PRIMERICA LIFE INSURANCE EXAM
WITH 100% CORRECT ANSWERS 2023
An insured purchased an insurance policy 5 years ago. Last year, she received a
dividend check from the insurance company that was not taxable. This year, she did not
receive a check from the insurer. From what type of insurer did the insured purchase
the policy?
a. mutual
b. reciprocal
c. nonprofit service organization
d. stock – Correct answer-A. mutual
funds not paid out after paying claims and other operating costs are returned to the
policy owners in the form of a dividend. if all funds are paid out, no dividends are paid
Following a career change, an insured is no longer required to perform many physical
activities, so he has implemented a program where he walks and jogs for 45 minutes
each morning. The insured has also eliminated most fatty foods from his diet. Which
method of dealing with risk does this scenario describe?
a. retention
b. reduction
c. transfer
d. avoidance – Correct answer-B. reduction
the insured’s change in lifestyle and habits would likely reduce the chances of health
problems
In insurance, an offer is usually made when
a. an applicant submits an application to the insurer
b. the insurer approves the application and receives the initial premium
c. the agent hands the policy to the policyholder
d. an agent explains a policy to a potential applicant – Correct answer-A. an applicant
submits an application to the insurer
in insurance, the offer is usually made by the applicant in the form of an application.
acceptance takes place when an insurer’s underwriter approves the application and
issues a policy
the causes of loss insured against in an insurance policy are known as
a. perils
b. losses
c. risks
d. hazards – Correct answer-A. perils
perils are the causes of loss insured against in an insurance policy
what documentation grants express authority to an agent?
a. agents contract with the principal
b. agents insurance license
c. fiduciary contract
d. state provisions – Correct answer-A. agents contract with the principal
the principal grants authority to an agent through the agent’s contract
which of the following best describes an insurance company that has been formed
under the laws of this state?
a. domestic
b. sovereign
c. alien
d. foreign – Correct answer-A. domestic
a company is domestic when doing business within the state in which it is incorporated
which of the following factors is NOT considered by an underwriter when determining
the premium rates for an individual seeking insurance?
a. medical history
b. sex
c. age
d. race – Correct answer-D. race
age, medical history, and sex provide sound statistical date for determining the
probability of loss. Race, religion, sexual orientation, etc. are the factors that cannot be
used because there is not sound statistical data to show that they effect the probability
of loss; therefore, they are considered to be discriminatory
in insurance transactions, fiduciary responsibility means
a. handling insurer funds in a trust capacity
b. maintaining good credit record
c. being liable with respect to payment of claims
d. commingling premiums with agents personal funds – Correct answer-A. handling
insurer funds in a trust capacity
an agents fiduciary responsibility includes handling insurer funds in a trust capacity
the authority granted to an agent through the agent’s contract is referred to as
a. absolute authority
b. express authority
c. apparent authority
d. implied authority – Correct answer-B. express authority
express powers are written into the contract between the insurer and the agent
insurance policies are not drawn up though negotiations, and an insured has little to say
about its provisions. what contract characteristic does this describe?
a. unilateral
b. conditional
c. personal
d. adhesion – Correct answer-D. adhesion
a contract of adhesion is prepared by only the insurer; the insured’s only option is to
accept or reject the policy as its written
which of the following insurers are owned by stockholders who have the usual rights of
ownership, including the right of voting?
a. reciprocal
b. fraternal
c. stock
d. mutual – Correct answer-C. stock
only stock insurance companies are owned and controlled by stockholders
which of the following best describes the concept that the insured pays a small amount
of premium for a large amount of risk on the part of the insurance company?
a. subrogation
b. warranty
c. aleatory
d. adhesion – Correct answer-C. aleatory
an insurance contract is an aleatory contract in that it requires a relatively small amount
of premium for a large risk
When an insured makes truthful statements on the application for insurance and pays
the required premium, it is known as which of the following?
a. legal purpose
b. contract of adhesion
c. acceptance
d. consideration – Correct answer-D. consideration
consideration is something of value that each party gives to the other. The consideration
on the part of the insured is the payment of premium and the representations made in
the application
which of the following would qualify as a competent party in an insurance contract?
