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Stranger-oriented life insurance policies are in direct opposition to the principle of |
d. insurable interest-STOLI purchaser doesn’t know the insured, or have any interest in the insured’s longevity, so it violates the principle of insurable interest |
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Which is generally true regarding insureds who have earned preferred status? |
b. their premiums are lower- the insured is in excellent physical condition and employs healthy lifestyles and habits |
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All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: |
c. the policy is owned by the company. |
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An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have? |
a. variable- life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy. |
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When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called |
b. executive bonus |
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In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse may receive retirement benefits? |
Blackout period- begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. No benefits are paid during this time. |
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Life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called |
a. estate conservation- life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called estate conservation. |
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Which of the following applicants could the insurer charge a higher rate and not be charge with unfair discrimination? |
d. an applicant that smokes cigarettes as opposed to one that does not |
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Partner A in a business buys a life insurance policy on Partner B to protect herself against a financial loss if he should die. Two years after the partnership is dissolved Partner B dies. Who will receive the death benefit? |
Partner A |
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Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone’s life when using the needs approach? |
c. estimated longevity |
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An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds |
d. $50,000 |
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Which of the following would NOT fall into the category of costs associated with death? |
c. the expense of a vacation for surviving family members |
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Based on Human Life Value Approach, which of the following is NOT used to calculate an individual’s life value? |
b. predicted needs of the family after the insured’s death- are used in the needs approach. The Human Life Value Approach requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. |
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Who makes up the Medical Information Bureau? |
Insurers |
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Upon policy delivery, the agent may be required to obtain any of the following EXCEPT |
c. signed waiver of premium |
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Amy’s insurance premium has decreased slightly, despite the fact that her level of health has remained the same. Which of the following most likely caused the premium decrease? |
c. her insurer used interest earned on premiums to lower premium amounts |
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Who is the owner of the policy and who pays the premium in and Executive Bonus plan? |
d. executive is the owner, and the executive pays the premium- the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income. |
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What is the major difference between a Stock Redemption Plan and a Cross Purchase Plan? |
In a Stock Redemption Plan, the policies are owned by an entity, and in a Cross Purchase Plan, the policies are owned by individuals- If the business owns the policies, pays the premiums, and is the beneficiary, the agreement is called Stock Redemption Plan. If the policies are owned by individual business partners who pay the premiums and are the beneficiaries, the plan is called a Cross Purchase Plan |
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What is the purpose of the buyer’s guide? |
To allow the consumer to compare the costs of different policies |
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An insured has been diagnosed with a life-threatening disease, and is given approximately six months to live. The insured is in a hard financial situation which will worsen with the upcoming medical expenses. Which of the following options could he utilize right now? |
d. viatical settlement |
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An applicant is seeking an insurance policy. In the underwriting process, it was determined that the applicant has some dangerous habits, a risky occupation, and poor health. Which of the following is TRUE concerning the policy premium? |
a. it will likely be higher because the applicant is a substandard risk |
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Which is the primary source of information used for insurance underwriting? |
d. application |
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Two equal partners in a business worth $150,000 are using a Cross Purchase plan to protect against the death of each other. Which of the following statements would be correct? |
d. partner A buys a policy on partner B in the amount of $75,000 naming Partner A as beneficiary. |
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What is the name of the insured who enters into a viatical settlement? |
c. viator- the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract |
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Which government program allows a blackout period? |
Social Security |
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If an applicant for a lief insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about |
b. whether an insurable interest exists between the individuals |
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Which of the following best describes the MIB? |
c. it’s a non profit organization that maintains underwriting information on applicants for life and health insurance-Medical Information Bureau (MIB) also maintains confidential medical impairment information on individuals |
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Which of the following is NOT an example of insurable interest? |
b. debtor in creditor- the three recognized areas in insurable interest are as follows: a policy owner insuring his/her own life, the life of a family member, ore the life of a business partner, key employee, ore someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor. |
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An applicant wants to buy a policy that has cash value element. Which type should she buy? |
b. permanent- death protection and savings/cash value option |
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What are the personal uses of life insurance? |
d. survivor protection, estate creation and conservation, cash accumulation and liquidity |
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Which of the following best details the underwriting process for life insurance? |
b. selection, classification, and rating of risks-the underwriting process is accomplished by reviewing and evaluation information about an applicant and applying what is known of the individual against the insurer’s standards and guidelines for instability and premium rates. |
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Which of the following types of risk will result in the highest premium? |
a. substandard risk-under average insurance risk due to physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued. |
