Stranger-oriented life insurance policies are in direct opposition to the principle of
a. law of large numbers
b. good faith
c. indemnity
d. insurable interest
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
Which is generally true regarding insureds who have earned preferred status?
a. they keep a higher percentage of any interest earned on their policies
b. their premiums are lower
c. they can barrow higher amounts off of their policies
d. they can decide w
b. their premiums are lower- the insured is in excellent physical condition and employs healthy lifestyles and habits
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT:
a. the employer pays a bonus to a selected employee to fund to policy
b. it is considered a non qualified employee benefit.
c. the policy is own
c. the policy is owned by the company.
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
b. term
c. securities
d. sto
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.
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
a. aleatory contract
b. executive bonus
c. key person
d. a fraternal association
b. executive bonus
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.
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
b. estate creation
c. survivor protection
d. surviv
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.
Which of the following applicants could the insurer charge a higher rate and not be charge with unfair discrimination?
a. an applicant that was born in another country
b. an applicant who is legally blind
c. an applicant who has been a victim of domestic
d. an applicant that smokes cigarettes as opposed to one that does not
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
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?
a. mortgages
b. expenses
c. estimated longevity
d. outstanding debt
c. estimated longevity
An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds
a. $10,000
b. $15,000
c. $25,000
d. $50,000
d. $50,000
Which of the following would NOT fall into the category of costs associated with death?
a. final medical expenses of the insured
b. day to day expenses of maintaining the family
c. the expense of a vacation for surviving family members
d. funeral expenses
c. the expense of a vacation for surviving family members
Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?
a. effect of inflation on income over time
b. predicted needs of the family after the insured's death
c. insured's current and future income
d.
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
Who makes up the Medical Information Bureau?
Insurers
Upon policy delivery, the agent may be required to obtain any of the following EXCEPT
a. payment of premium
b. corrected and resigned application
c. signed waiver of premium
d. statement of good health
c. signed waiver of premium
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?
a. she has a Steadily Decreasing Premium policy
b. the insurer's customer base
c. her insurer used interest earned on premiums to lower premium amounts
Who is the owner of the policy and who pays the premium in and Executive Bonus plan?
a. company is the owner, but the executive pays the premium
b. board of directors is the owner, and the board of directors pays the premium
c. company is the owner, and t
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 considere
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 Pl
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies
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 utiliz
d. viatical settlement
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
a. it will likely be higher because the applicant is a substandard risk
Which is the primary source of information used for insurance underwriting?
a. applicant interview
b. medical records
c. private investigations
d. application
d. application
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?
a. partner B buys a policy on partner A in the amount of $75,000 naming Partner
d. partner A buys a policy on partner B in the amount of $75,000 naming Partner A as beneficiary.
What is the name of the insured who enters into a viatical settlement?
a. contingent
b. viatical broker
c. viator
d. third party
c. viator- the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract
Which government program allows a blackout period?
Social Security
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
a. which individual will pay the premium
b. whether an insurable interest exists between the individuals
b. whether an insurable interest exists between the individuals
Which of the following best describes the MIB?
a. it's a member organization that protects insured against insolvent insurers.
b. it's a rating organization for health insurance
c. it's a non profit organization that maintains underwriting information on
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
Which of the following is NOT an example of insurable interest?
a. child in parent
b. debtor in creditor
c. business partners in each other
d. employer in employee
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
An applicant wants to buy a policy that has cash value element. Which type should she buy?
a. term
b. permanent
c. stock
d. investment
b. permanent- death protection and savings/cash value option
What are the personal uses of life insurance?
a. insured protection, estate creation and cash accumulation
b. cash accumulation, estate depletion and liquidity
c. beneficiary protection, liquidity, estate creation and cash accumulation
d. survivor protect
d. survivor protection, estate creation and conservation, cash accumulation and liquidity
Which of the following best details the underwriting process for life insurance?
a. reporting and rejection of risks
b. selection, classification, and rating of risks
c. solicitation, negotiation and sale of policies
d. issuance of policies
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 instabili
Which of the following types of risk will result in the highest premium?
a. substandard risk
b. standard risk
c. preferred risk
d. all risks pay equal premiums
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.
