life insurance

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How does a continuous premium whole life policy differ from a limited pay whole life policy?

A. The time period in which premiums will be paid
B. The availability of cash value loans
C. The availability of nonforfeiture options
D. The settlement options

A. The time period in which premiums will be paid

What type of premiums are associated with individual mortgage protection life insurance policies?

A. Level premiums
B. Flexible premiums
C. Modified premiums
D. Decreasing premiums

A. Level premiums

Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for

A. A cash value loan is taken out
B. Automatic premium loan provision is utilized
C. The policy is surrendered for less than what was paid into it
D. Dividend is issued

C. The policy is surrendered for less than what was paid into it

What kind of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?

A. Variable universal life
B. Modified endowment contract
C. Adjustable life
D. Graded premium whole life

A. Variable universal life

All of these statements concerning universal life insurance are false EXCEPT

A. Death benefits are normally taxable
B. Policy loans are not permitted
C. Premiums or face amount cannot be changed
D. Policy indicates how much of the premium is used toward company expenses

D. Policy indicates how much of the premium is used toward company expenses

How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?

A. Survivorship life policy is lower
B. Survivorship life policy is higher
C. Depends on the investment performance of the underlying accounts
D. Both have the same actuarial costs

A. Survivorship life policy is lower

Which statement regarding universal life insurance is correct?

A. Cash value accumulations have a guaranteed minimum interest rate
B. Policyowner can change the face amount but not the premium
C. Policyowner can change the premium but not the face amount
D. Partial withdrawals cannot be made from the policy’s cash value

A. Cash value accumulations have a guaranteed minimum interest rate

Which statement regarding whole life insurance is accurate?

A. Cash value loans are not permitted
B. Insurance coverage can continue for life
C. Policy normally matures at retirement
D. No cash value accumulations

B. Insurance coverage can continue for life

All of these are considered features of whole life insurance EXCEPT

A. Cash value accumulation
B. Permanent coverage
C. Initial premium is lower than for an equivalent amount of term insurance
D. Policy loans are allowed

C. Initial premium is lower than for an equivalent amount of term insurance

Which of these policies is considered a whole life policy?

A. Credit life
B. Single premium life
C. Renewable life
D. Convertible life

B. Single premium life

What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?

A. Joint and survivorship
B. Survivorship life
C. Universal life
D. Joint life

D. Joint life

Rick owns a variable universal life policy and chooses a variable death benefit option. What will typically happen to the death benefit as a result of this selection?

A. Remain the same
B. Decrease but never increase
C. Increase but never decrease
D. Fluctuate with changes in the cash account

D. Fluctuate with changes in the cash account

An individual who purchases a modified life insurance policy expects

A. a higher rate of return
B. coverage for two people
C. an improvement in future income
D. a flexible face amount

C. an improvement in future income

Assets that back the non-guaranteed values of variable life insurance products are held in which account?

A. Trust account set up by the insured
B. Separate account set up by the insurer
C. General account of the insurer
D. Money market account

B. Separate account set up by the insurer

When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for

A. Ten year term insurance for a person aged 55
B. Ten year term insurance for a person aged 45
C. Yearly renewable term insurance for a person aged 55
D. Yearly renewable term insurance for a person aged 45

A. Ten year term insurance for a person aged 55

What kind of life policy typically offers mortgage protection?

A. Whole life
B. Decreasing term
C. Increasing term
D. Level term

B. Decreasing term

Which of these life insurance policies do NOT contain cash value provisions?

A. Modified whole life
B. Universal life
C. Decreasing term life
D. Adjustable life

C. Decreasing term life

What type of policy can group term life insurance normally be converted to?

An individual renewable policy
An individual level term policy
An individual permanent life insurance policy
A group permanent life insurance policy

An individual permanent life insurance policy

What is the term used for an insurance contract that identifies individuals by relationship to a specific organization?

Employer insurance
Group insurance
COBRA plan
Industrial insurance

Group insurance

What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer?

0%
50%
75%
100%

100%

Which statement about group life insurance is INCORRECT?

Cost can be shared between employer and employee
Each participant requires evidence of insurability
A minimum number of employees participating may be required
Employer is issued a master policy

Each participant requires evidence of insurability

Which statement regarding the certificate of insurance is accurate?

