Life Exam I Flashcards
(110 cards)
1
Q
- Which nonforfeiture option provides coverage for the longest period of time?
A
a. Reduced paid-up
2
Q
- What are the dividend options in life insurance policies?
A
a. Cash
b. Reduced Premium
c. Accumulation of interest
d. Paid-up addition
e. Paid-up option
f. One-year endowment
3
Q
- What life insurance policy provision states that both the policy and a copy of the application form the contract between the policy owner and the insured?
A
a. Entire contract
4
Q
- What happens to a policy’s cash value under an extended term nonforfeiture option?
A
a. The cash value is converted to the same face amount as in the whole life policy
5
Q
- To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A
a. A copy of the original insurance application
6
Q
- Who controls changes in the premium payments, face values, and loans in a life insurance policy?
A
a. Policy owner
7
Q
- What provision in a life insurance policy extends coverage beyond the premium due date?
A
a. Grace period
8
Q
- What beneficiary designation has first claim to the death proceeds of a life insurance policy?
A
a. Primary beneficiary
9
Q
- What type of beneficiary can be changed at any point by the policy owner?
A
a. Revocable
10
Q
- What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?
A
a. Policy premium in a reinstated policy will be set according the insured’s original age
11
Q
- When would a misrepresentation be considered material?
A
a. When it may alter the underwriting decision
12
Q
- What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
A
a. Incontestability
13
Q
- An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
A
a. The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
14
Q
- What happens to the proceeds of a life insurance policy if there is no named beneficiary?
A
a. The proceeds are paid to the insured estate
15
Q
- Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
A
a. Absolute assignment
16
Q
- An insurer has discovered a representation on a life insurance policy application regarding the insured’s age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
A
a. Pay a reduced death benefit
17
Q
- What are representations on life insurance applications?
A
a. Statements made by the applicant that are true to the best of the applicant’s knowledge
18
Q
- Who has the right to the cash value of a life insurance policy?
A
a. Policy owner
19
Q
- When can an insurance company use suicide as a defense against paying a death claim?
A
a. When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)
20
Q
- What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
A
a. Collateral assignment
21
Q
- Which dividend option is automatically selected by the company if not chosen by the policy owner?
A
a. Paid-up additions
22
Q
- What is the purpose of a free-look period?
A
a. To allow the insured to return the policy with a full refund
23
Q
- What is the purpose of the Automatic Premium Loan provision?
A
a. To prevent the unintentional lapse of a policy because of nonpayment of the premium
24
Q
- What life policy rider allows the company to forgo collecting the premium if the insured becomes disables?
A
a. Waiver of premium
25
25. What is the disadvantage of selecting the life income settlement option?
a. If the beneficiary dies shortly after the payments begin, the balance of the principle will be forfeited
26
26. Is the beneficiary required to have insurable interest in the insured?
a. No. Beneficiaries do not have insurable interest in the insured
27
27. What dividend option can increase the death benefit of the existing life policy?
a. Paid-up additions
28
28. The sole beneficiary of a life insurance policy dies before the insured. If the policy owner does not amend the beneficiary designation what will happen to the policy’s death benefit?
a. It will be paid to the insured’s estate
29
29. What type of beneficiary is next in line after the primary beneficiary?
a. Contingent beneficiary
30
30. What is the purpose of the settlement options in life insurance policies?
a. To determine how the death benefit will be paid to the beneficiary
31
31. When will a contingent beneficiary receive death benefit from a life insurance policy?
a. When the primary beneficiary dies before the insured
32
32. What is consideration on the part of the insurer?
a. A promise to pay policy benefits
33
33. Who does the common disaster clause protect?
a. The contingent beneficiary
34
34. What are the most common exclusions in life insurance policies?
a. War and military service
b. Hazardous occupation
c. Aviation
35
35. An insured purchased a life policy and then committed suicide 5 years later. Will the company pay the death benefit to the beneficiary?
a. Yes, since the suicide was committed long after the restricted period
36
36. What does the term ‘double indemnity’ mean?
a. The insurer will pay a benefit to twice the face amount
37
37. What is the name for a life insurance policy rider that provides coverage on the insured’s family members?
a. Other-insured rider
38
38. What are the three nonforfeiture options in life insurance policies?
a. Cash surrender
b. Reduced paid-up
c. Extended term
39
39. Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policy owner?
