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
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
what documentation grants express authority to an agent?
a. agents contract with the principal
b. agents insurance license
c. fiduciary contract
d. state provisions
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
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
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 agents personal funds
A. handling insurer funds in a trust capacity
an agents fiduciary responsibility includes handling insurer funds in a trust capacity
the authority granted to an agent through the agent’s contract is referred to as
a. absolute authority
b. express authority
c. apparent authority
d. implied authority
B. express authority
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
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?
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 made in the application. Consideration on the part of the insurer is the promise to pay in the even of loss
which of the following is a primary source of information used for insurance underwriting?
a. application
b. applicant interviews
c. medical records.
d. private investigations
A. application
the application contains most of the information used for underwriting purposes. this is why its completeness and accurarcy are so critical
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
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
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
A. disclose commissions earned fro 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
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
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?
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?
a. an underwriter
b. a nursing assistant
c. a registered nurse
d. a spouse
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
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 insureds 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
D. their premiums are lower
the preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify to lower premiums than those in other categories
all of the following are requirements for life insurance illustrations EXCEPT?
a. they may only be used as approved
b. they must identify non guaranteed values
c. they must differentiate between guaranteed and projected amounts
d. they must be part of the contract
D. they must be part of the contract
an illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list non guaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
a. term insurance only
b. permanent insurance only
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
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 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
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 policyowner reaches age 65
c. for 20 years
d. until the policyowner’s age 100, when policy matures
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
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
A. flexible premium
variable universal life, like universal life itself, has a flexible premium that can be increased or decrease as the policyowner 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
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?
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
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
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
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 has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?
a. pay nothing, there was a misrepresentation on the application
b. pay the full death benefit and refund excess premium
c. pay a reduced death benefit
d. pay the full death benefit
C. pay a reduced death benefit
the incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, is does not apply to statements relating to age, sex, and identity
after a back injury, an insured is disabled for a year. His insurance policy carries a disability income death benefit rider. Which of the following benefits will he receive?
a. monthly premium waiver and monthly income
b. percentage of medical costs paid by the insurer
c. payments for life
d. yearly premium waiver and income
A.monthly premium waiver and monthly income
the disability income death benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver Premium rider, it also allows the insured to receive a weekly or monthly income during the disability period
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the
a. complete contract
b. entire contract
c. total contract
d. aleatory contract
D. entire contract
the policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence than the contract and the attached application in a test of the contracts validity. This is a mandatory provision in life insurance
if an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
a. the death benefit will be larger
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?
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
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
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 insruance
annuities can be used to fund which of the following?
a. variable life insurance
b. group life insurance
c. estate creation
d. retirement plans
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
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
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 annuitants life expectancy is taken into consideration for the annuity
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 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
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
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
all of the following statements are true regarding installments for a fixed period annually settlement option EXCEPT:
a. it will pay the benefit only for a designated period of time
b. the payments are not guaranteed for life
c. the insurer determines the amount for each payment
d. it is a life contingency option
D. it is a life contingency option
under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option for a specific amount of time only, and there are no life contingencies
What type of annuity can be purchased with a single premium and provides benefits payments immediately?
a. fixed
b. immediate
c. single premium
d. deferred
B. immediate
with an immediate annuity, distribution starts within 1 year of purchase
which of the following are NOT fundable by annuities?
a. death benefits
b. cash accumulation for any reason
c. a person’s retirement
d. estate liquidation
A. death benefits
annuities are most commonly used to fund a person’s retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance
which of the following is TRUE of a qualified plan?
a. it may allow unlimited contributions
b. it has a tax benefit for both employer and employee
c. it does not need to have a vesting schedule
d. it may discriminate in favor of highly paid employees
B. it has a tax benefit for both employer and employee
a qualified plan is approved by the IRS, which then gives both the employee and employer benefits deductibility of contributions and tax deferral of growth
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?
a. capital gains tax on distributions and no penalty
b. capital gains tax on distributions plus 10% penalty
c. income tax on distributions and no penalty
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
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
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
d. are taxed annually
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
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
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
B. 10 days
a producer who contributes to use a 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
B. June 2012
in Louisiana, insurance companies are required to keep files of all advertisements used for 4 years, or until he 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
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?