a. the applicant is intoxicated at the time of application
b. the applicant is 12 year old student
c. the applicant is under the influence of a mind-impairing medication at the time of
application
d. the applicant has a prior felony conviction – Correct answer-D. the applicant has a
prior felony conviction
when an insurer and insured enter into a contract, both parties must be legal of age and
mentally competent. It is legal for a person convicted of a felony to buy an insurance
contract. An intoxicated person, however, may not be mentally competent, a 12 year old
student is considered to be underage in most states and a person under mind-impairing
medication most likely would not be mentally competent
an insurer neglects to pay a legitimate claim that is covered under the terms of the
policy. Which of the following insurance principles has the insurer violated?
a. representation
b. adhesion
c. consideration
d. good health – Correct answer-C. consideration
the binding force in any contract is consideration. consideration on the part of the
insureds the payment of premiums and the health representations made in the
application. Consideration on the part of the insurer is the promise to pay in the even of
loss
which of the following is a primary source of information used for insurance
underwriting?
a. application
b. applicant interviews
c. medical records.
d. private investigations – Correct answer-A. application
What is insurance?
Transfer of the possibility of loss (risk) to an insurance company.
What is a risk?
The uncertainty of financial loss
There are two types of loss
Pure and Speculative
Which type of loss is insurable?
Pure
Why is Pure loss insurable?
Loss must be financial and uncertain. No financial gain can occur.
What causes loss?
Peril; such as fire, accident or flood
What causes a peril?
A hazard
What is a hazard?
Increases the likelihood of a loss; such as smoking
What is the concept called, that predicts the appropriate number of deaths that should occur within a similar group
of people (exposure) within a given period of time?
Law of Large Numbers
What is adverse selection?
People in bad health keep their policy in force longer than people in good health
As an agent, you are a legal representative of the __.
company
The person who pays for the policy of insurance is the
policy owner
The _ is the person who receives the benefits from the insurance policy
beneficiary
The person covered by the insurance policy is the __.
insured
The insurance company is the _.
insurer
To buy insurance, the policyowner must have __ in the insured at the _____________________________________.
insurable interest; time of purchase but not at
time of insured’s death.
The 5 recognizable areas of insurable interest are _.
- your own life
- family members
- business partners
- key employee
5.financial obligation.
What is person called who holds a position of special trust and confidence?
Fiduciary
Waiver vs. Estoppel
Waiver is when you voluntarily give up your legal right. Estoppel is when you are denied the right to enforce a legal right that you have previously given up. Estoppel AKA The Loss of Defense
What are the business uses of life insurance?
- Key Employee
- Buy and Sell Agreement
- Cross Purchase Plan
- Split Dollar Plan
Key Employee
Company is owner and Beneficiary
Employee is Insured Premium NOT tax deductible to Company Third Party Ownership
Buy and Sell Agreement
NOT INSURANCE – A legal document that states WHO may purchase a deceased partners share of the business and for HOW MUCH MONEY
Life Insurance can be used to fund a Buy and Sell Agreement
Drawn up by an Attorney
Cross Purchase Plan
Take the Company Value and divide by number of Owners Each Owner buys a policy on the other Owners, naming himself as beneficiary.
Split Dollar Plan
Employee and Owner share in Premium and DB Third Party Ownership
What is meant by third party ownership
Policy is owned by someone other than the Insured.
A company with an employee who could not be replaced without considerable expense might consider buying a____________________ life insurance policy on that individual
key employee
With a Key Employee Life Insurance Policy, what rights does the Key Employee have?
None, Employer is Owner and Beneficiary
What is the legal document that defines who may buy a deceased partners share of the business and for how much?
Buy and Sell Agreement, a legal document. Can be funded with Life Insurance
If Joe and Moe have a Cross Purchase Plan, are 50/50 owners, and the company is valued at $200,000, how much insurance should each buy, and who is the Policy Owner and the Insured?
Joe, Owner, Moe insured, $100,000 / Moe, Owner, Joe insured, $100,000
Two business partners own life insurance on each other. If one partner dies, which of the following contracts will allow the surviving partner to use the death benefit to purchase the deceased’s business interests?
A. Buy-Sell Agreement
B. Keyemployeelifeinsurance
C. Survivorshiplifeinsurance
D. Joint and Survivorship annuity
All the following would have an insurable interest in an insured EXCEPT:
A. Your spouse
B. Your child
C. Your mother
D. Your close friend
Who must sign the Application? Who can make changes to the Application?
