Find study materials for any course. Check these out:
Browse by school
Make your own
To login with Google, please enable popups
To login with Google, please enable popups
Don’t have an account?
To signup with Google, please enable popups
To signup with Google, please enable popups
Sign up withor
Which of the following is designed for someone with a large insurance need but with limited cash flow?
a. home service life insurance
b. term life insurance
c. speculative insurance
d. endowment policy
Term Insurance is pure protection (i.e. no cash value develops.) Its cost per thousand dollars of coverage is significantly lower than Permanent Insurance.Correct
A Mutual Life Insurance policyowner receives an annual dividend. One option for this dividend would be to use it to offset future annual obligations to the insurer. What is this called?
a. Extended Term
b. Cash Surrender
c. Premium Reduction Optiond. Cash
The obligation the policyowner has to the insurer is the premium. Under the Premium Reduction Dividend Option, the prior year's dividend reduces the current year's premium.Correct
With a life insurance policy, in the event of the premature death of the insured, who has first claim to the policy benefits?
a. Per stirpes beneficiary
b. Primary beneficiary
c. Estate of the insuredd. The probate court
The purpose of designating a beneficiary is to bypass the process of probate. Assets pass directly to the beneficiary per the terms of the policy (i.e. contract).Correct
To be fully insured for Social Security, a person that attained age 21 prior to 1950 must have been covered by Social Security for_____ quarters.
c. 6d. 40
To be fully insured for Social Security if one attained age 21 prior to 1950, they must have been covered by Social Security for 40 quarters.Correct
Which is correct regarding a Waiver of Premium Rider?
a. The death benefit is reduced by the amount of all premiums waived.
b. The premiums are waived until the first of one of the following occurs, either the insured recovers from the disability, or the policy achieves paid-up status.
c. Cash values do not grow.d. Dividends cease when the rider activates.
The policy continues, as it would have had the premiums been paid, hence, dividends are paid, cash values accumulate and the death benefit is not reduced. However, the owner/insured must resume premium payments when he or she is no longer disabled. If the policy has already achieved paid up status no further premiums are due.Correct
The period of time over which distributions of accumulated balances are made to the annuitant is referred to as the:
a. Annuitization Period
b. Benefit Period
c. Liquidation Periodd. Accumulation Period
An Annuitization Period usually involves a systematic, even series of distributions made to an individual over his or her life, or a specific period. Annuitization Period is the payout phase of the annuity product, while the period during which deposits are made is the Accumulation Period.
Which provision prevents a Whole Life Policy from lapsing, given adequate cash value if the insured forgets to pay the premium by the end of the grace period?
a. One-Year Term
b. Automatic Premium Loan
c. Conservation Provisiond. Premium Reduction
The Automatic Premium Loan Provision (APL) gives the insurer the right to initiate automatically a loan to prevent policy lapse. This works only if adequate cash values are available to pay the interest.Correct
Which of the following two documents always constitutes part of the entire contract?
a. Policy and Attending Physician's Statement
b. Application and Agent's Report
c. Policy illustration and Agent's Reportd. The application and policy
The entire contract is comprised of the policy itself, the application and any riders attached. The Agent's Report and APS are not included.
The Social Security Survivor Benefit is computed using which of the following?
b. W-2 Form
c. FICAd. CIA
The Social Security Survivor Benefit is the amount of income that may be expected from the Primary Insurance Amount (PIA) of the insured.
The Accelerated Benefit or Living Need Rider advances to the owner/insured death benefit should he or she be deemed as terminal (i.e. dying within 2 years). Since considered an advance of death benefit, proceeds are not federal income taxable.Correct
When does the Results Clause exclude coverage?
a. When the insured dies from any military activity.
b. When the insured dies as a result of an act of war.
c. If the insured dies while in uniform.d. When the insured dies while on active duty.
The Results Clause excludes coverage for death due to an act of war, declared or undeclared, not merely for being in the military. That would involve application of the Status Clause.
With straight Whole Life, all of the following are correct, except:
a. The insurer bears all risk.
b. The maximum fixed loan rate in 8%.
c. Policy loans from the cash value are tax deductible.d. Premiums are paid for the life of the policy.
