The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?
Loss
When would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material
Who owns stock companies?
Stockholders
A state-issued document empowering an insurance company to become an admitted insurer is called what?
Certificate of Authority
What is the term for the causes of loss insured against in an insurance policy?
Peril
If an applicant does not receive his or her insurance policy, who would be held responsible?
The agent
Insurance is used to transfer what to the insurance company?
Financial responsibility for loss
An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?
Foreign
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
According to the Law of Agency, a principal is represented
Agent or producer
Insurers are classified according to their domicile. What are the three types of insurers?
Domestic, foreign, and alien
What law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated
Law of large numbers
A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?
Morale
What is the name of the process that insurance companies use to determine whether or not an applicant is insurable?
Underwriting
In order to transact insurance within a given state, an alien insurer must first obtain what?
Certificate of Authority
For the purpose of insurance, what is risk?
Uncertainty of loss
What do individuals use to transfer their risk of loss to a larger group?
Insurance
What type of insurer is formed under the laws of another country?
Alien
What type of risk is insurable?
Pure
The type of insurance company organized to return any surplus money to its policyholders is known as what?
Mutual company
What are the most common penalties for violations of insurance statutes?
A cease and desist order, a fine, and license suspension or revocation
An applicant conceals relevant health information on the application. The applicant presents what type of hazard?
Moral
What two elements are necessary for a life insurance contract to have a legal purpose?
Insurable interest and consent
Insurance is a contract that protects the insured from what?
Loss
The insurer organized to return a profit to the stockholders is what type of insurer?
Stock company
What is the best way to handle incomplete insurance applications?
Return the application to the applicant for completion
What type of report provides information about the applicant's hobbies, habits and financial status?
Inspection report
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurer
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application
Wagering on a sporting event is known as what type of risk?
Speculative
What type of insurer is a voluntarily formed organization that provides insurance benefits for members of an affiliated lodge or religious organization with a representative form of government?
Fraternal insurer
What are the strategies used by underwriters to prevent adverse selection?
Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate
If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?
Provide the applicant a Disclosure Authorization Notice
An insurance company that is formed under the laws of another state is known as what type of insurer?
Foreign
What are the three types of agent authority?
Express, implied and apparent
What law protects consumers from the circulation of inaccurate or obsolete information?
The Fair Credit Reporting Act
A situation in which a person can only experience a loss and no gain presents what type of risk?
Pure risk
What are the three types of hazards?
Physical, moral and morale
Whom does an insurance agent represent?
Insurance company
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correction on the original application
In the agent/insurer relationship, who is considered the principal?
Insurer
An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?
Mutual
When risks with higher probability of loss are seeking insurance more often than other risks, this is knows as what?
Adverse selection
What document is required for an insurance company to transact insurance?
Certificate of authority
during partial withdrawl from a universal policy, which portion If any will be taxed ?
intrest earned on withdrawl policy
If an insured terminates membership in group life insurance, to what type of insurance can the insured convert to
Whole life
An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation?
Decreasing term
In a joint life policy, when is the death benefit paid?
Upon the first death
When would a 20-pay whole life policy endow?
When the insured reaches age 100
What elements of an adjustable life policy can be changed by the policyowners?
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Whole life policies provide protection until the insured reaches what age?
Age 100
What type of life insurance policy provides permanent protection?
Whole life
A whole life policy that requires that the policyowner only pays premiums for a specified number of years is known as what kind of policy?
Limited-pay whole life
What type of premium is charged on a straight life policy?
A level premium for the life of the insured
In what type of life insurance policies can the policyowner skip premium payments without the policy lapsing?
Universal life
When does an adjustable life policy accumulate cash value?
When the premiums paid are more than the cost of the policy
When would a 20-pay whole life policy endow?
When insurer reaches age 100
What are the characteristics of the group that underwriters will consider before issuing a group life policy?
Group's purpose, size, financial strength and turnover
What does "level" refer to in level term insurance?
Face amount
What is the major difference between the most common types of whole life policies: Straight Life, Limited Payment and Single Premium?
Premium payment mode
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium
When would a misrepresentation be considered material?
When it may alter the underwriting decision
What are the three nonforfeiture options in life insurance policies?
Cash surrender, reduced paid-up, and extended term
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?
Pay a reduced death benefit
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insured's estate.
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
Other-insured rider
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute assignment
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
Settlement options
Which nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
Extended term
What type of beneficiary is next in line after the primary beneficiary?
Contingent beneficiary
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
Entire contract
Which nonforfeiture option provides coverage for the longest period of time?
Reduced-paid up
What is the disadvantage of selecting the life income settlement option?
If the beneficiary dies shortly after the payments begin, the balance of the principal will be forfeited.
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
Who does the common disaster clause protect?
The contingent beneficiary
Who controls changes in premium payments, face values, and loans in a life insurance policy?
Policy owner
If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?
Lump sum payment
What is consideration on the part of the insurer?