The agent (producer), applicant and the policyowner must sign the application. You can never use white out to change an application, applicant must initial change. The agent is the field underwriter.
What are the three parts of an application?
General Information, medical information and the agent’s report.
What is the agent’s responsibility as a field underwriter?
Properly solicit applicants, complete application, obtain
required signatures, collect initial premium, issue receipt and deliver the policy.
When does insurable interest have to exist?
Time of Application, when the agent and applicant complete the
application
Does the beneficiary have to have Insurable Interest?
No
Statements made by an applicant that are true to the best of his/her knowledge.
Representations
_ is a false statement given to the insurer with the intent to defraud.
Misinterpretation
A ___ is the literal or absolute truth
warranty
What is it called when an applicant fails to disclose known material facts?
Concealment
What is it called when someone deliberately conceals or misrepresents a material truth on an application?
Fraud
The basic source of information used in the company’s risk selection process is the _
application
Information received from the applicant’s private physician is known as an __________
attending physicians report
A __ is completed by a paramedic or registered nurse for small amounts of insurance and for
applicants with no prior medical concern.
Paramedical report
The ______________ receives and maintains medical information from insurance companies.
Allows companies to compare information they have collected on potential insured. Protects the company from
______.
medical information bureau (MIB); adverse selection.
___________________ investigate a applicant’s finances, character, work, hobbies, and habits. Consumer
must be notified. __________ credit, employment records and public sources.
Investigative Consumer Reports; Consumer Reports
__________ has to notify the applicant in writing 3 days prior to conducting an investigative consumer report
Insurance Company
The federal legislation that protects the applicant’s right to be notified in the event that his credit history may be
investigated is the ______. Consumer has the right to know reporting agency and reason for denial or
modification of coverage.
fair credit reporting act; Does not have to have an actual copy.
Underwriting cannot
Unfairly discriminate based on race or national origin.
When delivering a policy that is issued as applied for, the agent does Not need to review the policy with the Policy
Owner, True or False?
False
How is Risk classification determined, and how does it affect premium?
Questions in App, Mortality Table, Higher
Risk means higher premium
What is conditional receipt? When does the policy go into effect?
Receipt issued by the agent when the first premium
is paid with the application. Condition receipts says that coverage will be effective either on the date of application or
medical exam, which ever occurs last, unless coverage is denied.
If no premium collected with application, what must agent do when delivering policy?
Collect premium and “Statement of Continued Good Health”
Who must sign the application?
A. Applicant
B. Insured
C. Agent
D. All of the above
When must insurable interest exist?
A. Death of the insured
B. Policy Delivery Date
C. Policy Issue Date
D. When the Agent helps the Applicant complete the application
A producer takes applications from identical twins who want to buy the same type of policies for the same amount. The insurer issues the policies as applied for, but charges a 25% higher premium for one of the policies. The difference in premiums is probably due to which of the following factors?
A Incontestability
B Insurable interest
C Consideration
D Risk classification
An applicant’s statements on an application are considered to be legal:
A Warranties
B Representations
C Guarantees
D Waivers
If an applicant for life insurance submits a completed application to a producer without payment of the first premium, coverage becomes effective when the:
A producer accepts the application
B applicant successfully completes the medical examination
C insurer approves the application
D policy is delivered and the premium paid
The PRIMARY purpose of an inspection report is to assess an applicant’s:
A credit rating
B. personal characteristics
C job performance
D health profile
The federal law that permits an applicant for insurance to question the validity and source of any credit information is called?
A. Medical Information Disclosure Act
B. Medicare Act
C. Equal Opportunity Finance Act
D. Fair Credit Report Act
An insurance producer takes an application for a life insurance policy but does not collect initial
premium. On delivery of the policy to the proposed insured, the producer must collect the initial premium and which of the following?
A. copy of the MIB report
B. The insured’s signed statement of continued good health
C. A copy of the conditional receipt
D. A copy of the temporary insurance agreement that covered the period between the application date and the delivery date.
As a field underwriter underwriter, an agent is responsible for all of the following tasks EXCEPT
A. Obtain appropriate signatures on the application for insurance.
B. Issue the policy that is requested.
C. Collect the initial premium and issue the appropriate receipt.
D. Solicit business that will fall within the insurer’s underwriting guidelines.
The main responsibility of a company’s underwriting unit is which of the following:
A. Make sure the policyholder receives appropriate coverage.
B. Limitbusinesswrittenbynewagents.
C. Selectmarketsfortheagents.
D. Risk selection.
Which of the following is INCORRECT regarding the agent’s duties and responsibilities at the time of
the application?