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
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
which would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?
a. disclosure rule
b. replacement rule
c. reinstatement rule
d. conversion rule
B. replacement rule
anytime a new policy is issued that replaces or modifies existing insurance, a replacement form must be submitted to the ceding company
if authorized to write life and property and casually insurance, how many hours of continuing education instruction are producers required to complete every 2 years?
a. 10
b. 12
c. 14
d. 24
D. 24
producers in louisiana are required to complete 24 hours of continuing education every 2 years, regardless of the number of lines for which the producer is licensed
what is the main justification for the existence of the state insurance department?
a. to protect producers from the national association of insurance commission
b. to protect the state from harmful practices of companies and producers
c. to protect the public
d. to protect companies from malicious lawsuits
C. to protect the public
the state insurance department exists to protect the public
any payment to a producer from an insurer that is contingent on the sale of an insurance policy or contract is called a
a. charge fee
b. service fee
c. commission
d. regular fee
C. commission
producers are normally compensated by commissions where a percentage of the premium is paid to the producer by the insurance company
which type of assignment would be used for a loan?
a. collateral
b. absolute
c. modified
d. permanent
A. collateral
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?
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
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
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
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
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
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
B. 75%
buying a policy to offset a financial loss in the event of a valuable employees death is called
a. key person life insurance
b. deferred compensation plan
c. buy-sell agreements
d. split-dollar insurance plan
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
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
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?
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
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
a. interim term receipt
b. physician receipt
c. conditional receipt
d. binding receipt
C. conditional receipt
which of the following statements describes an insurable interest?
a. the policy owner must expect to benefit from the insureds death
b. the policyowner must expect to suffer a loss when the insured dies
c. the beneficiary, by definition, has an insurable interest in the insured
d. the insured must have a personal or business relationship with the beneficiary
B. the policywner must expect to suffer a loss when the insured dies
the statements made by an applicant on an application for life insurance are considered to be
a. warranties
b. affirmations
c. representations
d. declarations
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
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
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
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
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
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
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
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
d. pay dividends to the stockholder
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
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
d. the beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies
B. the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
a.$0
b. $50,000 (50% of the policy value)
c. $100,000
d. $300,000 (triple the amount of the policy value)
C. $100,000
Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT
a. an agent offers the use of his lake house to person and inducement to buy
b. an agent offers to share his commission with a policyholder
c. an agent offers tickets to a baseball hame as an inducement to buy insurance
d. an agent misrepresents policy benefits to convince a policyowner to replace policies
D. an agent misrepresents policy benefits to convince a policyowner to replace policies
an insured is dissatisfied with her insurance policy and wants to negotiate certain provisions of the contract. What entity would her producer represent?
a. the insurer
b. the commissioner of insurance
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
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?
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=
a. gross premiums
b. benefits budget
c. operating expenses
d. net premium
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
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
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
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
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
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
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
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
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
a long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has be raised 7% as a result. Which policy rider caused this change?
a. inflation rider
b. cost of living rider
c. value of adjustment rider
d. return of premium rider
B. cost of living rider
the cost of living rider annually adjusts the policy’s face vale in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time
Who makes up the Medical Information Bureau?
a. former insured
b. insurers
c. physicians and paramedics
d. hospitals
B. insurers
the medical information bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have disclosed
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. nonforfeiture options
b. guaranteed insurability option
c. dividend option
d. guaranteed renewable option
B. guaranteed insurability option
the guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without providing insurability
what is the purpose of the buyers guide?
a. to allow the consumer to compare the costs of different policies
b. to provide the name and address of the agent/producer issuing the policy
c. to list all policy riders
d. to provide information about the issued policy
A. to allow the consumer to compare the costs of different policies
the buyers guide provides generic information about the life insurance policies and allows the consumer to compare the costs of different policies. the policy summary provides specific information about the issued policy as well as the insurer’s information
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual’s life value?