It is an insurance contract between the employer and insurer
Indicates evidence of an employee’s insurance coverage
Each certificate of insurance is underwritten on an individual basis
It is issued by the employer to the employee

Indicates evidence of an employee’s insurance coverage

What is the reason that insurance companies require a minimum number of employees participating in a group insurance plan?

Efficiency is maximized
Adverse selection is minimized
Profits are maximized
Claims are minimized

Adverse selection is minimized

The policy provision that permits an employee to change from a group plan to an individual plan is called the

assignment provision
conversion provision
certificate provision
modification provision

conversion provision

An employer has a group life insurance plan in place for his employees. How would an employee in poor health be treated in this situation?

Approved on a graded basis
Not eligible for insurance on this plan
Eligible for the same type of coverage as the other employees
Must pay a rating based on risk

Eligible for the same type of coverage as the other employees

Any employee insured under a group life insurance plan is normally

given a master certificate
covered on a noncontributory basis
required to show proof of insurability
protected by term life insurance

protected by term life insurance

The conversion option for group term insurance may be exercised by an employee

at any time while still employed
within 2 years of the hire date
within 31 days of terminated employment
after providing proof of insurability

within 31 days of terminated employment

If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally

tax deductible to the business
non-deductible to the business
partially deductible to the business
considered taxable income to each employee

tax deductible to the business

Which of these occurrences could improve an insurer’s ability to reduce premiums?

Expense factor increase
Mortality rates increase
Rate of earnings on investments increase
Requiring monthly premium payments instead of annual

Rate of earnings on investments increase

Which life insurance settlement option pays lifetime benefits to two or more people?

Life income with period certain
Joint
Joint and survivor
Life income

Joint and survivor

Which life insurance settlement option pays a stated monthly payment until both principal and interest are exhausted?

Fixed amount installment option
Fixed period installment option
Life income option
Interest only option

Fixed amount installment option

Life insurance premiums are based on what three factors?

Mortality, interest, dividends
Morbidity, interest, expenses
Mortality, interest, expenses
Morbidity, interest, dividends

Mortality, interest, expenses

Which statement most accurately describes a single premium whole life policy?

Premiums that can only be paid from a single source
A single premium that is due annually
Paid-up policy that offers lifetime protection
Paid-up policy that offers limited protection

Paid-up policy that offers lifetime protection

During the early years of a whole life insurance policy, the cash value will normally be

equal to the total premiums paid
more than the total premiums paid
less than the total premiums paid
unavailable as a policy loan

less than the total premiums paid

The highest mortality rate belongs to which group?

Age 60 females
Age 70 males
Age 60 males
Age 70 females

Age 70 males

The beneficiary of a life insurance policy is normally selected by whom?

Policyowner
Contingent beneficiary
Estate
Insurance company

Policyowner

Which tax is normally associated with an individual’s death?

Excise tax
Consumption tax
Federal estate tax
Ad valorem tax

Federal estate tax

What kind of arrangement gives the policyowner the right to change the beneficiary?

Contestable designation
Incontestable designation
Irrevocable designation
Revocable designation

Revocable designation

When an applicant applies for a large amount of life insurance coverage, which of the following would likely NOT be an underwriting requirement?

Consumer report
Eye examination
Urine sample
Blood sample

Eye examination

What must be given to a life insurance applicant when the agent receives an application and the initial premium?

Agent’s report
Conditional receipt
Commission disclosure
Good health statement

Conditional receipt

Which of these is NOT considered the responsibility of a producer in the underwriting process?

Collecting additional medical information if needed
Promptly sending the completed application to the insurance company
Forwarding any material personal observations to the insurer
Selecting the final approval date

Selecting the final approval date

When a producer submits an application that discloses personal information regarding the applicant, who supplies the privacy notice?

Producer
Insurer
Underwriter
Fiduciary

Producer

The reason for backdating a policy is

to avoid being considered a substandard risk due to a recent cancer diagnosis
to obtain a premium rate based on an earlier age
to decrease the face amount
to decrease the Contestable period

to obtain a premium rate based on an earlier age

The Medical Information Bureau consists of members from which group?