a. Cash surrender
40
40. Which nonforfeiture option is automatically selected by the company if not chosen by the policy owner?
a. Extended term
41
41. With the reduction of premium dividend option, how is the dividend used?
a. The dividend is applied to the next year’s premium (it reduces the next year’s premium)
42
42. What settlement options are available in life insurance policies?
a. Lump-sum cash
b. Fixed period
c. Fixed amount
d. Life income
e. Interest only
43
43. If a settlement option is not chosen by the policy owner or the beneficiary what option will be used by the insurer?
a. Lump sum payment
44
44. In the fixed period settlement options how will the number of installments for the death benefit proceeds determine the amount of installments?
a. The longer the period selected the smaller each installment will be
45
45. With the interest only settlement option what happens to the policy’s death benefits?
a. Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
46
46. What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?
a. Settlement options
47
47. Which of the following is true regarding variable annuities?
a. The annuitant assumes the risks on investment
b. The payments that the annuitant invests into the variable annuity are invested in the insurer’s separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from “money market funds” to “growth stock funds” to “precious metal funds”. Therefore, the annuitant assumes the risk of the investment.
48
48. When a policy is surrendered for its cash value
a. Coverage ends and the policy cannot be reinstated
| b. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated
49
49. An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of
a. A STOLI policy
b. Stranger-originated life insurance (STOLI) policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
50
50. What is the benefit of choosing extended term as a nonforfeiture option?
a. It has the highest amount of insurance protection
b. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.
51
51. Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends plus interest and the policy cash value to pay the policy up early?
a. Paid-up option
b. With the paid-up option, the insurer can accumulate dividends at interest and then use them in addition to interest and the policy’s cash value to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
52
52. Which of the following is NOT true regarding a nonqualified retirement plan?
a. It needs IRS approval
b. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by the IRS.
53
53. An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy’s cash value, which is currently $20,000. What would be the face amount of the new term policy?
a. $50,000
| b. The face of the term policy would be the same as the face amount provided under the whole life policy.
54
54. Which of the following policy components contains the company’s promise to pay?
a. Insuring clause
| b. The insuring clause contains the company’s promise to pay
55
55. Under an extended term insurance policy, the policy cash value is converted to?
a. The same face amount than the whole life policy
b. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy
56
56. If a consumer request additional information concerning an Investigative Consumer Report how long does the insurer or reporting agency have to comply?
a. 5 days
b. Consumers must be advised that they have a right to request additional information concerning investigative Consumer Reports and the insurer or reporting agency has 5 days to provide the consumer with the additional information
57
57. All of the following are examples of third-party ownership of a life insurance policy EXCEPT
a. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan
b. A collateral assignment is the transfer of some or all of the death benefit of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured’s death the creditor would only be able to recover the portion of the policy’s proceeds equal to the creditor’s remaining interest in the loan
58
58. If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to
a. Charge a higher premium
| b. The premium rate will be adjusted to reflect the insurer’s increased risk
59
59. Which of the following is NOT an example of insurable interest?
a. Debtor in creditor
b. The three recognized areas in which insurable interest exists are as follows: a policy owner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor
60
60. Why is an equity indexed annuity considered to be a fixed annuity?
a. It has a guaranteed minimum interest rate
b. While equity indexed annuities earn higher interest rates than fixed annuities both types of annuities guarantee a specific minimum interest rate
61
61. Within how many days of requesting and Investigative Consumer Report must an insurer notify the consumer in writing that the report will be obtained?
a. 3 Days
b. Investigative Consumer Reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date of the report was requested.
62
62. In comparison to consumer reports which of the following describes a unique characteristic of investigative consumer reports?
a. The customer’s associates, friends and neighbors provide the report’s data
b. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer’s character and reputation and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.