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
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?
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
d. both a life insurance license and securities license
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
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
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
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
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
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
D. the policy can be reinstated by paying back all policy loans and premiums
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
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.
What is insurance?
Transfer of the possibility of loss (risk) to an insurance company.
What is a risk?
The uncertainty of financial loss
There are two types of loss
Pure and Speculative
Which type of loss is insurable?
Pure
Why is Pure loss insurable?
Loss must be financial and uncertain. No financial gain can occur.
What causes loss?
Peril; such as fire, accident or flood
What causes a peril?
A hazard
What is a hazard?
Increases the likelihood of a loss; such as smoking
What is the concept called, that predicts the appropriate number of deaths that should occur within a similar group
of people (exposure) within a given period of time?
Law of Large Numbers
What is adverse selection?
People in bad health keep their policy in force longer than people in good health
As an agent, you are a legal representative of the __.
company
The person who pays for the policy of insurance is the
policy owner
The _ is the person who receives the benefits from the insurance policy
beneficiary
The person covered by the insurance policy is the __.
insured
The insurance company is the _.
insurer
To buy insurance, the policyowner must have __ in the insured at the _____________________________________.
insurable interest; time of purchase but not at
time of insured’s death.
The 5 recognizable areas of insurable interest are _.
- your own life
- family members
- business partners
- key employee
5.financial obligation.
What is person called who holds a position of special trust and confidence?
Fiduciary
Waiver vs. Estoppel
Waiver is when you voluntarily give up your legal right. Estoppel is when you are denied the right to enforce a legal right that you have previously given up. Estoppel AKA The Loss of Defense
What are the business uses of life insurance?
- Key Employee
- Buy and Sell Agreement
- Cross Purchase Plan
- Split Dollar Plan
Key Employee
Company is owner and Beneficiary
Employee is Insured Premium NOT tax deductible to Company Third Party Ownership
Buy and Sell Agreement
NOT INSURANCE – A legal document that states WHO may purchase a deceased partners share of the business and for HOW MUCH MONEY
Life Insurance can be used to fund a Buy and Sell Agreement
Drawn up by an Attorney
Cross Purchase Plan
Take the Company Value and divide by number of Owners Each Owner buys a policy on the other Owners, naming himself as beneficiary.
Split Dollar Plan
Employee and Owner share in Premium and DB Third Party Ownership
What is meant by third party ownership
Policy is owned by someone other than the Insured.
A company with an employee who could not be replaced without considerable expense might consider buying a____________________ life insurance policy on that individual
key employee
With a Key Employee Life Insurance Policy, what rights does the Key Employee have?
None, Employer is Owner and Beneficiary
What is the legal document that defines who may buy a deceased partners share of the business and for how much?
Buy and Sell Agreement, a legal document. Can be funded with Life Insurance
If Joe and Moe have a Cross Purchase Plan, are 50/50 owners, and the company is valued at $200,000, how much insurance should each buy, and who is the Policy Owner and the Insured?
Joe, Owner, Moe insured, $100,000 / Moe, Owner, Joe insured, $100,000
Two business partners own life insurance on each other. If one partner dies, which of the following contracts will allow the surviving partner to use the death benefit to purchase the deceased’s business interests?
A. Buy-Sell Agreement
B. Keyemployeelifeinsurance
C. Survivorshiplifeinsurance
D. Joint and Survivorship annuity
All the following would have an insurable interest in an insured EXCEPT:
A. Your spouse
B. Your child
C. Your mother
D. Your close friend
Who must sign the Application? Who can make changes to the Application?
The agent (producer), applicant and the policyowner must sign the application. You can never use white out to change an application, applicant must initial change. The agent is the field underwriter.