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A key person insurance policy can pay for which of the following? |
c. costs of training a replacement- the policy will pay for costs of running the business and replacing the employee |
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What qualifications must an agent hold in order to sell variable life insurance policies? |
c. both state and federal licensing-agents selling variable life products must be registered with the Financial Industry Regulatory Authority (FINRA) and must be licensed within the state to sell life insurance and variable products |
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Which of the following may NOT be included in an insurance company’s advertisement? |
d. that its policies are covered by a state Guaranty Association-that is illegal for insurers to state that their policies are guaranteed by the existence of a Guaranty Association |
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A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy? |
d. fixed- life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. the other type of policy, variable life, varies in its cash value because its value is based on the stocks that support it |
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Which of the following is NOT true? |
a. the Life and Health Guaranty Association is comprised of representatives from the DOIs of every state-any company selling life and/or health insurance must belong to the Guaranty Association, not the DOI representatives |
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An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? |
When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health |
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Replacing insurers are permitted to use electronically completed notice of replacement. However, when this method is used a printed copy of the notice must be sent to the applicant within |
d. 5 days |
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An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? |
b. Attending Physician statement- APS is used to obtain medical details about a specific condition which has shown up in the application; the insurance company orders the information directly form the physician, using a signed authorization which was part of the application |
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Attempting to determine how much insurance an individual would require base upon their financial objectives is known as: |
b. needs approach-determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely. |
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Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds? |
a. vacation travel expenses |
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Which of the following is NOT true of life settlements? |
a. the seller must be terminally ill-With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporated owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value. |
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Key person life insurance does NOT reimburse a company for which of the following? |
c. for increased pension liability resulting from a key person’s death |
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Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? |
d. standard risk is representative of the majority of people-average risk |
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What are the three ratings of classification that denotes the risk level of insureds? |
Standard, substandard, and preferred |
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Which of the following individuals must have insurable interest in the insured? |
b. policy owner-the policy owner must have an insurable interest in the insured, i.e. his/her own life if the policy owner and the insured is the same person, or in the life of a family member or a business partner. |
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The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? |
d. agent’s report- the agent communicates his/her observations concerning an applicant in the agent’s report |
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The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called: |
d. expenses- loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium |
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Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? |
d. the employer is the owner and beneficiary- with key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary. |
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Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? |
d. buyer’s guide- a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. |
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Which of the following entities regulates variable life policies? |
b. b. Securities and Exchange Commission (SEC) and the Insurance Department -Variable life insurance is regualted by bothe the state and federal governments SEC and the Financial Industry Regulatory Authority (FINRA) and the Insurance Department |
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What is the purpose of key person insurance? |
d. to lessen the risk of financial loss because of the death of a key employee-A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contract. |
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Rod wants to pay his initial life insurance premium in advance. Which of the following best describes his situation? |
b. Rod can pay his premium as early as he wants, even with his application-which is stipulated by the Payment of Premium Clause |
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What are the members of the Medical Information Bureau required to report? |
d. adverse medical information about individuals-The MIB receives this info from insurance companies so that all the member companies can compare the information they have collected on a potential insured with information other insurers may have discovered. |
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Which of the following is correct concerning the taxation of a Key Person Life Insurance Policy premiums and death benefit? |
d. Premiums are not deductible as a business expense and the death benefit is not taxable to the company-The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free. |
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An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? |
b. the policy will terminate when the loan amount with interest equals or exceeds the cash value |
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Which of the following determines the length of time that benefits will be received under the Fixed Amount settlement option? |
a. size of each installment-the size determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods. |
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Earl borrowed money at the bank to send his daughter to college. Instead of purchasing Credit Life insurance, he used an existing life insurance policy to secure the debt. This would be called a |
b. collateral assignment-transferring all or a part of the death benefit to another |
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What is the term that most accurately describes the provision designed to relieve life insurance premium payment for minors whose parents have died or become disabled? |
b. Payor Benefit- if the guardian of a child dies or becomes disabled, the child will be exempt from the premium payment until a certain age, usually 21 |
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An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy’s cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? |
c. universal life |