Neither the policy loans themselves, nor the interest paid on them, are tax deductible.Correct
A ______ ______ ______ is a contractual agreement that allows a company or person to buy one or more of the rights of ownership in a life policy on the life of another person, should the owner/insured become terminally ill. (Lvng Needs R, Viatical Trust Semt, Leveraged Insurance Agreement, Emgcy
A Viatical Trust Settlement is a contractual agreement between the owner/insured and a company or person. Typically, the viatical company pays in lump sum 60% to 80% of the face amount of the policy. The viatical company then assumes ownership via a contractual agreement and names itself beneficiary. The insurance industry created the Living Need Rider to address Viatical Settlements.
Allowing individuals of the same class and hazard to be charged different rates for the same insurance coverage is:
a. Unfair Discrimination
b. None of these
c. A way to make a higher commissiond. Risk Management
Permitting individuals of the same class and hazard to be charged different rates for the same insurance coverage is Unfair Discrimination.Correct
A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?
a. Cash Surrender Option
b. Paid-Up Option
c. Premiums Reduction Optiond. Paid-Up Additions Option
The Paid-Up Option is designed so that at a future point the base policy is paid up (i.e. no more premiums are due). In Paid-Up Additions, only the additions are paid up, not the base policy. Only a Whole Life (i.e. fixed policy) can achieve paid-up status, not Universal or Variable.
When a producer receives an app for life ins that is completed and signed, but without $, when does coverage start?
a. 30 days after the app is recd
b. On the date the policy is delivered
c. On the date the app is recdd. At the end of the free-look period
The policy will go into effect upon delivery and collection of the premium.
authorities and powers held by the Commissioner or Directory of Insurance, except?
A. inquire into all violations of insurance laws in this state
B. subpoena items for testimony
C. issue, refuse, revoke or suspend licenses or Certificates of Authority
D. set and determine insurance rates
The Commissioner or Director of Insurance has the authority to take the necessary steps to enforce and administer the insurance laws. Individual insurers determine and set their rates, and the Division or Department of Insurance monitors them for adequateness.Incorrect
Level, decreasing and increasing term primarily describe which policy feature?
b. Cash value
c. Mortality costsd. Death benefit
Level, decreasing and increasing typically describe the death benefit. In annually renewable term, the premium increases as the risk to the insurer goes up, while the face amount stays level. Term has no cash value.Incorrect
Lucy uses her dividends to purchase single premium additional permanent benefits at her attained age. Which Dividend Option is Lucy exercising?
a. Paid-up Option.
b. Reduced Paid-Up.
c. One-Year Term.d. Paid-up Additions.
Only Paid-up Additions, Paid-up Option and One-Year Term are dividend options; Reduced Paid-Up is a nonforfeiture option. Lucy wanted additional permanent benefits so she should choose Paid-up Additions.Correct
Traditional individual retirement accounts require distributions to start upon reaching the age of 70 1/2. Which one does not?
a. Keogh IRA
c. 403(b)d. A Roth IRA
Keogh's, 403(b), and 501(c)(3) are employer sponsored plans. The Roth IRA has many outstanding features, one of which is the provision that there are no mandatory distributions at any age.Incorrect
The Life Income Joint and Survivor Settlement Option pays periodic benefits until the second party dies. However, depending upon which survivor option (e.g. 100%, 75%, 66 2/3%, 50%), the survivor may or may not receive the same benefit the two received together.
Which requirement is needed to act as an insurance producer or agent?
a. Obtain an insurance professional designation.
b. Obtain a bonding license.
c. Take a fiduciary oath of office.d. Pass a state insurance examination.
In most states, one cannot be licensed as an insurance producer or agent without passing a licensing examination. Some states will allow an exemption in given situations, if one has passed a like exam in a former state, and is now moving to a new state.Correct
A trustee-to-trustee transfer between tax qualified retirement plans does not expose itself to:
a. The 20% withholding tax
b. The 10% penalty on premature distribution
c. Federal estate taxes should the plan participant died. Federal income tax on future distributions
The 20% withholding tax was implemented to discourage trustee to participant to trustee rollovers. By transferring trustee to trustee, the mandatory 20% withholding is avoided. Premature distributions (i.e. before 59 1/2) still suffer a 10% penalty tax.Incorrect
Initially an insured paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?