A. The agent should check to make sure that there are no unanswered questions on the application.
B. TDNEpUTHQoQUJMHLrErGJyHg89uy71MyuHtementontheapplicationbypersonallyinitialingnextto the corrected statement.
C. The agent should explain the nature and type of any receipt he/she is giving to the applicant.
D. The agent should probe beyond the stated questions if he/she feels the applicant is misrepresenting or concealing information.
Term Life Insurance
Lasts for specific term, most insurance for least premium
Level – Term Life
Coverage Stays same the for the specified period
increasing – Term Life
Coverage increases at predetermined times
decreasing – Term Life
Coverage decreases at predetermined times
Traditional Whole Life
Death protection to age 100, level premium for life, cash value
Ordinary (Straight) – Whole Life
Basic policy, level death benefit, Pay premiums for life
Limited – pay – Whole Life
Pay until a certain age or time (20 pay life, Life paid up at 65)
Single pay – Whole Life
One lump sum premium, coverage to age 100
Modified
Term and Whole Life–Starts low then increases in one step
Graded
Term and Whole Life–Premiums start out low but gradually increases then remains level
Adjustable
Coverage, premiums, and plan is adjustable, Insurer chooses two and insured one
Universal Life – Interest Sensitive
ART is death protection & cash value is not guaranteed. Can increase and decrease coverage & skip premiums. Two Death benefit options, A&B
Variable Whole Life – Interest Sensitive
Can control where cash value is invested, cash value not guaranteed, minimum death benefit guaranteed
Variable Universal Life – Interest Sensitive
Same as Universal Life plus owner can control where cash is invested, no guarantee for cash value
Interest Sensitive
Same benefits as traditional whole life. Tied to bond index or Treasury bill rates, minimum cash value guarantee but can grow
Combination Plans
Combines different types of policies to meet needs of a family
Family Policy – Combination Plans
Covers entire family-Whole Life and Convertible Term
Family Income – Combination Plans
Covers Breadwinner—Whole Life & Decreasing Term
Joint Life – Combination Plans
2 or more insureds- Pays death benefit when the FIRST one dies
Survivorship – Combination Plans
2 or more insureds. Pays death benefit when the LAST one dies
Endowment
Same features as regular whole life but endows earlier by age or time (before age 100) and is more expensive
Modified Endowment
Policy fails the seven-pay test it loses its insurance tax advantage. Funds withdrawn by LIFO
Group Life
Usually written for employee-employer groups.
Master Contract goes to the sponsor, usually employer. Certificate of Insurance goes to member
Credit Life & A & H
Protects creditors, amount over debt must go to secondary Beneficiary
L & H Insurance Guarantee Association Act
Protects policyowners, insureds, and beneficiaries from financial losses caused by insolvent insurers
The primary reason for selecting a Variable Whole life policy instead of a traditional Whole Life policy is that the Variable Whole Life policy:
A. Provides flexible premium payments
B. Allows the policyowner to borrow a larger percentage of the cash value
C. Has the potential to earn a higher rate of return on the cash value.
D. Allows the policyowner more flexibility in naming and changing beneficiaries
When an insured reaches age 65, the cash value of a 20-pay Endowment at age 65 policy is equal to which of the following amounts?
A. The sum of the premiums paid plus the accumulated dividends
B. The sum of the premiums paid only
C. the face amount of the policy
D. The total of the guaranteed cash value plus interest.
Which of the following policies is an interest-sensitive form of permanent protection?
A. Universal Life
B. Limited-Pay Life
C. Term Life
D. Split Dollar Life
If a bank encourages a debtor to buy life insurance to pay off a loan in the event of death, which of the following would be the best option?