Doctors
Hospitals
Insurance companies
Underwriters

Insurance companies

All of these are duties that a producer may be required to perform when delivering an insurance policy EXCEPT

Acquire a statement of good health signature
Gather the initial premium
Review policy with applicant
Leave a conditional receipt with client

Leave a conditional receipt with client

A policyowner pays the first annual premium for a $50,000 life insurance policy and dies one month after the policy effective date. Which of these statements is normally true?

Premium will be refunded with interest and no death benefit paid
Premium received by insurer is considered to be unearned
Proceeds are prorated to 1/12th of the full amount
Beneficiary receives $50,000 income tax-free

Beneficiary receives $50,000 income tax-free

Where is the difference between a standard risk and a substandard risk reflected?

backdating
coverage is not offered
premium charges
back-end charges

premium charges

The premiums paid by an employer for his employee’s group life insurance are usually considered to be

tax-deductible to the employer
partially deductible to the employee
tax-deductible to the employee
taxable income to the employee

tax-deductible to the employer

Which of these is NOT considered to be a cost connected with an individual’s death?

Funeral expense
Tax liability
Business expenses
Probate costs

Business expenses

Which of the following is NOT a reason for a business to buy key person life insurance?

The reduction in sales as a direct result from death of the key employee
A void in leadership if the key person were to die
The loss of company revenues while a replacement is being sought
An increased pension liability if the key employee dies

An increased pension liability if the key employee dies

Which of these factors does NOT influence an applicant’s need for life insurance?

Lifestyle of the applicant
Number of dependents
Future educational costs of the dependents
Self-maintenance expenses

Self-maintenance expenses

With life insurance, the needs approach is used primarily in determining

which insurance company to purchase the coverage from
how much life insurance a client should apply for
the type of life insurance that should be purchased
a budget for the surviving dependents to follow in the event of the client’s death

how much life insurance a client should apply for

When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT

Final expenses
Charitable donation
Education
Employee benefits

Employee benefits

Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner?

Estate taxes
Unemployment tax expenses
Funeral expense
Living expenses

Unemployment tax expenses

Which of the following disability buy-sell agreements is best suited for businesses with a small number of partners?

Split dollar plan
Entity agreement
Cross-purchase agreement
Key person plan

Cross-purchase agreement

XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?

Split-dollar
Cross puchase
Key employee
Deferred compensation

Split-dollar

Which of these is NOT relevant when determining the amount of personal life insurance needed?

Existing life insurance coverage
Local unemployment rates
Household income
Household debt

Local unemployment rates

What is considered a valid reason for small businesses to insure the lives of its major shareholders?

To provide an income for the surviving dependents
Reduce the company’s tax liability
To pay for final expenses
Fund a buy-sell agreement

Fund a buy-sell agreement

Which of these pays an income to two or more annuitants until the death of the last annuitant?

Joint life annuity
Deferred survivor annuity
Joint and survivor annuity
Survivorship annuity

Joint and survivor annuity

The contract owner in a single premium deferred annuity (SPDA)

receives immediate benefit payments
makes only one premium payment
can make tax-free withdrawals until the principal is recovered
is also the beneficiary

makes only one premium payment

The interest credited to the cash values of personally-owned non-qualified annuities is considered

a tax credit
tax-deferred
tax-deductible
tax-exempt

tax-deferred

When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus

bailout option charge
surrender charges
taxes owed
expenses and withdrawals

expenses and withdrawals

A retired couple would like to maximize the income derived from their life savings and have it payable until they both die. Which annuity would be their best choice?

Fixed annuity
Survivorship annuity
Joint life annuity
Joint and survivor annuity

Joint and survivor annuity

Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?

When the contract has been held for a stated time period
For the entire length of the contract
Never
When the cash value has reached a stated minimum amount

When the contract has been held for a stated time period

Which of the following is NOT a valid contract exchange?

An annuity exchanged for a life insurance policy
An annuity exchanged for another annuity
A life insurance policy exchanged for another life insurance policy
A life insurance policy exchanged for an annuity

An annuity exchanged for a life insurance policy

When a sum of money undergoes capital liquidation, that sum will

increase in value
remain the same indefinitely
decrease in size
create tax deductions

decrease in size

A business may purchase an annuity for all of the following reasons EXCEPT

Structuring a liability settlement payment
Funding a non-qualified deferred compensation plan
Accumulating assets on a tax-deferred basis
Providing a pension to employees

Funding a non-qualified deferred compensation plan

An individual, age 45, would like to help pay for his daughter’s college expenses in 10 years. Which annuity would be appropriate for this individual?