63
63. Under a 20-pay whole life policy in order for the policy to pay the death benefit to a beneficiary the premiums must be paid
a. For 20 years or until death, whichever occurs first
b. Under 20-pay life policy all of the premiums necessary to cause the policy to endow at the insured’s age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
64
64. Which of the following examines the rate of return that must be earned on a hypothetical side fund so that the value of the side fund will be exactly equal to the surrender value of the higher premium policy?
a. Comparative interest rate
b. Comparative interest rate examines the rate of return that must be earned on a hypothetical side fund in a buy-term-invest-the-difference plan so that the value of the side fund will be exactly equal to the surrender value of the higher premium policy at a designated point in time.
65
65. Which of the following would be required to be licensed as an insurance producer?
a. A salaried employee who advertises and solicits insurance
b. A person does not require an insurance producer license if he or she only advertises without intent to solicit insurance. However, once there is solicitation a license is required.
66
66. A temporary license holder can receive a commission from a sale made to all of the following EXCEPT
a. The license holder’s sister-in-law
b. A temporary license holder sale to a family member or an individual the temporary license holder has an employment or business relationship with will not pay commission
67
67. Upon the submission of a death claim under a life insurance policy when should the insurer pay the policy benefit?
a. Within 2 months
b. Upon receipt of a written proof of death and the right of the claimant to the proceeds the insurer must pay death claims within 2 months.
68
68. The Insurance Commissioner may examine the affairs of any insurer as often as necessary but not less frequently than once every
a. 5 years
| b. The Insurance Commissioner must examine each insurer at least once every 5 years
69
69. An insurance professional advises a client regarding the benefits of her life insurance policy in exchange for a fee. Which of the following terms best describes this type of insurance professional?
a. Counselor
b. A life insurance counselor is someone who for a fee or commission offers to examine a life insurance, an annuity or pure endowment policy and gives advice, recommendations or information regarding the policy’s terms, conditions, benefits, coverage or premium.
70
70. Which of the following is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced?
a. Cost Comparison methods
b. Cost comparison methods are used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced
71
71. Which of the following will be included in a policy summary?
a. Premium amounts and surrender values
72
72. What is the purpose of the buyer’s guide?
a. To allow the consumer to compare the costs of different policies
73
73. An agent and an applicant for 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?
a. When the agent delivers the policy, collects the initial premium and the applicant completes an acceptable Statement of Good Health
74
74. The full premium was submitted with the application for life insurance and the policy was issued two week later as requested. When does the policy coverage become effective?
a. As of the application date
75
75. An agent must do all of the following when delivering a new policy to the insured EXCEPT
a. Disclose commissions earned from the sale of the policy
76
76. What describes the specific information about a policy?
a. Policy summary
77
77. A prospective insured receives a conditional receipt and dies before the policy is issued, the company will
a. Pay the policy proceeds only if it would have issued the policy
78
78. An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy’s effective date?
a. The date of medical exam
79
79. When must insurable interest exist in a life insurance policy?
a. At the time of application
80
80. Stranger-originated life insurance (STOLI) policies are in direct opposition to the principle of
a. Insurable interest
81
81. Which of the following best describes the process of policy delivery?
a. After the insurer receives that application, it is forwarded to the underwriting department. After the application is approved and the policy is issued, the policy is delivered either in person or by mail.
82
82. Insurance is the transfer of
a. Risk
83
83. Which of the following would provide an underwriter with information concerning an applicant’s health history?
a. The Medical Information Bureau
84
84. Within how many days of requesting an Investigative Consumer Report must an insurer notify the consumer in writing that the report will be ordered?
a. 3 days
85
85. If an applicant is found to be substandard risk, they will
a. Charge higher premium
86
86. Another name for a substandard risk classification is
a. Rated
87
87. Which of the following statements regarding HIV testing for insurance purposes is NOT true?
a. Insurers are barred from requesting HIV testing
b. It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.
88
88. An insured died from a self-inflicted injury. Is it likely that this would be considered an accidental death?
a. No; self-inflicted injuries are usually excluded
b. Deaths that result from self-inflicted injuries, or from war, or as a result of certain hobbies or avocations such as flying are usually not covered under the accidental death rider (although they would be covered under the base policy unless specifically excluded).