A. Increasing Term
B. Convertible term
C. Level term
D. Decreasing Term
If a policy that is primarily designed for accumulation of funds within a specific period fails the seven pay test, it is a(n)
A. Annuity
B. 20-pay Life policy
C. Adjustable Life
D. Modified Endowment
Premiums paid on an individual life insurance policy are
A. Taxable
B. Not taxable
C. Taxable if they exceed a specific amount
D. Not taxable if paid in a lump sum
In a Whole Life policy, the age of 100 is significant because the insurance company:
A. Assumes the insured will die before reaching that age
B. Will refund premiums only when the insured reaches that age
C. Will increase coverage when the insured reaches that age
D. Will reduce coverage by one-half when the insured reaches that age
The primary purpose of a limited-pay life policy is to allow an:
A. insurance company to reduce its risk exposure
B. insurance company to sell polices to selected groups of risks
C. only insured to pay premiums for a predetermined period of time
D. insured to purchase coverage that will pay death benefits under specified circumstances only
How long are premium payments paid on a Straight Life Whole Life Policy?
Age 100 or Death of the insured, whichever comes first
When does a Whole Life policy endow?
Age 100
When does a Whole Life policy mature?
Age 100 or Death of the insured, whichever comes first
Who would have paid more in premium, assuming both people are the same age and live to normal life expectancy, the person who pays a single premium or one who pays Straight Life?
Straight Life
What is meant by Limited Pay?
Payments are limited to a specified number of years, or a specific age, i.e. 20-Pay, Pay to 65
Which premium is larger, a 20 Pay policy, or a 25 Pay policy?
20 Pay policy, the shorter the payment period, the larger the premium; think of Premium as how much do you write the check for
What is modified about Modified Whole Life?
Premium increases when type of insurance converts from Term to Whole Life
What policy was designed for the same reason as Modified Whole Life?
Graded Premium, for people with limited income in the early years; income expected to increase in future years
What is adjustable in Adjustable Life?
Type of insurance, Face Amount, and Premium
Name the Death Benefits for a Universal Live Policy.
Option A and Option B
What license/s are required to sell Variable Whole Life?
Life Insurance License and Securities License
Who decides how the Cash Value is invested in a Variable policy?
Policy Owner
What determines the Cash Value growth in a Variable policy?
Performance of Separate Account
If the Separate Account should have extremely poor performance in a Variable Whole Life policy, what happens to the Death Benefit?
Cannot go below the Guaranteed Minimum Death Benefit
Can the Premium change on an Interest Sensitive Whole Life Policy, how, and why?
Premium set on assumptions of Mortality, if actual better, premium lower, etc
What is the Rate of Return on an Interest Sensitive Whole Life Policy?
Guaranteed or Current, same as Universal Life
What type of insurance provides the highest protection for the least premium?
Term
What is guaranteed in an Endowment Policy?
Everything: Premium, Face Amount, Endowment Date
Rights and Characteristics
Entire Contract
Insuring Clause
Free Look Consideration
Owner’s Rights Beneficiary designations
Premium Payment Grace Period
Automatic Premium Loan
Reinstatement Incontestability
Misstatement of Age Policy Loans
Assignment Exclusions
Add or modify coverage
Waiver of Premium Guaranteed Insurability Payor Benefit Rider Term Rider
Other Insured
Accidental Death/Dismemberment
Rider
Accelerated Death Benefit/
Living Benefit
Choices on how to distribute a sum of money
Surrender Options Dividend Options Nonforfeiture Options
Loan Provision
Policyowner can borrow up to amount of cash value
Outstanding Loan will be deducted from the death benefit
Misstatement of Age and Sex
Make it Right; adjust face amount
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
a. mutual
b. reciprocal
c. nonprofit service organization
d. stock
Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?
a. retention
b. reduction
c. transfer
d. avoidance
A. perils
perils are the causes of loss insured against in an insurance policy
A. domestic
a company is domestic when doing business within the state in which it is incorporated
D. race
age, medical history, and sex provide sound statistical date for determining the probability of loss. Race, religion, sexual orientation, etc. are the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory
B. express authority
express powers are written into the contract between the insurer and the agent
C. stock
only stock insurance companies are owned and controlled by stockholders
which of the following would qualify as a competent party in an insurance contract?