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Grace is the primary beneficiary of her grandfather’s life insurance policy. Upon his death, she wants some income from the death benefit, but wants the face amount to be conserved. Which settlement option should she choose? |
c. interest only option- she would receive the interest earned by the face amount, but the face amount would remain |
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Which of the following statements best describes the effect the Accelerated benefit provision would have on the benefits paid to the beneficiary? |
d. it will decrease the benefits paid to the beneficiary-The Accelerated Benefit provision allows the early payment of some portion of the death benefit if the insured becomes terminally ill or is confined to a long-term care facility. The face amount of the insurance is therefore reduced, with will decrease the benefits paid to the beneficiary. |
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When a reduced-paid up non-forfeiture option is chosen, what happens to the face amount of the policy? |
c. it is reduced to the amount of what the cash value would buy as a single premium- In a reduced paid-up policy, the original policy’s cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured’s death |
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Which of the following riders provides for a waiver of premium when the policy owner and the insured are NOT the same person? |
c. payor benefit- waives the premium of the owner when the owner becomes disable and is a person other than the insured |
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Unlike the dividend itself, the interest earned on dividends is |
b. taxable- dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income |
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When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? |
Fixed amount settlement |
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All of the following statements concerning dividends are true EXCEPT: |
d. dividend amounts are guaranteed in the policy-they cannot be guaranteed |
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If a life insurance policy has an irrevocable beneficiary designation, |
c. the beneficiary can only be changed with written permission of the beneficiary |
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Which non forfeiture option has the highest amount of insurance protection? |
a. extended term |
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Which option provides a single beneficiary with income for the rest of his/her life? |
c. single life option- provides a single beneficiary with income for the rest of his/her life |
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A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? |
b. automatic premium loans- commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium |
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Bonnie wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of the ownership Bonnie should have her husband named as the |
Revocable beneficiary-she can make changes to the contract, and she would be the policy owner while her husband would receive the death benefit |
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Kayla’s husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source? |
b. life insurance proceeds- day care is considered a need-based expense that can be paid by life insurance proceeds |
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Which of the following are generally not considered when underwriting group insurance? |
b. the group’s medical history- because it’s a group and not written on an individual basis medical questions are not necessary |
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With a Straight Life policy, what happens if the insured lives to age 100? |
d. the policy endows (matures) and the cash value, equal to the face amount, is paid to the insured |
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The policyowner of an Adjustable Life policy can increase premium payments and |
d. have a limited pay policy- Adjustable life policy has the following privileges 1. increasing decreasing the premium 2. changing the premium-paying period 3. increasing or decreasing the face amount of coverage 4. changing the period of protection |
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All other factors being equal, the least expensive first-year premium payment is found in |
b. annually renewable term- is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured’s attained age. decreasing policies-the face amount decreases, the premium is constant level term and increasing term policies- the premium remains level for the term of the policy |
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Who can make changes to the policy once it is in effect? |
d. an executive officer of the insurer- any changes made to policy must be endorsed and attached to the policy over the signature of an authorized officer of that insurer. No other individual has the authority to make changes or waive policy provisions. |
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Who has the legal title of the property in a trust? |
b. trustee |
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The rider that allows the company to forgo collecting the premium if the insured is disabled is called |
a. waiver of premium-rider allows waives the premium if the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life |
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An agent is acting ethically in all the of following situations EXCEPT |
d. always representing the insured-they are deemed to represent the insurer, not the insured |
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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 |
d. entire contract-the policy with the attached application which is a mandatory provision in life insurance. This provision limits the use of evidence other than the contract and the application in a test of the contract’s validity. |
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If a consumer requests additional information concerning an Investigative Consumer Report, how long does the insurer or reporting agency have to comply? |
a. 5 days |
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An insurer has filed a new rate with the Commissioner, and is waiting for a reply. The Commissioner hasn’t responded yet. After how many days can the insurer apply the new rate? |
b. 10 days- if the rate filed, but is not disapproved within 10 days, the higher rate may be applied. |
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If Tom’s policy allows him to make periodic additions to the face amount at standard rates, without proving instability, his policy includes a |
c. Guaranteed insurability option- allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without providing continued insurability. Rates for the additions are based upon attained age. |
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The paid-up addition option uses the dividend |
b. to purchase a smaller amount of the same type of insurance as the original policy-additional permanent policy |
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An insured purchases a policy in 2000 and dies and 2005. The insurance company discovers at the time that the insured concealed information during the application process. What can they do? |
b. Pay the 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, even on the basis of a material misstatement of facts or concealment of a material fact. |
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The following are legitimate uses of insurance in a business setting EXCEPT |
b. Funding against general company financial loss-both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key empolyees |
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