A promise to pay policy benefits
What settlement options are available in life insurance policies?
Lump-sum/cash, fixed period, fixed amount, life income, interest only
What dividend option can increase the death benefit of the existing life policy?
Paid-up addition
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the original insurance application
With the interest only settlement option, what happens to the policy's death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
What is the purpose of a free-look period?
To allow the insured to return the policy with a full refund
When can an insurance company use suicide as a defense against paying a death claim?
When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)
What type of beneficiary can be changed at any point by the policyowner?
Revocable
What required provision protects against unintentional policy lapse?
Grace period
In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?
The longer the period selected, the smaller each installment will be
What are the most common exclusions in life insurance policies?
War and military service, hazardous occupation, and aviation
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary beneficiary
What is the purpose of the Automatic Premium Loan provision?
To prevent the unintentional lapse of a policy because of nonpayment of the premium
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace period
What are representations on life insurance applications?
Statements made by the applicant that are true to the best of the applicant's knowledge
What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?
Policy premium in a reinstated policy will be set according to the insured's original age.
Which dividend option is automatically selected by the company if not chosen by the policyowner?
Paid up additions
What are the dividend options in life insurance policies?
Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to the next year's premium (it reduces the next year's premium)
An insured purchased a life policy, and then committed suicide 5 years later. Will the company pay the death benefit to the beneficiary?
Yes, since the suicide was committed long after the restricting period
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
Collateral assignment
Who has the right to the cash value of a life insurance policy?
Policy owner
Statements on the application made by an applicant for a life insurance policy are known as what?
Representations
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to the beneficiary
What does the term 'double indemnity' mean?
The insurer will pay a benefit of twice the face amount
What are policy dividends?
Return of unused premiums
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
It will be paid to the insured's estate.
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
Cash surrender
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?
Incontestability
What happens to a policy's cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy
When will a contingent beneficiary receive death benefit from a life insurance policy?
When the primary beneficiary dies before the insured
In flexible premium payment annuities, the term 'flexible' refers to what?
Amount of premium
An individual has a contract that will provide him with a certain amount of income for the rest of his life. This is not, however, a life insurance policy. What type of contract does this person have?
Annuity
An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?
Flexible premium deferred annuity
If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?
Annuitant's estate
In an annuity, the accumulated money is converted into a stream of income during which phase?
Annuitization period
How are annuities classified depending on how many lives they cover?
Single life and multiple life annuities
How long is income paid under a pure life annuity?
Only for the life of the annuitant
What are the two types of refund life annuities?
Cash refund and installment refund
If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?
Current
What are the two classifications of annuities according to the time when annuity payments begin?
Immediate and deferred
What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight life
What is the difference between a single premium and a flexible premium payment options in a deferred annuity?
The number of payments that purchase the annuity
What are the two phases of an annuity?
Accumulation and annuitization (or pay-in and pay-out)
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
Beneficiary
What type of license(s) is/are required in order to sell variable annuities?
Life and security
What portion of a nonqualified annuity payment would be taxed?
Interest earned on principal
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
Only the portion in excess of the premium paid
What type of plan is 401(k)?
Qualified profit-sharing plan
In a direct rollover, how is the money transferred from one retirement plan to a new one?
From trustee to trustee
If a retirement plan is 'qualified,' what does that mean?
The plan has favorable tax treatment.
What is the penalty for excessive contributions to a traditional IRA?
0.06
What are some examples of qualified plans?
IRA, 401(k), HR10 (Keogh), SEP, SIMPLE
For a retirement plan to be qualified, it must be designed for whose benefit?
employees
In qualified plans, are employer contributions taxed as income to the employees?
No, employer contributions are not taxed as income to the employees
Who may contribute to an HR-10 plan?
Self employed individual
Why are dividends in life insurance policies not taxable?
Dividends are not considered income for tax purposes; they are a return of unused premium.
What is the name for an overfunded life insurance policy?
A Modified Endowment Contract (MEC)
Who qualifies for tax-sheltered annuities, or 403(b) plans?
Employees of nonprofit organizations under Section 501(c)(3) and employees of public school systems
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
Interests only
What is the main purpose of the Seven-pay Test?
To determine if a life insurance policy is a Modified Endowment Contract
Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?
No, lump-sum benefits are received tax free.
What are the three types of Social Security benefits?
Retirement, disability and survivors
What is the primary purpose of a 401(k) plan?
Provide retirement income
Who would be considered a third-party owner?
An individual or an entity who is not the insured
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subject to income taxes.
What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2?
10% penalty
In what form of payment must the contributions to a traditional IRA be made?
In cash
SIMPLE plans are available to groups of how many employees?
No more than 100
What are the income tax benefits of a qualified plan?
Employer contributions are tax deductible and are not taxed as income to the employee. The earnings accumulate tax deferred.
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred.
When would life insurance policy proceeds be included in the insured's taxable estate?
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