A key person insurance policy can pay for which of the following?
a. workers compensation
b. hospital bills of the key employee
c. costs of training a replacement
d. loss of personal income
c. costs of training a replacement- the policy will pay for costs of running the business and replacing the employee
What qualifications must an agent hold in order to sell variable life insurance policies?
a. National Association of Insurance Commissioners (NAIC) registration
b. state licensing to sell life insurance and variable products
c. both state and federal lice
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
Which of the following may NOT be included in an insurance company's advertisement?
a. their policies' limitation or exclusions
b. the name of the specific agent
c. an identification of a limited policy as a limited policy
d. that its policies are covered
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
A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy?
a. level
b. variable
c. solid
d. fixed
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
Which of the following is NOT true?
a. the Life and Health Guaranty Association is comprised of representatives from the DOIs of every state
b. the Association's liability is generally limited to that of the impaired instance company
c. the Life and Healt
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
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
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
a. 10 days
b. 30 days
c. 60 days
d. 5 days
d. 5 days
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?
a. statement of continued good health
b. attending physician st
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
Attempting to determine how much insurance an individual would require base upon their financial objectives is known as:
a. viatical approach
b. needs approach
c. human life value approach
d. estate planning
b. needs approach-determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.
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
b. travel expenses for family to come to the funeral
c. debt cancellation
d. day care
a. vacation travel expenses
Which of the following is NOT true of life settlements?
a. the seller must be terminally ill
b. they could be used for a key person coverage
c. they could be sold for an amount grater than the current cash value
d. they involve insurance policies with lar
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, corpor
Key person life insurance does NOT reimburse a company for which of the following?
a. for a loss of previous business resulting from a key person's death
b. for a reduction of profits resulting from a key person's death
c. for increased pension liability
c. for increased pension liability resulting from a key person's death
Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles?
a. standard risk pays a higher premium than a substandard risk
b. standard risk requires extra rating
c. standard risk is
d. standard risk is representative of the majority of people-average risk
What are the three ratings of classification that denotes the risk level of insureds?
Standard, substandard, and preferred
Which of the following individuals must have insurable interest in the insured?
a. producer
b. policy owner
c. beneficiary
d. actuary
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.
The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports?
a. attending physician
b. insurance company who provided the prior coverage
c. Medical Informati
d. agent's report- the agent communicates his/her observations concerning an applicant in the agent's report
The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called:
a. legal reserve
b. dividend accumulation
c. premium tax
d. expenses
d. expenses- loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium
Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?
a. the employer is the owner and the Key Person is the beneficiary
b. The Key Person is the owner and beneficiary
c. The Key Person is the owner and the employer is the ben
d. the employer is the owner and beneficiary- with key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary.
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?
a. insurance index
b. policy summary
c. illustrations
d. buyer's guide
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.
Which of the following entities regulates variable life policies?
a. the Federal Government only
b. Securities and Exchange Commission (SEC) and the Insurance Department
c. Financial Industry Regulatory Authority and the State Guarantee Association
d. the
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
What is the purpose of key person insurance?
a. to provide health insurance to the families of key employees
b. to insure retirement benefits are available to all key employees
c. to maintain an account that insures the owner of a company remains solvent
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.
Rod wants to pay his initial life insurance premium in advance. Which of the following best describes his situation?
a. Rod cannot pay his policy is advance; it is payable either when the agent delivers the policy or anytime during the first initial month
b. Rod can pay his premium as early as he wants, even with his application-which is stipulated by the Payment of Premium Clause
What are the members of the Medical Information Bureau required to report?
a. any claims an individual has made
b. information about unpaid hospital bills
c. information about an individual's intentional injuries
d. adverse medical information about indiv
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 discovere
Which of the following is correct concerning the taxation of a Key Person Life Insurance Policy premiums and death benefit?
a. Premiums are tax deductible as a business expense and the death benefit is taxable to the company
b. Premiums are tax deductible
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 usua
An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?
a. the policy will be reduced to an extended term option.
b. the policy will terminate when the loan amount with interest equals or exceeds the cash
b. the policy will terminate when the loan amount with interest equals or exceeds the cash value
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
b. predetermined length of time stipulated in the contract
c. length of income period
d. amount of in
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.
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
a. assignment of ownership
b. collateral assignment
c. tempo
b. collateral assignment-transferring all or a part of the death benefit to another
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?
a. Waiver of Premium
b. Payor Benefit
c. Jumping Juvenile
d. Juvenile Premium Provision
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
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 hav
c. universal life
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?
a. delayed income option
b. fi
c. interest only option- she would receive the interest earned by the face amount, but the face amount would remain
Which of the following statements best describes the effect the Accelerated benefit provision would have on the benefits paid to the beneficiary?
a. it will not affect the benefits paid to the beneficiary
b. it will reduce the benefits by 70%
c. it will i
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
When a reduced-paid up non-forfeiture option is chosen, what happens to the face amount of the policy?
a. it decreases over the term of the policy
b. it remains the same as the original policy, regardless of any discrepancies in value
c. it is reduced to
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
Which of the following riders provides for a waiver of premium when the policy owner and the insured are NOT the same person?
a. waiver of the cost of insurance
b. conditions for payment
c. payor benefit
d. waiver of premium
c. payor benefit- waives the premium of the owner when the owner becomes disable and is a person other than the insured
Unlike the dividend itself, the interest earned on dividends is
a. 40% taxable, similar to a capital gain
b. taxable
c. nontaxable
d. tax deductible
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
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?
