PRIMERICA LIFE INSURANCE EXAM WITH 100% CORRECT ANSWERS 2024, Exams of Finance

Download PRIMERICA LIFE INSURANCE EXAM WITH 100% CORRECT ANSWERS 2024 and more Exams Finance in PDF only on Docsity! 1 PRIMERICA LIFE INSURANCE EXAM WITH 100% CORRECT ANSWERS 2024 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 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 Page 1 of 76 1 c. transfer d. avoidance - ✓✓✓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 - ✓✓✓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 - ✓✓✓A. perils perils are the causes of loss insured against in an insurance policy Page 2 of 76 1 express powers are written into the contract between the insurer and the agent insurance policies are not drawn up though negotiations, and an insured has little to say about its provisions. what contract characteristic does this describe? a. unilateral b. conditional c. personal d. adhesion - ✓✓✓D. adhesion a contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as its written which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? a. reciprocal b. fraternal c. stock d. mutual - ✓✓✓C. stock only stock insurance companies are owned and controlled by stockholders Page 5 of 76 1 which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? a. subrogation b. warranty c. aleatory d. adhesion - ✓✓✓C. aleatory an insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? a. legal purpose b. contract of adhesion c. acceptance d. consideration - ✓✓✓D. consideration consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application which of the following would qualify as a competent party in an insurance contract? Page 6 of 76 1 a. the applicant is intoxicated at the time of application b. the applicant is 12 year old student c. the applicant is under the influence of a mind-impairing medication at the time of application d. the applicant has a prior felony conviction - ✓✓✓D. the applicant has a prior felony conviction when an insurer and insured enter into a contract, both parties must be legal of age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12 year old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent 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 health - ✓✓✓C. consideration the binding force in any contract is consideration. consideration on the part of the insureds the payment of premiums and the health representations Page 7 of 76 1 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 - ✓✓✓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 - ✓✓✓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 Page 10 of 76 1 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 - ✓✓✓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 - ✓✓✓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? Page 11 of 76 1 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 - ✓✓✓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 - ✓✓✓D. buy-sell agreements are normally funded with life insurance expectancy a buy-sell agreements is simply a contract that establishes what willl 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? Page 12 of 76 1 c. universal life insurance only d. any form of life insurance - ✓✓✓D.any form of life insurance any form of life insurance may be used to fund a buy-sell agreement an insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured and matures at the insured's age 100 is called? a. Modified Endowment Contract (MEG) b. level term life c. graded premium whole life d. single premium whole life - ✓✓✓D. single premium whole life single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? a. ordinary life b. joint life c. decreasing term d. whole life - ✓✓✓B. joint life Page 15 of 76 1 a joint life policy covering 2 lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death an individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of the life insurance policy would be best suited to this situation? a. universal life b. whole life c. decreasing term d. variable life - ✓✓✓C. decreasing term a decreasing term policy's face amount decreases as the amount of debt is reduced which of the following are generally NOT considered when underwriting group insurance? a. the group's past claim experience b. the site of the group c. the insured's medical history d. the nature of the group - ✓✓✓C. the insured's medical history group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and the Page 16 of 76 1 beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary what are the 2 components of a universal policy? a. insurance and investments b. mortality cost and interest c. separate account and policy loans d. insurance and cash account - ✓✓✓D. insurance and cash account a universal life policy has 2 components: an insurance components and cash account. The insurance component of a universal life policy is always renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher an adjustable life policyowner can change which of the following features? a. the coverage period b. the mortality expense c. the investment account d. the insured - ✓✓✓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 Page 17 of 76 1 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? - ✓✓✓straight whole life the ownership provision entitles the policyowner to do all of the following EXCEPT? a.set premium rates b. receive a policy loan c. assign the policy d. designate a beneficiary - ✓✓✓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. payor rider d. cost of living rider - ✓✓✓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 Page 20 of 76 1 Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? a. cash