a. the applicant is intoxicated at the time of application
b. the applicant is 12 year old student
c. the applicant is under the influence of a mind-impairing medication at the time of application
d. the applicant has a prior felony conviction
D. the applicant has a prior felony conviction
when an insurer and insured enter into a contract, both parties must be legal of age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12 year old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent
D. to create an estate
with insurance, the death creates an immediate estate should the insured die
a producer 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
b. explain the policy provisions, riders, and exclusions
c. collect any premium due
d. explain the rating procedures if the policy is rated differently than applied for
A. disclose commissions earned fro the sale of the policy
a producer must explain policy provisions, exclusions, and riders at the time of the delivery, as well as the rating procedures especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement go continued good health
if an applicant for a life 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
c. the gender of applicant
d. the type of policy requested
When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by
a. a physician of the applicant’s choice and at his expense
b. a home office underwriter
c. a paramedic or examining physician at the insurer’s expense
d. the agent
which of the following is NOT required for a producer to tell a prospect?
a. how the insurer would use any outside information regarding the applicant
b. an explanation of products that the insurer is selling
c. what requirements the producer needed to meet to obtain the insurance license
d. from what outside sources the insurer would seek information, regarding the insured
which of the following statements concerning buy-sell agreements is true?
a. premium paid are deductible as a business expense
b. benefits received are considered income taxable
c. buy-sell agreements pay in the event of a medical emergency
d. buy-sell agreements are normally funded with a life insurance expectancy
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
a. term insurance only
b. permanent insurance only
c. universal life insurance only
d. any form of life insurance
D.any form of life insurance
any form of life insurance may be used to fund a buy-sell agreement
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?
a. ordinary life
b. joint life
c. decreasing term
d. whole life
C. decreasing term
a decreasing term policy’s face amount decreases as the amount of debt is reduced
C. the insured’s medical history
group life insurance is written on a group, not individual basis. Each individual completes an application that identifies the participant and the beneficiary. Then, the group is judged based on its nature and past claim experience. Generally, medical questions are not necessary
D. insurance and cash account
a universal life policy has 2 components: an insurance components and cash account. The insurance component of a universal life policy is always renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher
A. for 20 years or until death, whichever occurs first
under a 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
A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy
a. required a premium increase each renewal
b. built cash value
c. required proof of insurability ever year
d. decreased death benefit each renewal
B. lower
survivorship life is much the same as joint life in that it insures 2 or more lives for a premium that is based on a joint age. the major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, residing in a lower premium thant that which is typically charged for a joint life
what policy would be classified as a traditional level premium contract?
A. set premium rates
the insurer sets premium rates based upon underwriting considerations
a. cash surrender
once the cash surrender value is paid, the contract is over
which of the following is true about the premium on the children’s rider in a life insurance policy?
a. it decreases when an adopted child is added to the policy
b. it remains the same no matter how many children are added to the policy
c. it decreases when the oldest child remains the age of 21
d. it increases when a newborn baby is added to the policy
D. owner’s rights
policy owners can learn about their ownership rights by referring to the policy
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?
a. the proceeds will be split evenly between the 2 beneficiaries
b. the policyowner can specify the way the proceeds are split in the policy
c. the way proceeds are split between beneficiaries is decided by which type of policy is chosen
D. life insurance policies may have only one beneficiary
B. the policyowner can specifiy the way the proceeds are split in the policy
the owner of a life policy may name any individual as a beneficiary for the policy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by the percentage specified in the policy
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?
a. pay nothing, there was a misrepresentation on the application
b. pay the full death benefit and refund excess premium
c. pay a reduced death benefit
d. pay the full death benefit
after a back injury, an insured is disabled for a year. His insurance policy carries a disability income death benefit rider. Which of the following benefits will he receive?
a. monthly premium waiver and monthly income
b. percentage of medical costs paid by the insurer
c. payments for life
d. yearly premium waiver and income
if an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
a. the death benefit will be larger
b. the death benefit will be smaller
c. the death benefit will be forfeited
d. the death benefit will be the same as the original face amount
j applied for a life insurance policy on January 10th. the policy was issued January 31. j’s agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. j decides that he does not want the policy. when would j need to return to the insurer in order to receive a full refund of premium paid?
a. February 28th, or 10 days after the time the policy is delivered
b. the time varies from one policy to another
c. it was already to late when j received the policy because the 10-day free-look period has expired
d. anytime, because the agent did not deliver the policy promptly
an insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an automobile accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as an attachment?