A. Insured & beneficiary must agree in writing to change / amend contra
B. Beneficiary & owner
C. Insurer & owner
Any changes to the contract, including mode of premium must be agreed to in writing, by the insurer (an executive of the company) and the only person who controls the rights in the policy, the owner. Typically, but not always, the insured, applicant and owner are the same person.
Which provision requires the application, the contract itself and any riders to be attached to establish a complete contract?
a. The Entire Contract Provision
b. The Incontestability Provision
c. The Ownership Provisiond. The Valid Contract Provision
The Entire Contract Provision states that the contract consists of the basic policy, a copy of the application, and all riders.Correct
A person wishing to participate in the growth of the economy would most likely not purchase:
a. A Fixed Annuity
b. A Variable Annuity
c. A Single Premium Variable Annuityd. An Equity Indexed Annuity
Insurance policies that may pay annual dividends to policyowners are:
a. Premium Refund policies
b. Reciprocal policies
c. Participating policiesd. Shareholder Benefit plans
Participating policies pay dividends, a refund of excess premiums. Typically, Mutual companies (i.e. those owned by the policyowners, since there are no stockholders) issue participating policies.Correct
Which of the following best describes the consideration on the part of an insurer?
a. The promise to pay in the event of a covered claim.
b. The acceptance of the contract.
c. The purpose of the contract must be legal.
d. The offer of the contract.
Consideration is something promised, given, or done that has the effect of making an agreement a legally enforceable contract.Correct
Which is true regarding an Adjustable Life Policy if the insured chooses to increase the face amount in the future?
a. The cash value is reduced.
b. The dividends are reduced.
c. It terminates the policy.d. Evidence of insurability would be required
Adjustable Life was the precursor to Universal Life attempting to provide flexibility to a traditional Whole Life Policy. While it does allow the death benefit to increase, the insurer protects its interests by requiring proof of insurability.Correct
A smoker states on a Life Insurance Application that they do not smoke. However, the insurer discovers they are a smoker within the first year of the policy.
a. Void the policy breeched warranty
b. Issue the policy due to the Parol Evidence Rule
c. Issue the policy because of a waiver
Warranties are statements made in an application for insurance or material stipulations in the policy that are guaranteed as true in all respects. If untrue or if breached, the contract may be voided.Incorrect
Which of the following accurately describes the principle duties of the Commissioner or Director of Insurance?
a. Change insurance statutes
b. Enforcement of insurance laws
c. Set premiums.
d. Prosecute violations of insurance law
Enforcement and administration are the two main categories of duties of the Commissioner or Director of Insurance. Changes to insurance statutes and regulations are done by legislative action.Correct
The Unfair Trade or Unfair Methods of Competition Acts apply to all of the following, except?
a. All admitted insurers.
b. All insureds.
c. All licensed persons.d. All insurers including motor clubs and nonprofit hospital associations.
Insurers and producers must not commit any of the unfair trade practices.
Which product, offered by insurers, allows an individual's savings to be distributed to him periodically over his entire life, regardless of how long he lives?
b. Endowment Contracts
c. Limited Payment Policiesd. Mutual Funds
Annuitization affords an individual the option to receive a sum of money spread over his life. The insurer bears the risk of the individual living beyond his life expectancy. The risk to the individual in that arrangement is the loss of purchasing power over a long period in an inflationary environment.Incorrect
Under the Modified Endowment Contract rules the 7-Pay Test is defined as:
a. The policy endows in 7 years.
b. The cash value at the end of year 7 exceeds the total premiums paid.
c. The first 7 years of total premiums paid into a life policy exceed the net premiums of a 7-Pay Policy
The MEC legislation came about because of the abuse of Single Premium Whole Life (which is always a MEC). As such, the law sought to restrict sought to restrict access to cash values in contracts that were deemed primarily savings vehicles rather than true insurance. Essentially, if you pay too much too fast (i.e. paid up in 7 years) it is a MEC.