surrender b. reduced paid-up c. paid-up options d. extended term - ✓✓✓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 - ✓✓✓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 Page 21 of 76 1 c. elimination period d. policy period - ✓✓✓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 policyowner'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 - ✓✓✓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 policyowner 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 - ✓✓✓B. the policyowner can specifiy the way the proceeds are split in the policy Page 22 of 76 1 b. the death benefit will be smaller c. the death benefit will be forfeited d. the death benefit will be the same as the original face amount - ✓✓✓B. the death benefit will be smaller if an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earning lost by the insurance company in the interest income j applied for a life insurance policy on January 10th. the policy was issued January 31. j's agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. j decides that he does not want the policy. when would j need to return to the insurer in order to receive a full refund of premium paid? a. February 28th, or 10 days after the time the policy is delivered b. the time varies from one policy to another c. it was already to late when j received the policy because the 10-day free- look period has expired d. anytime, because the agent did not deliver the policy promptly - ✓✓✓A. February 28th, or 10 days after the time the policy is delivered the 10-day free-look period begins when the policy is delivered What limits the amount that a policyowner may borrow from a whole life insurance policy? Page 25 of 76 1 a. cash value b. premiums paid c. amount stated in the policy d. face amount - ✓✓✓A. cash value the amount available to the policyowner for a loan is the policy owner's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest An insured receives an annual life insurance dividend check. What term best describes this arrangement? a. accumulation at interest b. cash option c. reduction of premium d. annual dividend premium - ✓✓✓B. cash option the cash option allows, an insurer to send the policyholder an annual, nontaxable dividend check 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 Page 26 of 76 1 b. $100,000 c. $200,000 d. $100,000 plus the total of paid premiums - ✓✓✓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 - ✓✓✓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 - ✓✓✓A. both annuities and life insurance use mortality tables Page 27 of 76 1 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 annuitants'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 - ✓✓✓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 Page 30 of 76 1 b. payments for 20 years c. payments for life d. nothing - ✓✓✓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 - ✓✓✓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 know as which type of annuity? a.flexible premium immediate annuity b. single premium deferred annuity c. flexible premium deferred annuity Page 31 of 76 1 d. single premium immediate annuity - ✓✓✓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 which of the following will NOT be an appropriate use of a deferred annuity? a. creating an estate b. accumulating retirement funds c. accumulating funds in an IRA d. funding a child's college education - ✓✓✓A. creating an estate which of the following products requires a securities license? a. variable annuity b. fixed annuity c. equity indexed annuity d. deferred annuity - ✓✓✓A. variable annuity a variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities Page 32 of 76 1 d. income tax on distributions plus 10% penalty - ✓✓✓C. income tax on distributions and no penalty if the beneficiary chooses to leave the money in the tax-deferred account until the calendar year in which the power would have attained age 70 1/2 the distributions would be subject to income taxation at the rate at the time of withdrawal Death benefits payable to a beneficiary under a life insurance policy are generally a. subject to income taxation by the federal government b. exempt from income taxation if under $7,000 c. exempt from income taxation if over $7,000 d. not subject to income taxation by the federal government - ✓✓✓D. not subject to income taxation by the federal government when premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation what is the main purpose of the Seven-pay test? a. it requires level premium payments for 7 years 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 - ✓✓✓d. it determines if the insurance policy is an MEC Page 35 of 76 1 the seven pay test determines whether an insurance policy is "over funded" or if its 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 - ✓✓✓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 - ✓✓✓C. free of federal income taxation Page 36 of 76 1 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 installements, 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 owners 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 - ✓✓✓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 Page 37 of 76 1 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 - ✓✓✓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 - ✓✓✓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? Page 40 of 76 1 a. a legal advertising strategy b. unfair discrimination c.defamation d. illegal - ✓✓✓D. illegal it is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fear trade or create a monopoly which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? a. unfair