Fixed amount settlement
All of the following statements concerning dividends are true EXCEPT:
a. lower insurance company costs generate higher dividends
b. they stem from favorable underwriting experience
c. Favorable investment results generate higher dividends
d. dividend amou
d. dividend amounts are guaranteed in the policy-they cannot be guaranteed
If a life insurance policy has an irrevocable beneficiary designation,
a. the owner can always change the beneficiary at will
b. the beneficiary cannot be changed
c. the beneficiary can only be changed with written permission of the beneficiary
d. the ben
c. the beneficiary can only be changed with written permission of the beneficiary
Which non forfeiture option has the highest amount of insurance protection?
a. extended term
b. conversion
c. decreasing term
d. reduced paid-up
a. extended term
Which option provides a single beneficiary with income for the rest of his/her life?
a. joint life option
b. single beneficiary option
c. single life option
d. one beneficiary option
c. single life option- provides a single beneficiary with income for the rest of his/her life
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?
a. assignment
b. automatic premium loans
c. waiver of premium
d. incontestability period
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
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
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?
a. estate conservation
b. life insurance proceeds
c. state education waiver
d. viatical
b. life insurance proceeds- day care is considered a need-based expense that can be paid by life insurance proceeds
Which of the following are generally not considered when underwriting group insurance?
a. the size of the group
b. the group's medical history
c. the nature of the group
d. the group's past claim experience
b. the group's medical history- because it's a group and not written on an individual basis medical questions are not necessary
With a Straight Life policy, what happens if the insured lives to age 100?
a. the policy matures and the face value is paid to the beneficiary
b. the policy matures and the cash value is used to purchase a single premium policy
c. the policy will stay in
d. the policy endows (matures) and the cash value, equal to the face amount, is paid to the insured
The policyowner of an Adjustable Life policy can increase premium payments and
a. have a lower non forfeiture option
b. have a higher cash value interest rate
c. have a higher face amount without proof of insurability
d. have a limited pay policy
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
All other factors being equal, the least expensive first-year premium payment is found in
a. level term
b. annually renewable term
c. increasing term
d. decreasing term
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 i
Who can make changes to the policy once it is in effect?
a. the insured
b. the policyowner
c. the agent
d. an executive officer of the insurer
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.
Who has the legal title of the property in a trust?
a. guardian
b. trustee
c. grantor
d. beneficiary
b. trustee
The rider that allows the company to forgo collecting the premium if the insured is disabled is called
a. waiver of premium
b. guaranteed insurability
c. waiver of cost of insurance
d. payor benefit
a. waiver of premium-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 U
An agent is acting ethically in all the of following situations EXCEPT
a. working within the conditions of his/her contract
b. representing the insurer, not the insured
c. keeping customers' best interests in mind
d. always representing the insured
d. always representing the insured-they are deemed to represent the insurer, not the insured
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the
a. total contract
b. aleatory contract
c. complete contract
d. entire contract
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.
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
b. 7 days
c. 10 days
d. 3 days
a. 5 days
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?
a. 5 days
b. 10 days
c. 60 days
d. 45 days
b. 10 days- if the rate filed, but is not disapproved within 10 days, the higher rate may be applied.
If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving instability, his policy includes a
a. Conversion option
b. Non forfeiture option
c. Guaranteed insurability option
d. Guaranteed renewable option
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.
The paid-up addition option uses the dividend
a. to accumulate additional savings for retirement
b. to purchase a smaller amount of the same type of insurance as the original policy
c. to purchase a one-year term insurance in the amount of the cash value
b. to purchase a smaller amount of the same type of insurance as the original policy-additional permanent policy
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?
a. Sue for the right to not pay the death benefit
b. Pay the deat
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 ma
The following are legitimate uses of insurance in a business setting EXCEPT
a. Funding business continuation agreements
b. Funding against general company financial loss
c. compensating executives
d. funding against financial loss caused by the death of a
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 again