department - Correct answer a. insurance company Under agency law, producers legally represent the insurance company with which they are contracted A producer in another state wants to become a producer in Louisiana. The other state gives the same privileges to Louisiana producers wanting to be licensed in that state as it does to its own producers. Louisiana, therefore, extends the licensing privileges to the prospective producer of the other state. What is this called? A. fair exchange B. controlled business C. subrogation D. reciprocity - Correct answer D. reciprocity Reciprocity occurs when the state in which the person resides accords the same privilege to residents of Louisiana A producer has been notified by the Commissioner to stop using an unapproved trade name. How many days does the producer have to change the trade name before facing a fine? a. 5 business days B. 10 days C. 30 days D. the name must be changed immediately - Correct answer B. 10 days A producer who contributes to use an unapproved trade name for 10 or more days after being notified will face a fine of up to $5,000 A Louisiana insurance company ran and advertisement in June 2008. When could the company discard the file on this document? a. June 2013 b. June 2012 c. June 2011 D. June 2009 - Correct answer B. June 2012 In Louisiana, insurance companies are required to keep files of all advertisements used for 4 years, or until his next examination by the Department Existing and replacing life insurers are required to keep copies of all summaries, notices, and statements used in sales transactions until the conclusion of their next examination by the insurance department, or for a period of at least A. 1 year B. 2 years C. 3 years D. 5 years - Correct answer D. 5 years Louisiana Insurance laws require insurers to keep such records for a minimum of 5 years If a company wants to appoint a producer, which entity must it notify? A. the NAIC B. the governor C. the appointment board D. the commissioner - Correct answer D. the commissioner When a company appoints a producer, it must first apply for the appointment with the commissioner. The Commissioner then has 30 days to make sure that the producer is fit to transact insurance with that company 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. a legal advertising strategy B. unfair discrimination Defamation D. illegal - Correct answer D. illegal A. collateral B. absolute C. modified D. permanent - Correct answer A. collateral If a policy owner returns a policy 7 days after the policy is delivered, the insurer will A. refund a prorated portion of the premium paid B. refund premium paid minus expenses C. refund nothing because the insured was covered for 7 days D. refund the full premium paid - Correct answer D. refund the full premium paid If an insured dies during the grace period, the insurer will pay A. the full face amount B. the face amount minus premium due C. the face amount minus a surrender charge D. nothing, the contract is null and void - Correct answer B. the face amount minus premium due Which of the following is NOT a requirement of the reinstatement provision? A. submit the reinstatement application within 3-years of the policy lapsing B. proof insurability C. pay back any loans D. pay backs premium at current attained age - Correct answer D. pay backs premium at current attained age If an insured dies 3 years after the policy was issued an understated his age on the application, what will the insurer do? A. adjust the death benefit B. pay the full death benefit C. adjust the premium D. pay no death benefit and return the premium paid - Correct answer A. adjust the death benefit What is the name of the first beneficiary listed in a policy? A. primary B. secondary C. tertiary D. contingent - Correct answer A. primary Which dividend option would be taxable? A. reduction of premium B. paid-up additions C. cash D. accumulate at interest - Correct answer D. accumulate at interest Which no forfeiture options prohibits reinstatement of the policy? A. cash B. extended term C. reduced paid up D. interest only - Correct answer A. cash Which of the following riders functions like a waiver of premium rider but is found on juvenile policies? A. cost of living B. guaranteed insurability C. disability income D. payer benefit - Correct answer D. payer benefit If the insured elects a partial payment from the accelerated benefit, the death benefit of the life policy will A. stay the same regardless how much is taken out B. increase gradually to the original face amount C. be reduced by the accelerated payment amount D. be forfeitures because it is taken out early - Correct answer C. be reduced by the accelerated payment amount Which of the following riders allows for increases to the face amount at specified times with no proof of insurability? A. spouse term B. waiver of premium C. return of premium D. guaranteed insurability - Correct answer D. guaranteed insurability All of the following riders would increase the death benefit amount EXCEPT: A. accidental death B. waiver of premium C. guaranteed insurability D. term rider - Correct answer B. waiver of premium When someone other than the insured is the owner of a life insurance policy, this is called A. contingent B. reinsurance C. third-party ownership D. co-ownership - Correct answer C. third-party ownership Which of the following is not a requirement of group life conversion? A. application must be made within 31 days of termination B. the company may exclude term insurance C. proof of insurability is required D. premiums will increase based on attained age - Correct answer C. proof of insurability is required When a group plan is contributory. what percentage of employees must participate in the plan? a. 50% b. 75% c. 100% D. the percentage depends upon the size of the group - Correct answer B. 75% Buying a policy to offset a financial loss in the event of a valuable employee’s death is called A. key person life insurance B. deferred compensation plan C. buy-sell agreements D. split-dollar insurance plan - Correct answer A. key person life insurance All of the following requirements are correct about qualified retirement plans EXCEPT: A. they must be in writing B. they must be permanent C. they do not qualify for special federal tax treatment D. they must not discriminate in favor of highly compensated employees - Correct answer C. they do not qualify for special federal tax treatment A 10% penalty must be paid on withdrawals made from a qualified plan before age a. 40 B. 70 1/2 C. 59 1/2 d. 65 - Correct answer C. 59 1/2 Which of the following does not allow contributions beyond 70 1/2? the