What are the three parts of an application?
General Information, medical information and the agent’s report.
What is the agent’s responsibility as a field underwriter?
Properly solicit applicants, complete application, obtain
required signatures, collect initial premium, issue receipt and deliver the policy.
When does insurable interest have to exist?
Time of Application, when the agent and applicant complete the
application
Does the beneficiary have to have Insurable Interest?
No
Statements made by an applicant that are true to the best of his/her knowledge.
Representations
_ is a false statement given to the insurer with the intent to defraud.
Misinterpretation
A ___ is the literal or absolute truth
warranty
What is it called when an applicant fails to disclose known material facts?
Concealment
What is it called when someone deliberately conceals or misrepresents a material truth on an application?
Fraud
The basic source of information used in the company’s risk selection process is the _
application
Information received from the applicant’s private physician is known as an __________
attending physicians report
A __ is completed by a paramedic or registered nurse for small amounts of insurance and for
applicants with no prior medical concern.
Paramedical report
The ______________ receives and maintains medical information from insurance companies.
Allows companies to compare information they have collected on potential insured. Protects the company from
______.
medical information bureau (MIB); adverse selection.
___________________ investigate a applicant’s finances, character, work, hobbies, and habits. Consumer
must be notified. __________ credit, employment records and public sources.
Investigative Consumer Reports; Consumer Reports
__________ has to notify the applicant in writing 3 days prior to conducting an investigative consumer report
Insurance Company
The federal legislation that protects the applicant’s right to be notified in the event that his credit history may be
investigated is the ______. Consumer has the right to know reporting agency and reason for denial or
modification of coverage.
fair credit reporting act; Does not have to have an actual copy.
Underwriting cannot
Unfairly discriminate based on race or national origin.
When delivering a policy that is issued as applied for, the agent does Not need to review the policy with the Policy
Owner, True or False?
False
How is Risk classification determined, and how does it affect premium?
Questions in App, Mortality Table, Higher
Risk means higher premium
What is conditional receipt? When does the policy go into effect?
Receipt issued by the agent when the first premium
is paid with the application. Condition receipts says that coverage will be effective either on the date of application or
medical exam, which ever occurs last, unless coverage is denied.
If no premium collected with application, what must agent do when delivering policy?
Collect premium and “Statement of Continued Good Health”
Who must sign the application?
A. Applicant
B. Insured
C. Agent
D. All of the above
When must insurable interest exist?
A. Death of the insured
B. Policy Delivery Date
C. Policy Issue Date
D. When the Agent helps the Applicant complete the application
A producer takes applications from identical twins who want to buy the same type of policies for the same amount. The insurer issues the policies as applied for, but charges a 25% higher premium for one of the policies. The difference in premiums is probably due to which of the following factors?
A Incontestability
B Insurable interest
C Consideration
D Risk classification
An applicant’s statements on an application are considered to be legal:
A Warranties
B Representations
C Guarantees
D Waivers
If an applicant for life insurance submits a completed application to a producer without payment of the first premium, coverage becomes effective when the:
A producer accepts the application
B applicant successfully completes the medical examination
C insurer approves the application
D policy is delivered and the premium paid
The PRIMARY purpose of an inspection report is to assess an applicant’s:
A credit rating
B. personal characteristics
C job performance
D health profile
The federal law that permits an applicant for insurance to question the validity and source of any credit information is called?
A. Medical Information Disclosure Act
B. Medicare Act
C. Equal Opportunity Finance Act
D. Fair Credit Report Act
An insurance producer takes an application for a life insurance policy but does not collect initial
premium. On delivery of the policy to the proposed insured, the producer must collect the initial premium and which of the following?
A. copy of the MIB report
B. The insured’s signed statement of continued good health
C. A copy of the conditional receipt
D. A copy of the temporary insurance agreement that covered the period between the application date and the delivery date.