Joint and survivor annuity
Deferred annuity
403(b) plan
Immediate annuity

Deferred annuity

When does interest income for a flexible premium deferred annuity get reported for federal income taxes?

Never
After the principal has been exhausted
When the distributions are received from the contract
During the accumulation phase

When the distributions are received from the contract

When a deferred annuity is surrendered, who must sign the authorization to do so?

Owner
Annuitant and beneficiary
Annuitant
All parties involved

Owner

How do benefit payments fluctuate over time in a variable life annuity?

Benefit payments stay fixed
Reflects changes in the market value of assets in a separate account
Annuitant controls any benefit payment changes
Any benefit payment fluctuations have to be approved in writing by the owner

Reflects changes in the market value of assets in a separate account

The back-end charge typically associated with an annuity that has been cancelled during the early contract years is called a

back-end assessment
cancellation fee
surrender charge
tax penalty

surrender charge

Which of the following normally pertains to an immediate annuity?

Tax-free benefit payments
Installment premium payments
Lack of an accumulation period
Lump-sum benefit

Lack of an accumulation period

The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called

nonforfeiture options
settlement options
conversion options
surrender options

nonforfeiture options

The surrender charge on many deferred annuity contracts are waived when the

annuitant becomes unemployed
annuitant dies or becomes disabled
contract’s interest rate falls below a stated percentage
contract is canceled within the first year

annuitant dies or becomes disabled

Which of the following is NOT an intended use of an annuity?

Obtain income benefits for a stated period of time for more than one person
Accumulate assets on a tax-deferred basis
Create immediate lifetime income benefits
Create new funds upon the death of a wage-earner

Create new funds upon the death of a wage-earner

A business may purchase an annuity for all of the following reasons EXCEPT

Structuring a liability settlement payment
Funding a non-qualified deferred compensation plan
Accumulating assets on a tax-deferred basis
Providing a pension to employees

Funding a non-qualified deferred compensation plan

A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?

If the interest rate falls below a specified level, the surrender charge is waived
If the interest rate rises above a certain level, the surrender charge is waived
It allows the Life and Health Guaranty Association to bailout the insolvent insurer
A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent

If the interest rate falls below a specified level, the surrender charge is waived

A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called

fixed period
period certain
installment refund
straight life

period certain

What determines how much an annuitant is paid for a variable annuity?

Varies according to how many outstanding annuity units
Payments fluctuate as annuitant gets older
The market value fluctuations of the securities backing it
Varies according to the insurer’s investments in its general account

The market value fluctuations of the securities backing it

A large corporation purchases an accumulation annuity contract where all of the participating employees receive certificates of participation. What is this contract called?

403(b) plan
Group deferred annuity
Group immediate annuity
Joint and survivor group plan

Group deferred annuity

When a large sum of money is used to structure monthly payments, which product is typically used?

A 401(k) plan
A 403(b) plan
A deferred annuity
An immediate annuity

An immediate annuity

Which of the following would NOT be appropriate for an immediate annuity?

A lottery winner who opted for a lump-sum payment
Setting up a college savings fund for a young child
A beneficiary collecting the face amount of a life insurance policy
Someone who just won a large settlement

Setting up a college savings fund for a young child

Setting up a college savings fund for a young child

continue after the purchase payments stop
continue after the benefit payments start
continue after the annuitant dies
continue after the annuity has been surrendered

continue after the purchase payments stop

When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?

Settlement will be reduced
Settlement will be increased
Settlement will not be affected
Settlement will be held in escrow until surrender charges are paid

Settlement will be reduced

Which benefit can be found in an equity indexed annuity, but not in a fixed annuity?