trade practices law b. the guaranty association c. consumer privacy act d. the fair credit reporting act - ✓✓✓D. the fair credit reporting act the purpose of the fair credit reporting act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers ABC insurance company wishes to begin transacting business in Louisiana. Before it can do so, it must do which of the following? a. receive permission from the governor of louisiana b. receive a letter of clearance from ABC's home state Page 41 of 76 1 c. obtain approval of each of its corporate officer and executives d. obtain a certificate of authority - ✓✓✓D. obtain a certificate of authority all insurers, regardless of the state in which they are chartered, must obtain a certificate of authority from the louisiana insurance department before they can transact insurance in the state a temporary license is good for a. 30 days b. 60 days c. 90 days d. 180 days - ✓✓✓180 days a temporary license is good for 180 days a temporary license may be issued without examination to all of the following EXCEPT: a. the surviving spouse of a deceased producer b. the spouse of a retired producer c. the legal guardian of a disabled producer d. the designee of a producer entering active service in the US navy - ✓✓✓B. the spouse of a retired producer there is no provision for a temporary license to be issued to conduct the business of a retired producer Page 42 of 76 1 if a policyowner 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 - ✓✓✓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 - ✓✓✓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 - ✓✓✓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? Page 45 of 76 1 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 - ✓✓✓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 - ✓✓✓A. primary which dividend option would be taxable? a. reduction of premium b. paid-up additions c. cash d. accumulate at interest - ✓✓✓D. accumulate at interest which nonforfeiture options prohibits reinstatement of the policy? a. cash b. extended term c. reduced paid up d. interest only - ✓✓✓A. cash Page 46 of 76 1 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. payor benefit - ✓✓✓D. payor 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 - ✓✓✓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 - ✓✓✓D. guaranteed insurability Page 47 of 76 1 c. 59 1/2 d. 65 - ✓✓✓C. 59 1/2 which of the following does not allow contributions beyond 70 1/2? a. roth IRAs b. traditional IRAs c. fixed annuities d. interest sensitive whole life - ✓✓✓B. traditional IRAs a whole life policy in which the cash value builds faster than a 7-pay whole life policy is a a. modified endowment contract b. universal life contract c. immediate annuity contract d. limited-pay contract - ✓✓✓A. modified endowment contract death benefits paid to a beneficiary are a. taxed as ordinary income b. subject to inheritance tax c. subject to federal income tax d. tax-free - ✓✓✓D. tax-free If the cash value exceeds the premiums paid in a whole life policy, what are the tax consequences if the policy is surrendered? Page 50 of 76 1 a. the portion that exceeds the premiums paid is taxable b. the total amount received when the policy is surrendered is taxable c. the interest earned is taxable d. the cash value is tax-free - ✓✓✓A. the portion that exceeds the premiums paid is taxable dividends paid by a participating life insurance policy are a. taxed as long term capital gains b. received tax-free c. taxed as ordinary income d. taxed as capital gains distributions - ✓✓✓B. received tax-free which of the following is not true about qualified retirement plans? a. qualified plans received favorable tax treatment b. contributions made by employers are tax deductible c. qualified plans can only be offered to company officers d. contributions accumulate tax free until paid out - ✓✓✓C. qualified plans an only be offered to company officers all of the following will reduce the death benefit amount EXCEPT: a. long term care b. accelerated death benefits c. waiver of premium Page 51 of 76 1 d. unpaid policy loans - ✓✓✓C. waiver of premium what does the viator receive when selling this policy to a vatical provider? a.the full face amount of the policy b. the death benefit minus the fees charged by the viatical provider c. a percentage of the policy's face value d. the cash surrender value of the policy - ✓✓✓C. a percentage of the policy's face value underwriting is a process of a. selection and issue of policies b. evaluation and classification of risks c. selection, reporting and rejection of risks d. risk selection and classification - ✓✓✓D. risk selection and classification a statement which is the absolute truth is a. warranty b. representation c. misrepresentation d. fraud - ✓✓✓a. warranty this document says that the coverage will be effective either on the date of the application or the date of the application or the date of the medical exam, whichever occurs last Page 52 of 76 1 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 - ✓✓✓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 - ✓✓✓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 - ✓✓✓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 Page 55 of 76 1 a. joint life b. group life c. survivorship life d. family protection ife - ✓✓✓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 - ✓✓✓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 - ✓✓✓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 Page 56 of 76 1 c. single premium d. variable premium - ✓✓✓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 - ✓✓✓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 - ✓✓✓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 Page 57 of 76 1 c. the government d. the insured - ✓✓✓A. the insurer all of the following entities regulate variable life policies EXCEPT: a. the SEC b. the insurance department c. the guaranty association d. federal government - ✓✓✓C. the guaranty association In an Adjustable Life policy all of the following can be changed by the policy owner EXCEPT a. the amount of the insurance b. the type of investment c. the length of the coverage d. the premium - ✓✓✓B. the type of investment what type of annuity promises to pay a beneficiary, in a lump sum, the difference between the amount paid into the contract and the benefits received prior to the annuitants death? a. cash refund annuity b. installment refund annuity c. joint and survivor annuity d. pure life annuity - ✓✓✓A.cash refund annuity Page 60 of 76 1 which is true about a spouse term rider? a. the rider is usually level term insurance b. coverage is allowed for an unlimited time c. the rider is decreasing term insurance d. coverage is allowed up to age 75 - ✓✓✓A. the rider is usually level term insurance if an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may a. increase medical requirements on existing members b. require evidence of insurability c. require a higher premium d. prolong the open enrollment period - ✓✓✓B. require evidence of insurability which of the following types of agent authority is also called "perceived authority" a. express b. implied c. fiduciary d. apparent - ✓✓✓D. apparent who might receive dividends from a mutual insurer? Page 61 of 76 1 a. stockholders b. agents c. policyholders d. subscribers - ✓✓✓C. policyholders A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? 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 - ✓✓✓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 - ✓✓✓A. incontestability clause mortality - interest + expense= Page 62 of 76 1 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 - ✓✓✓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 - ✓✓✓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 Page 65 of 76 1 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 - ✓✓✓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 - ✓✓✓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 Page 66 of 76 1 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 - ✓✓✓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 - ✓✓✓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 Page 67 of 76 1 a. insureds annual expenses b. effect of inflation on income over time c. predicted needs of the family after the insureds death d. insureds current and future income - ✓✓✓C. predicted needs of the family after the insureds death the human life value approach is determining the value of an individuals life requires the calculation of probable future earnings of the insured, which involves wages expenses, inflation, amount of time until retirements and the time value of money. Predicted needs of the family after the insureds death are used in the needs approach a straight life policy has what type of premium? a. an increasing annual premium for the life of the insured b. a decreasing annual premium for the life of the insured c. a variable annual premium for the life of the insured d. a level annual premium for the life of the insured - ✓✓✓D. a level annual premium for the life of the insured 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 lesser amount b. amount paid into the plan Page 70 of 76 1 c. cash value of the plan d. either the amount paid into the plan or the cash value of the plan, whichever is greater amount - ✓✓✓D. either the amount paid into the plan or the cash value of the plan, whichever is greater amount all of the following are TRUE statements regarding the accumulation interest option EXCEPT: a. the annual dividend is retained by the company b. the interest is credited at a rate specified by the policy c. the policyholder has the right to withdraw the accumulations at anytime d. the interest is not taxable since it remains inside the insurance policy - ✓✓✓D. the interest is not taxable since it remains inside the insurance policy 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 - ✓✓✓C. survivor protection what is the maximum penalty for habitual willful noncompliance with the fair credit reporting act? Page 71 of 76 1 a. revocation of license b. $2,500 c. $1,000 d. $100 per violation - ✓✓✓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 - ✓✓✓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 - ✓✓✓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 Page 72 of 76 1 what is an example of a limited pay policy? - ✓✓✓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? - ✓✓✓decreasing term to pay off mortgages On an annual renewable level term policy - ✓✓✓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? - ✓✓✓it can be increased by providing evidence of insurability which of the following is true with regards to universal life? - ✓✓✓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? - ✓✓✓the death benefit remains constant overtime Page 75 of 76 1 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? - ✓✓✓variable because variable is the only thing that decreases or has a significant drop your death benefit what is a disadvantage of term insurance? - ✓✓✓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____ - ✓✓✓without evidence of insurability which of the following is true with regards to joint life? - ✓✓✓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. Page 76 of 76