As a field underwriter underwriter, an agent is responsible for all of the following tasks EXCEPT
A. Obtain appropriate signatures on the application for insurance.
B. Issue the policy that is requested.
C. Collect the initial premium and issue the appropriate receipt.
D. Solicit business that will fall within the insurer’s underwriting guidelines.
The main responsibility of a company’s underwriting unit is which of the following:
A. Make sure the policyholder receives appropriate coverage.
B. Limitbusinesswrittenbynewagents.
C. Selectmarketsfortheagents.
D. Risk selection.
Which of the following is INCORRECT regarding the agent’s duties and responsibilities at the time of
the application?
A. The agent should check to make sure that there are no unanswered questions on the application.
B. TDNEpUTHQoQUJMHLrErGJyHg89uy71MyuHtementontheapplicationbypersonallyinitialingnextto the corrected statement.
C. The agent should explain the nature and type of any receipt he/she is giving to the applicant.
D. The agent should probe beyond the stated questions if he/she feels the applicant is misrepresenting or concealing information.
Term Life Insurance
Lasts for specific term, most insurance for least premium
Level – Term Life
Coverage Stays same the for the specified period
increasing – Term Life
Coverage increases at predetermined times
decreasing – Term Life
Coverage decreases at predetermined times
Traditional Whole Life
Death protection to age 100, level premium for life, cash value
Ordinary (Straight) – Whole Life
Basic policy, level death benefit, Pay premiums for life
Limited – pay – Whole Life
Pay until a certain age or time (20 pay life, Life paid up at 65)
Single pay – Whole Life
One lump sum premium, coverage to age 100
Modified
Term and Whole Life–Starts low then increases in one step
Graded
Term and Whole Life–Premiums start out low but gradually increases then remains level
Adjustable
Coverage, premiums, and plan is adjustable, Insurer chooses two and insured one
Universal Life – Interest Sensitive
ART is death protection & cash value is not guaranteed. Can increase and decrease coverage & skip premiums. Two Death benefit options, A&B
Variable Whole Life – Interest Sensitive
Can control where cash value is invested, cash value not guaranteed, minimum death benefit guaranteed
Variable Universal Life – Interest Sensitive
Same as Universal Life plus owner can control where cash is invested, no guarantee for cash value
Interest Sensitive
Same benefits as traditional whole life. Tied to bond index or Treasury bill rates, minimum cash value guarantee but can grow
Combination Plans
Combines different types of policies to meet needs of a family
Family Policy – Combination Plans
Covers entire family-Whole Life and Convertible Term
Family Income – Combination Plans
Covers Breadwinner—Whole Life & Decreasing Term
Joint Life – Combination Plans
2 or more insureds- Pays death benefit when the FIRST one dies
Survivorship – Combination Plans
2 or more insureds. Pays death benefit when the LAST one dies
Endowment
Same features as regular whole life but endows earlier by age or time (before age 100) and is more expensive
Modified Endowment
Policy fails the seven-pay test it loses its insurance tax advantage. Funds withdrawn by LIFO
Group Life
Usually written for employee-employer groups.
Master Contract goes to the sponsor, usually employer. Certificate of Insurance goes to member
Credit Life & A & H
Protects creditors, amount over debt must go to secondary Beneficiary
L & H Insurance Guarantee Association Act
Protects policyowners, insureds, and beneficiaries from financial losses caused by insolvent insurers
The primary reason for selecting a Variable Whole life policy instead of a traditional Whole Life policy is that the Variable Whole Life policy:
A. Provides flexible premium payments
B. Allows the policyowner to borrow a larger percentage of the cash value
C. Has the potential to earn a higher rate of return on the cash value.
D. Allows the policyowner more flexibility in naming and changing beneficiaries
When an insured reaches age 65, the cash value of a 20-pay Endowment at age 65 policy is equal to which of the following amounts?
A. The sum of the premiums paid plus the accumulated dividends
B. The sum of the premiums paid only
C. the face amount of the policy
D. The total of the guaranteed cash value plus interest.
Which of the following policies is an interest-sensitive form of permanent protection?