Protection against living too long
Equity loans
A fixed rate of return
Protection against long-term inflation

Protection against long-term inflation

Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will

discontinue after a stated number of years
remain a constant dollar amount for the duration of the annuity period
pay a lump sum if the annuitant dies
vary according to the underlying investment performance

remain a constant dollar amount for the duration of the annuity period

Sarah, age 88, is a life annuitant who has lived beyond her life expectancy. The funds for additional benefit payments will be derived primarily from funds that were

obtained from the state’s Guaranty Association
accumulated from the invested principal
given up by the annuitant’s refund beneficiary
not distributed to life annuitants who died before life expectancy

not distributed to life annuitants who died before life expectancy

Which of the following contracts offer deferred taxation, flexible payments, a guaranteed interest rate, and death benefits equal to the cash value?

Variable life policy
Modified life policy
Flexible premium fixed annuity
Immediate fixed annuity

Flexible premium fixed annuity

An owner’s cost basis for a non-qualified deferred annuity is typically the same as the

annuity’s cash value
premiums paid into the annuity
benefits payable to the annuitant
interest earned within the annuity

premiums paid into the annuity

In a qualified retirement plan, the yearly contributions to an employee’s account

are not tax-deductible
are restricted to minimum levels set by the IRS
are restricted to maximum limits set by the IRS
must be matched dollar-for-dollar by the employer

are restricted to maximum limits set by the IRS

Premature IRA distributions are subject to a penalty tax of

0%
10%
15%
20%

10%

Which of the following is TRUE about a qualified retirement plan that is "top heavy"?

More than 30% of plan assets are in key employee accounts
More than 40% of annual additions are for key employee accounts
More than 50% of plan assets are in key employee accounts
More than 60% of plan assets are in key employee accounts

More than 60% of plan assets are in key employee accounts

How are qualified Roth IRA distributions normally treated for tax purposes?

10% penalty tax is applied
Taxed as ordinary income
Capital gains tax is applied
Received income tax-free

Received income tax-free

What is another name for a Keogh plan?

Roth IRA
HR 10 plan
Rollover plan
1040 plan

HR 10 plan

ERISA requires that a Summary Plan Description must be provided to a new plan member within how many days following the new member’s eligibility date?

30
45
90
120

90

An employer that offers a qualified retirement plan (as opposed to a non-qualified plan) to its employees is eligible to

avoid ERISA regulations
make tax-deductible contributions to the plan
make tax deductible contributions to key employees only
make partial tax-deductible contributions to the plan

make tax-deductible contributions to the plan

In an individual retirement account (IRA), rollover contributions are

subject to capital gains tax
subject to ordinary income tax
partially limited by dollar amount
unlimited by dollar amount

unlimited by dollar amount

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

10% tax penalty for early withdrawal
Capital gains tax
Income tax and penalty tax
Ordinary income tax

Income tax and penalty tax

An officer for a corporation takes out numerous unsecured loans from the company’s qualified retirement plan. Which of these rules is the plan in violation of?

Key employee rule
Top heavy rule
Vesting rule
Exclusive benefit rule

Exclusive benefit rule

When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?

10%
20%
30%
None

None

First-time homebuyers are able to withdraw up to how much from their qualified IRAs without incurring the 10% early withdrawal penalty?

$2,500
$5,000
$7,500
$10,000

$10,000

A life insurance producer’s underwriting duties may include

approving or declining a life insurance application
seeking additional information requested by the insurance company
ordering an MIB report
determining the rate classification of the applicant

seeking additional information requested by the insurance company

An employee welfare plan exempt from ERISA regulations would be

church plans
indemnity plans
split dollar plans
accident only plans

church plans

An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?

10% is withheld for income taxes
20% is withheld for income taxes
30% is withheld for income taxes
Nothing is withheld

20% is withheld for income taxes

A description of a qualified plan’s insurance contract may be found in which ERISA reporting form?

Annual return/report (Form 5500)
Shareholder’s report
IRS Form 1040
Summary report (Form 6500)

Annual return/report (Form 5500)

Which of the following statements is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

Surrender charge is applied
The account can be rolled into the surviving spouse’s IRA
Distributions will be received tax-free if surviving spouse is over age 59 1/2
Future distributions are payable to the owner’s estate

The account can be rolled into the surviving spouse’s IRA

What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?

30%
40%
50%
60%

50%

Which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions?