statements made by an applicant on an application for life insurance are considered to be a. warranties b. affirmations c. representations d. declarations - Correct answer C. representations in the formations of a legal contract, each party must give something of value. Under contract law, this is referred to as a. indemnity b. adhesion c. agreement d. consideration - Correct answer D. consideration one of the main purposes of the USA PATRIOT Act was to establish new standards for banks brokers-dealers and other financial institutions including insurers, concerning a. insurance fraud b. anti-money laundering c. falsified financial records d. false death claims - Correct answer B. anti-money laundering which of the following is NOT a characteristic of term life insurance? a. provides temporary protection b. pays a death benefit if the insured dies during a stated period c. is the least expensive form of life insurance d. builds cash value - Correct answer D. builds cash value which policy would be most appropriate for protecting the balance of a loan or mortgage? a. level term b. decreasing term c. universal life d. variable life - Correct answer B. decreasing term how long does coverage continue for a limited-pay whole life policy? a. 20 years on a 20-pay policy b. 65 years on a life paid at 65 policy c. death or age 100 d. 10 years on a 10 pay policy - Correct answer C. death or age 100 an insured purchased a $100,000 whole life policy. After a period of years, the cash value of the policy has grown to $42,000. If the insured dies at this time, how much will the beneficiary receive? a. $100,000 b. $142,000 c. $42,000 d. $58,000 - Correct answer a. $100,000 which of the following is not correct about universal life? a. the policyowner may increase or decrease the face amount b. the insurance portion is whole life insruance c. these policies allow for partial withdrawals or surrenders d. there are two death benefit options. Option A and Option B - Correct answer B. the insurance portion is whole life insurance a policy that insures 2 or more lives and pays on the death of the last insured is a. joint life b. group life c. survivorship life d. family protection ife - Correct answer C. survivorship life which type of policy builds cash value that is placed in a separate account where it is invested in stocks, bonds and other securities? a. variable life b. universal life c. index life d. term life - Correct answer A. variable life all of the following about a fixed annuity is true EXCEPT: a. the interest rate is guaranteed b. the premium is instead in the insurers general account c. it does not protect against inflation d. the owner assumes the investment risk - Correct answer D. the owner assumes the investment risk an immediate annuity has no accumulation period, which means it can only be purchased with a a. level premium b. flexible premium c. single premium d. variable premium - Correct answer C. single premium which of the following is NOT true about variable annuities? a. a producer must hold a securities and an insurance license to see them b. there is no guarantee of annuity values or benefit amounts c. premiums are invested in conservative investments such as real estate and mortgages d. premiums are held in a separate account - Correct answer C. premiums are invested in conservative investments such as real estate or mortgages if the annuitant should die during the accumulation phase, what will the beneficiary receive? a. benefit amount minus the payment due b. cash value only c. premiums paid or cash value, whichever is greater d. only refund of premiums paid - Correct answer C. premium paid or cash value, whichever is greater a participating insurance policy may do which of the following? a. require 80% participation b. pay dividends to the policyowner c. provide group coverage d. pay dividends to the stockholder - Correct answer B. pay dividends to the policyowner a tax-sheltered annuity is a special tax-favored retirement plan available to a. anyone b. certain age groups only c. certain groups depending on factors such as race, gender, and age d. certain groups of employees only - Correct answer D. certain groups of employees only an insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a. one of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies b. the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficaries were alive c. the beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid overtime a. the insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums b. the insureds premiums will be waived until she is 21 c. the premiums will become tax deductible until the insureds 18th birthday d. since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected - Correct answer B. the insureds premiums will be waived until she is 21 the life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is know as the a. incontestability clause b. reinstatement clause c. insuring clause d. misstatement of age clause - Correct answer A. incontestability clause mortality - interest + expense= a. gross premiums b. benefits budget c. operating expenses d. net premium - Correct answer A. gross premium what would be considered a disadvantage of owning a fixed annuity? a. decrease in purchasing power of the benefit in times of inflation b. investment risks being carried by he annuity owners c. interest rate dependence on stock performance d. guaranteed minimum interest rate - Correct answer A. decrease in purchasing power of the benefit in times of inflation all of the following statements are true regarding tax-qualified annuities EXCEPT: a. annuity earnings are tax deferred b. they must be approved by the IRS c. withdrawals are taxed d. employers contributions are not tax deductible - Correct answer D. employers contributions are not tax deductible an insured has continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a. paid-up option b. one-year term c. reduction of premium d. accumulation at interest - Correct answer A. paid-up option A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as a. survivorship insurance b. juvenile protection provision c. survivor protection d. life planning - Correct answer C. survivor protection life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. this is known as survivor protection an agent offers his client free tickets to a sporting even in exchange for the purchase of an insurance policy. the agent is guilty of a. rebating b. coercion c. twisting d. controlled business - Correct answer A. rebating when producers give or promise anything of value that is not specified in the policy, they are guilty of rebating which of