It is unlawful to publish, circulate or place before the public any advertisement, announcement or communication that is untrue, deceptive or misleading. This is
a. False entries
d. False information and advertising
Presenting any information or advertisement that is false or misleading in the conduct of insurance business is false information and advertising.Correct
Making the purchase of insurance from a particular source the condition to another business transaction is an example of which of the following unfair practices?
a. False Statement
b. Boycott, Coercion or Intimidation
c. Defamationd. Unfair discrimination
Boycott, Coercion or Intimidation is an unfair trade practice that occurs when someone in the insurance business refuses to have business dealings with another until he or she complies with certain conditions or concessions.Correct
When the Guaranteed Insurability Rider to a life insurance policy, the insured would pay increased premiums based upon:
a. Issue age
b. Attained age
c. Calendar aged. Actual age
The Guaranteed Insurability Rider guarantees the insured's right to purchase additional death benefit periodically, but not the right to purchase it at the rate when the policy was issued (i.e. issue age).Correct
At the time of her retirement at age 62, Jolene chose a Life Income Payment Option to have her annuity distributed. Five years later, when her health declines, she needs the distribution to be increased. How is this accomplished?
a. Medical Expense R
b. can't change
c. Cost of Living R
Once a contract has been annuitized in a fixed life fashion, the distribution remains constant. That is the trade-off for the insurer guaranteeing payments for life. Annuitization options do not come with riders.Incorrect
A Modified Whole Life Policy would charge level premiums that are ______ in early years and then charge a higher fixed premium than whole life for the rest of the term of the policy.
a. The same
b. Twice as high
c. Higherd. Lower
As its specialty whole life counterpart Graded Premium Whole Life, modified premiums are lower than traditional whole life the early years. Unlike graded premium in which premiums continually rise, modified stays fixed for a period, then increases and stays fixed.Correct
What is defined as a systematic distribution of accumulated funds, either over one's life, or a specified period?
a. Guaranteed Distribution
b. Reverse Mortgage
c. Liquidation Optiond. Annuitization Option
An Annuitization Option usually involves a systematic, even series of distributions made to an individual over his or her life, or a specific period. Annuitization Period is the payout phase of the annuity product, while the period during which deposits are made is the Accumulation Period.Incorrect
The cash value in an individually owned life insurance policy enjoys the same benefit of ____ ____ ____, as do balances in an employer sponsored tax qualified retirement plan (e.g. 401(k), etc.)
a. Tax free distribution
b. Tax deferred growth
c. Tax deductible contributions
As in any employee sponsored tax qualified retirement plan, cash value accumulates on a tax-deferred basis. Tax deferred means tax postpones, not free. Therefore, when a policy is surrendered for its CSV, the amount above cost basis (i.e. total premiums paid) is taxed as ordinary income.
The individual who has the ownership rights of a policy is called the:
c. Policyownerd. Insured
Typically, the owner, insured and applicant would be the same person, but not always, as in the case of third party ownership (e.g. juvenile policies, key person policies, etc.) In this case, even though the owner is not the insured, he or she still controls every right that the policy affords.Correct
Which is false about non qualified ret plans?
a. Er distributions from the plan are tax deductible by the er.
b. Er contributions to the plan are tax deductible by the er.
c. Contributions to the plan are not income to the ee.d. Distributions to the ee are income to the ee.
Contributions to the plan by the employer are not tax deductible to the employer, which is the price paid in order to discriminate. However, contributions are not income to the employee during funding, but at distribution, the payment made is deductible to the employer and taxable to the employee.
An insured is nearing retirement and has accumulated $175,000 in an annuity. He needs the option that will pay the largest monthly benefit for as long as he lives. Which one should he choose?
a. Life Income with Refund
b. Life Income
c. Joint Life
d. Fixed Amount
Among all the life income options, the Life Income (Pure or Straight Life) provides the highest payment to the annuitant because under the option the annuitant assumes the greatest risk of forfeiture (i.e. if he or she dies early, the insurer keeps the balance).
What is the status of a policy that has been mailed to an insured by an insurer?
c. Deliveredd. Purchased
A policy may be delivered by registered or certified mail with a signed receipt of delivery.Incorrect
Sign up for free and study better.
Get started today!