Qualified plan waiver
Trustee-to-trustee transfer
Conduit IRA
1035 exchange

Conduit IRA

Misrepresenting pertinent policy provisions relating to coverage after a loss is

A concealment in insurance application
An unfair claims settlement practice
An unfair discrimination between individuals
A violation of the principle of adhesion

An unfair claims settlement practice

The Director may suspend a producer’s license when the producer

Fails to notify the insurance department of change of premium trust account location
Rebates a portion of the commission to the insured
Shares commissions with similarly licensed producers
Fails to report annual commission earnings to the insurance department

Rebates a portion of the commission to the insured

EXCEPT for fraud, the time after issuance of a policy during which an insurance company may contest a health insurance claim due to the statements on an application is

10 days
90 days
2 years
5 years

2 years

Claims settlement practices of insurers are regulated by:

The Internal Revenue Service
The National Association of Insurance Commissioners
Claims adjusters
State insurance departments

State insurance departments

Misrepresentation on the application is

Intentional
Concealed
Material
Twisting

Material

In Ohio, viatical settlement brokers are permitted to do all of the following EXCEPT

Charge a fee for their services
Advertise the availability of viatical settlements
Introduce viators to settlement providers
Make the first transaction up to 30 days before approved for a license

Make the first transaction up to 30 days before approved for a license

Who reports an agent’s termination of appointment to the Director?

The agent
The insurer
The Insurance Department
The State

The insurer

A cease and desist order issued against an agent

Suspends the agent’s certificate or broker’s license
Prevents the agent from receiving commissions
Prohibits a specific practice listed in the order
Terminates the agent’s appointment with the insurer

Prohibits a specific practice listed in the order

A life insurance illustration showing future premiums being paid out of nonguaranteed values must disclose that

These policy premiums will vanish
The policy guarantees payment of these premiums
The policyowner forfeits the option of paying these premiums from other sources
The policyowner may need to resume premium payments depending on actual results

The policyowner may need to resume premium payments depending on actual results

During the first two years a life insurance policy is in force, the insurer may contest a policy for all of the following reasons EXCEPT

Misstatement of age in the application
Material misrepresentation in the application
Fraud in the purchase of the policy
Material concealment in the purchase of a policy

Misstatement of age in the application

All of the following are examples of unfair claim settlement practices EXCEPT

Failing to promptly provide a reason for a claim denial
Refusing arbitrarily and unreasonably to pay claims
Denying unsubstantiated claims on a timely basis
Misrepresenting pertinent facts of coverage

Denying unsubstantiated claims on a timely basis

Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are

reinvested as capital gains, used to reduce rates for policyowners
paid quarterly to corporate officers in the form of a bonus
paid to the policyowners
paid to both the policyowners and shareholders

paid to the policyowners

Mutual insurers pay dividends to participating policyowners if the insurer has which of the following?

Divisible surplus
Reciprocal Dividend Agreement
Certificate of Authority
Participating clause

Divisible surplus

An insurable risk requires

that the chance for both a loss or gain exists
the loss must be catastrophic
that the chance of loss be calculable
that the loss must be incalculable

that the chance of loss be calculable

Which one of these is NOT considered to be an element of an insurable risk?

Speculative risk
Pure risk
Loss cannot be catastrophic
Loss must be due to chance

Speculative risk

All of these statements correctly describe an aleatory contract EXCEPT

A legal wager is considered an aleatory contract
Potential unequal exchange of value for both parties
Only one party makes any kind of legally enforceable offer
Element of chance is involved

Only one party makes any kind of legally enforceable offer

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

Implied authority
Apparent authority
Express authority
Assumed authority

Implied authority

What qualifies as acceptance of an insurance contract offer?

A declined policy
An issued policy
The application and initial premium
The initial premium only

An issued policy

What type of premiums are associated with individual mortgage protection life insurance policies?

Level premiums
Flexible premiums
Modified premiums
Decreasing premiums

Level premiums

John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract’s cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?

0%
25%
50%
100%

100%

Straight whole life insurance can be accurately described in all of these statements EXCEPT

Policy protection normally expires at age 65
Nonforfeiture values are available to the policyowner
Provides level protection with level premiums
Cash value loans are permitted

Policy protection normally expires at age 65

How does the cost for a survivorship life policy compare to the cost of combining two separate life insurance policies?