the following statements about group life is correct? a. the cost of coverage is based on the ratio of men and women in the group b. the premiums are higher than in an individual policy because there is no medical exam c. the group sponsor receives a certificate of insurance d. the ploy can be converted to an individual term insurance policy - Correct answer A. the cost of coverage is based on the ratio of men and women in the group When would a 20-pay whole life policy endow? a) After 20 payments b) In 20 years c) When the insured reaches age 100 d) At the insured's age 65 - Correct answer C. when the insured reaches age 100 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 If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually? a. $3,000 b. $13,000 c. $10,000 d. $7,000 - Correct answer A. $3,000 if $100,000 of life insurance proceeds were used in a settlement option paying $13,000 per year for 10 years. $10,000 per year would be income tax free (as principal) and $3,000per year would be income taxable (as interest) how long will the beneficiary receive payments under the single life settlement options? a. until the insureds age 100 b. until the beneficiary death c. until the insureds death d. for a specified period of time - Correct answer B. until the beneficiary death the single life option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop when applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. this is an example of a. warranty b. concealment c. misrepresentation d. fraud - Correct answer B. concealment concealment occurs when a person withholds a material fact that is crucial to making a decision, in insurance, this involves withholding information that would be crucial to underwriting decisions An IRA purchased by a small employer to cover employees is known as a a. simplified employee pension plan b. 401(k) plan c. defined contribution plan d. 403(b) plan - Correct answer A. simplified employee pension plan a simplified employee pension plan(SEP) is an employer sponsored IRA. contributions to the plan are not included in the employers taxable income for the year, to the extent that they do nt exceed the maximums allowed. distributions from a SEP are taxable as ordinary income when received at retirement a producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. this is a personal use of life insurance known as a. survivorship insurance b. juvenile protection provision c. survivor protection d. life plannning - Correct answer C. survivor protection what is the maximum penalty for habitual willful noncompliance with the fair credit reporting act? a. revocation of license b. $2,500 c. $1,000 d. $100 per violation - Correct answer B. $2,500 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 - Correct answer C. consideration When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? a. interest only b. both principal and interest c. neither principal nor interest d. principal only - Correct answer A. interest only What license or licenses are required to sell variable annuities? a. only life insurance license b. only a securities license c. no license is required d. both a life insurance license and securities license - Correct answer D. both a life license and securities license The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called a. waiver of premium b. guaranteed insurability c. waiver of cost of insurance d. payor benefit - Correct answer A. waiver of premium all other factors being equal, which of the following individuals would receive the largest monthly check from a single premium straight life immediate annuity? a. 60-year old woman b. 50-year old man c. 50-year old woman d. 60-year old man - Correct answer D. 60-year old man 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. full premium refund without any charges b. guaranteed surrender value c. no payments d. annuity dividends - Correct answer B. guaranteed surrender value 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 husband or wife has insurable interest on their spouse d. an individual has an insurable interest on his or her own life - Correct answer A. a debtor has an insurable interested on the life of a lender which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE? a. withdrawals are not taxable b. distributions before age 59 1/2 incur a 10% penalty on policy gains c. policy loans are taxable distributions d. accumulations are tax-deferred - Correct answer A. withdrawals are not taxable what happens when a policy is surrendered for its cash value? a. the policy can be converted to term coverage b. coverage ends and the policy cannot be reinstated c. coverage ends but the policy can be reinstated at any time d. the policy can be reinstated by paying back all policy loans and premiums - Correct answer D. the policy can be reinstated by paying back all policy loans and premiums what is an example of a limited pay policy? - Correct answer life paid up at 65 When the insured purchased a new home, he wanted to purchase a life insurance policy that would protect his family against losing it should he die before the mortgage was paid. Which of the following policies is best suitable for that need? - Correct answer decreasing term to pay off mortgages On an annual renewable level term policy - Correct answer increase premium and renew each year individual owns an adjustable policy, sometime he wants to increase the death benefit in the future, what would be done? - Correct answer it can be increased by providing evidence of insurability which of the following is true with regards to universal life? - Correct answer premium can be decreased by the insured everything is flexible with universal; nothing is set, only whole life is at a set cash value with a traditional whole life policy? - Correct answer the death benefit remains constant overtime an insured receives a monthly summary of his policy, the cash value is significantly lower this month than last month. what type of insurance policy is this? - Correct answer variable because variable is the only thing that decreases or has a significant drop your death benefit what is a disadvantage of term insurance? - Correct answer if you die at the end of the term, there is no death benefit remember: term does not have a cash value The renewable provision allows the policy-owner to renew the coverage at the expiration date____ - Correct answer without evidence of insurability which of the following is true with regards to joint life? - Correct answer premium is based on the average age joint life is not group insurance; group insurance is when you purchase your insurance through a company, employer, etc.