89
89. According to the “Common Disaster” clause if the insured and primary beneficiary are killed in the same accident and it cannot be determined who died first which of the following will be assumed?
a. The primary beneficiary died before the insured
b. According to the “common disaster” clause if it cannot be determined who died first the insured or the primary beneficiary it will be assumed the primary beneficiary died first so the proceeds go to the contingent beneficiary. Proceeds will go to the insured’s estate only if there is no contingent beneficiary.
90
90. Which of the following life insurance products will require the use of an approved prospectus?
a. Variable life
b. Variable life products are considered securities. The sale of a variable life policy must be preceded or accompanied by a prospectus filed with the SEC.
91
91. All of the following are consideration in an insurance policy EXCEPT
a. The cash value in the policy
b. Consideration is the value offered by the insured to the insurer and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.
92
92. When term insurance is added to the main policy to enhance the policy or provide added benefit or coverage, it is called a
a. Term rider
93
93. According to the life insurance replacement regulations which of the following would be an example of policy replacement?
a. A policy is reissued with a reduction in cash value
b. Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer tha by reason of the transaction, existing life insurance or annuities have been or will be converted to reduce paid-up insurance, continued as extended term or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
94
94. All of the following are required for HIV testing EXCEPT
a. If HIV is present the person may be rated but they cannot be declined.
b. A person with HIV can be declined
95
95. How long is the grace period for an individual life insurance policy?
a. 1 month
| b. An individual life insurance policy will not lapse for up to 31 days after the premium due date
96
96. All of the following statements are true regarding an Ordinary (Straight) Life policy EXCEPT
a. It does not have a guaranteed death benefit
b. Straight Life (also called Ordinary Life or Continuous Premium Whole Life) charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. If the insured lives to age 100 the policy endows (matures) and the face amount is paid to the insured at that time. During the insured’s lifetime the straight life policy builds cash value. The insurer guarantees the cash value and death benefit under a straight life policy.
97
97. Which of the following would NOT be eligible for coverage under key person?
a. The owner of a shop
98
98. To purchase insurance the policy owner must face the possibility of losing money or something of value in the event of loss. What is the concept called?
a. Insurable interest
99
99. In a replacement situation, all of the following are prohibited practices EXCEPT
a. Borrowing 50% of the policy’s cash value to fund a new life insurance contract.
100
100. A married couple purchase a life insurance policy on their newborn baby. They are concerned about what would happen to the policy if either one of them were unable to continue making premium payments due to death or disability. Which policy rider should their agent recommend?
a. Payor benefit
b. Payor rider provides protection to the insured minors. If the life insurance is for a child and the parent paying the premium dies or becomes disabled the insurance company will waive the premium until the child reaches a predetermined age, such as 18 or 21.
101
101. A variable life policy was issued 20 years ago with the face amount of $100,000. Five years ago the policy’s value was $130,000 and this year it is $80,000. If the insured died today what amount will most likely be paid to the beneficiary?
a. $100,000
102
102. A whole life policy is surrendered for a reduced-paid up. The cash value in the new policy will
a. Remain the same
103
103. J is receiving fixed amount benefit payments from his late wife’s insurance policy. He was told that if he dies before all of the benefits are paid the remaining amount will go the contingent beneficiary. Which settlement option did J choose?
a. Fixed Amount
104
104. Considering the principles of liquidity how would the policy owner use today’s cash values in a life insurance policy?
a. Use it for emergency expenses
105
105. Which of the following is the distinguishing characteristic of the interest-adjusted new cost method?
a. Considering the time value of money in comparing life insurance costs
106
106. If a credit life policy is terminated upon the payment of the death benefit what happens to the premium paid into the policy?
a. The premium is considered earned so no refund is required
107
107. All of the following are true credit life EXCEPT
a. The insured names the beneficiary
108
108. During policy solicitation an insurer exaggerates the financial condition of one of its competitors and makes it sound worse than it is. This is an example of
a. Defamation
109
109. An insurance agent visits a potential client and explains various types of policies. The customer displays a lack of interest, so the agent guarantees higher dividends than he knows would be possible. Which term describes what the agent has done?
a. Misrepresentation
110
110. In which of the following scenarios would a producer be allowed to obtain insurance through an unauthorized insurer?
a. If there are no authorized insurers for a specific type of coverage in this state