Survivorship life policy is lower
Survivorship life policy is higher
Depends on the investment performance of the underlying accounts
Both have the same actuarial costs

Survivorship life policy is lower

Which statement concerning a decreasing term life policy is accurate?

Cash value decreases over the policy period
Premium decreases over the policy period
Face amount decreases over the policy period
Face amount stays the same over the policy period

Face amount decreases over the policy period

Laura added a children’s rider to her life insurance policy. What type of coverage was added?

Level term
Increasing term
Decreasing term
Juvenile term

Level term

Peter, age 50, surrenders his modified endowment contract (MEC). How is the gain treated in terms of federal income taxes?

The gain is treated as taxable income and a penalty tax is imposed on the gain
The gain is treated as taxable income but no additional penalties are applied
The gain is not taxable but a penalty is assessed
Surrendering an MEC is considered a tax and penalty-free transaction

The gain is treated as taxable income and a penalty tax is imposed on the gain

When does the insured stop making payments under a thirty-payment whole life policy?

At the time of death or 30 years after the policy’s inception, whichever comes first
It depends on the performance of the underlying investment account
When the cash value surpasses the face amount
At age 100

At the time of death or 30 years after the policy’s inception, whichever comes first

What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?

$0
$50,000
Under $50,000 initially, but decreases annually over time
Under $50,000 initially, but increases annually until fully insured

Under $50,000 initially, but increases annually until fully insured

Which of these is NOT an allowable deduction made from premium payments of the cash value of a variable life insurance policy?

Mortality costs
Administrative charges
Investment management fees
Federal premium taxes

Federal premium taxes

Which of the following combinations best describe a universal life insurance policy?

A mutual fund and an endowment policy
A term insurance policy and a whole life policy
A modified endowment policy and an annual term insurance policy
A flexible premium deposit fund and a monthly renewable term insurance policy

A flexible premium deposit fund and a monthly renewable term insurance policy

Which statement regarding the waiver of premium rider is accurate?

Policy loans are used to keep the policy active
Cash payment is not directly provided to the policyowner
Insurance companies are required to offer this to all policyowners
Premiums are waived in the event of bankruptcy

Cash payment is not directly provided to the policyowner

A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured’s death?

Total premiums paid plus the policy face amount
Face amount plus interest accrued
Interest accrued plus total premiums paid
Face amount minus any outstanding loan balances

Total premiums paid plus the policy face amount

Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy?

Reduced paid-up nonforfeiture option
Accelerated benefits option
Extended term nonforfeiture option
Cash surrender option

Extended term nonforfeiture option

Which benefit is normally payable to a life insurance policyowner when the insured’s life expectancy has been severely limited?

Reduced paid-up option
Accelerated (living) benefit
Return of Premium benefit
Extended term option

Accelerated (living) benefit

What happens when a policyowner borrows against the cash value of his life insurance policy?

The death benefit would be reduced by the outstanding loan balance
No additional loans can be taken out in the future
The amount borrowed is added to the policyowner’s gross income for tax purposes
The interest on the loan is tax-deductible

The death benefit would be reduced by the outstanding loan balance

What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?

None will be given
Increased
Reduced
No change

Reduced

How may an insurance company classify an accidental death benefit on a life policy?

As an optional policy rider
As a provision of the policy
As a nonforfeiture option
As a mandatory policy rider

As an optional policy rider

The absolute assignment of a life insurance policy results in

the assignee receives all incidents of ownership
the assignee receives partial incidents of ownership
the transfer of ownership is revocable at the discretion of the original policyowner
evidence of insurability must be proven before ownership is transferred

the assignee receives all incidents of ownership

Which life insurance policy would be eligible to include an automatic premium loan provision?

Increasing term
Level term
Decreasing term
Whole life

Whole life

In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?

Waiver of premium
Automatic premium loan
Reinstatement
Policy loan

Automatic premium loan

What is the term used for an insurance contract that identifies individuals by relationship to a specific organization?

Employer insurance
Group insurance
COBRA plan
Industrial insurance

Group insurance

The policy provision that permits an employee to change from a group plan to an individual plan is called the

assignment provision
conversion provision
certificate provision
modification provision

conversion provision

Which settlement option makes minimum guaranteed dollar payments over a stated number of years?