A. Universal Life
B. Limited-Pay Life
C. Term Life
D. Split Dollar Life
If a bank encourages a debtor to buy life insurance to pay off a loan in the event of death, which of the following would be the best option?
A. Increasing Term
B. Convertible term
C. Level term
D. Decreasing Term
If a policy that is primarily designed for accumulation of funds within a specific period fails the seven pay test, it is a(n)
A. Annuity
B. 20-pay Life policy
C. Adjustable Life
D. Modified Endowment
Premiums paid on an individual life insurance policy are
A. Taxable
B. Not taxable
C. Taxable if they exceed a specific amount
D. Not taxable if paid in a lump sum
In a Whole Life policy, the age of 100 is significant because the insurance company:
A. Assumes the insured will die before reaching that age
B. Will refund premiums only when the insured reaches that age
C. Will increase coverage when the insured reaches that age
D. Will reduce coverage by one-half when the insured reaches that age
The primary purpose of a limited-pay life policy is to allow an:
A. insurance company to reduce its risk exposure
B. insurance company to sell polices to selected groups of risks
C. only insured to pay premiums for a predetermined period of time
D. insured to purchase coverage that will pay death benefits under specified circumstances only
How long are premium payments paid on a Straight Life Whole Life Policy?
Age 100 or Death of the insured, whichever comes first
When does a Whole Life policy endow?
Age 100
When does a Whole Life policy mature?
Age 100 or Death of the insured, whichever comes first
Who would have paid more in premium, assuming both people are the same age and live to normal life expectancy, the person who pays a single premium or one who pays Straight Life?
Straight Life
What is meant by Limited Pay?
Payments are limited to a specified number of years, or a specific age, i.e. 20-Pay, Pay to 65
Which premium is larger, a 20 Pay policy, or a 25 Pay policy?
20 Pay policy, the shorter the payment period, the larger the premium; think of Premium as how much do you write the check for
What is modified about Modified Whole Life?
Premium increases when type of insurance converts from Term to Whole Life
What policy was designed for the same reason as Modified Whole Life?
Graded Premium, for people with limited income in the early years; income expected to increase in future years
What is adjustable in Adjustable Life?
Type of insurance, Face Amount, and Premium
Name the Death Benefits for a Universal Live Policy.
Option A and Option B
What license/s are required to sell Variable Whole Life?
Life Insurance License and Securities License
Who decides how the Cash Value is invested in a Variable policy?
Policy Owner
What determines the Cash Value growth in a Variable policy?
Performance of Separate Account
If the Separate Account should have extremely poor performance in a Variable Whole Life policy, what happens to the Death Benefit?
Cannot go below the Guaranteed Minimum Death Benefit
Can the Premium change on an Interest Sensitive Whole Life Policy, how, and why?
Premium set on assumptions of Mortality, if actual better, premium lower, etc
What is the Rate of Return on an Interest Sensitive Whole Life Policy?
Guaranteed or Current, same as Universal Life
What type of insurance provides the highest protection for the least premium?
Term
What is guaranteed in an Endowment Policy?
Everything: Premium, Face Amount, Endowment Date
Rights and Characteristics
Entire Contract
Insuring Clause
Free Look Consideration
Owner’s Rights Beneficiary designations
Premium Payment Grace Period
Automatic Premium Loan
Reinstatement Incontestability
Misstatement of Age Policy Loans
Assignment Exclusions
Add or modify coverage
Waiver of Premium Guaranteed Insurability Payor Benefit Rider Term Rider
Other Insured
Accidental Death/Dismemberment
Rider
Accelerated Death Benefit/
Living Benefit
Choices on how to distribute a sum of money
Surrender Options Dividend Options Nonforfeiture Options
Loan Provision
Policyowner can borrow up to amount of cash value
Outstanding Loan will be deducted from the death benefit
Misstatement of Age and Sex
Make it Right; adjust face amount