Interest-Only
Fixed-Period
Fixed-Amount
Life Income

Fixed-Period

Which life insurance settlement option pays a stated monthly payment until both principal and interest are exhausted?

Fixed amount installment option
Fixed period installment option
Life income option
Interest only option

Fixed amount installment option

A contingent beneficiary is described as the

primary person who receives the death benefits if the insured dies
person who receives the death benefits if the primary beneficiary dies before the insured
person who receives the death benefits if there is no named beneficiary
person whose approval is needed before a beneficiary designation is changed

person who receives the death benefits if the primary beneficiary dies before the insured

A life insurance company’s spendthrift clause would have no effect if the beneficiary is paid the proceeds as a

fixed-period installment
life income option
fixed-amount installment
lump-sum payment

lump-sum payment

How much is normally paid to a policyowner in a life (viatical) settlement?

Total premiums paid plus interest
Full face amount
More than the face amount
Less than the death benefit

Less than the death benefit

When premiums are calculated, one factor would be the expenses of the

beneficiary
insurance company
policyowner
producer

insurance company

Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?

The periodic payment amount is determined by the beneficiary’s age
The shorter the period of time, the larger each installment
The longer the period of time, the smaller each installment
The installment payments are composed of both principal and interest

The periodic payment amount is determined by the beneficiary’s age

Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?

As a Section 1035 exchange
As a transfer
As a rollover
As a Section 1040 exchange

As a Section 1035 exchange

A signed good health statement may be collected by a life producer at the time of

policy issue
application
policy delivery
physical examination

policy issue

Which of these is NOT an underwriting responsibility of a life insurance agent?

Asking relevant questions concerning an applicant’s avocations
Requesting an attending physician’s report (APR)
Ordering an inspection report
Determining the final rate classification

Determining the final rate classification

The interest paid during an annuity’s payout period is considered

nontaxable
taxable as ordinary income
taxable as capital gains
tax-deductible

taxable as ordinary income

The interest credited to the cash values of personally-owned non-qualified annuities is considered

a tax credit
tax-deferred
tax-deductible
tax-exempt

tax-deferred

Interest is credited to a fixed annuity no lower than the

variable contract rate
contract guaranteed rate
current rate of inflation
prime rate

contract guaranteed rate

An owner’s cost basis for a non-qualified deferred annuity is typically the same as the

annuity’s cash value
premiums paid into the annuity
benefits payable to the annuitant
interest earned within the annuity

premiums paid into the annuity

Which statement concerning a deferred annuity is correct?

The contract cannot be assignable by the owner
Requires a single premium payment
The owner can be the beneficiary, annuitant, or neither
Benefits start immediately after contract formation

The owner can be the beneficiary, annuitant, or neither

Which of the following normally pertains to an immediate annuity?

Tax-free benefit payments
Installment premium payments
Lack of an accumulation period
Lump-sum benefit

Lack of an accumulation period

What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?

Increases
Decreases
Not affected by inflation
Tied to stock index

Decreases

The contractual rights that allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called

nonforfeiture options
settlement options
conversion options
surrender options

nonforfeiture options

Which of these annuity features is meant to discourage withdrawals and exchanges?

Annuitization
Annual fees
Withdrawal penalty
Surrender charges

Surrender charges

Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will

discontinue after a stated number of years
remain a constant dollar amount for the duration of the annuity period
pay a lump sum if the annuitant dies
vary according to the underlying investment performance

remain a constant dollar amount for the duration of the annuity period

A business may purchase an annuity for all of the following reasons EXCEPT

Structuring a liability settlement payment
Funding a non-qualified deferred compensation plan
Accumulating assets on a tax-deferred basis
Providing a pension to employees

Funding a non-qualified deferred compensation plan

An individual, age 45, would like to help pay for his daughter’s college expenses in 10 years. Which annuity would be appropriate for this individual?

Joint and survivor annuity
Deferred annuity
403(b) plan
Immediate annuity

Deferred annuity

A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid

mandatory income tax withholding on the amount transferred
paying transfer fees
paying trustee fees
ever paying income taxes on the distributions

mandatory income tax withholding on the amount transferred

The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of

consideration
legal purpose
representation
acceptance

consideration

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