a. $0
b. $100,000
c. $200,000
d. $100,000 plus the total of paid premiums
A. both annuities and life insurance use mortality tables
annuities are not life insurance, they do not pay a face amount upon the death of the annuitant. In most cases, the payment phase stops upon the death of the annuitant. Annuities use mortality tables, which reflect a longer life expectancy than the tables used in life insruance
D. income payments start within one year
A Single Premium Immediate annuity is paid in a single premium. The annuity payments begin within a year of the date of the purchase. A deferred annuity can be punched with either a lump sum or through periodic payments, but the benefit is not paid until after one year or more has lapsed
C. economic inflation
in times of inflation, benefits have less purchasing power. Since costs increase as a result of inflation, more money is required to purchase something that had previously cost less. Likewise, in the event of deflation, the purchasing power of benefits increase. The other options listed would affect the amount of money available to the annuity owner, but they would not actually affect the purchasing power of benefits paid
C. the annuitant cannot be the same person as the annuity owner
while they don’t have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written> since the annuitants’s life expectancy is taken into consideration, the annuitant must be a natural person
A. the insurance company’s general account
fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio.The company makes conservative investments to insure a guaranteed rate to the annuity owners
all of the following statements are true regarding installments for a fixed period annually settlement option EXCEPT:
a. it will pay the benefit only for a designated period of time
b. the payments are not guaranteed for life
c. the insurer determines the amount for each payment
d. it is a life contingency option
B. immediate
with an immediate annuity, distribution starts within 1 year of purchase
What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?
a. capital gains tax on distributions and no penalty
b. capital gains tax on distributions plus 10% penalty
c. income tax on distributions and no penalty
d. income tax on distributions plus 10% penalty
d. it determines if the insurance policy is an MEC
the seven pay test determines whether an insurance policy is “over funded” or if its a modified endowment contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of the net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest
C. free of federal income taxation
life insurance proceeds to beneficiaries are passed free of federal income taxation if taken as a lump sum distribution. If the proceeds are taken as other than lump sum, part of the proceeds will be tax free and part will be taxable. When paid in installements, part of the proceeds contains principal and some interest, so the interest portion is subject to federal income taxation
When must an IRA be completely distributed when a beneficiary is not named?
a. due date of beneficiary tax return including extensions
b. december 31 of the year following the year of the owners death
c. due date of the deceased owners first tax return including extensions
d. december 31 of the year that contains the 5th anniversary of the owners death
D. December 31 of the year that contains he 5th anniversary of the owner’s death
if the owner dies before distributions have begun, the entire interest must be distributed in full on or before December 31 of the calendar year that contains the 5th anniversary of the owners death, unless the owner named a beneficiary
a producer in another state wants to become a producer in Louisiana. The other state gives the same privileges to Louisiana producers wanting to be licensed in that state as it does to its own producers. Louisiana, therefore, extends the licensing privileges to the prospective producer of the other state. What is this called?
a. fair exchange
b. controlled business
c. subrogation
d. reciprocity
D. 5 years
Louisiana Insurance laws require insurers to keep such records for a minimum of 5 years
ABC insurance company wishes to begin transacting business in Louisiana. Before it can do so, it must do which of the following?
a. receive permission from the governor of louisiana
b. receive a letter of clearance from ABC’s home state
c. obtain approval of each of its corporate officer and executives
d. obtain a certificate of authority
a temporary license is good for
a. 30 days
b. 60 days
c. 90 days
d. 180 days
180 days
a temporary license is good for 180 days
what is the main justification for the existence of the state insurance department?
a. to protect producers from the national association of insurance commission
b. to protect the state from harmful practices of companies and producers
c. to protect the public
d. to protect companies from malicious lawsuits
C. to protect the public
the state insurance department exists to protect the public
which type of assignment would be used for a loan?
a. collateral
b. absolute
c. modified
d. permanent
D. refund the full premium paid
B. the face amount minus premium due
D. pay backs premium at current attained age
if the insured elects a partial payment from the accelerated benefit, the death benefit of the life policy will
a. stay the same regardless how much is taken out
b. increase gradually to the original face amount
c. be reduced by the accelerated payment amount
d. be forfeitures because it is taken out early
C. be reduced by the accelerated payment amount
C. proof of insurability is required
C. they do not qualify for special federal tax treatment
A. modified endowment contract
If the cash value exceeds the premiums paid in a whole life policy, what are the tax consequences if the policy is surrendered?
a. the portion that exceeds the premiums paid is taxable
b. the total amount received when the policy is surrendered is taxable
c. the interest earned is taxable
d. the cash value is tax-free
A. the portion that exceeds the premiums paid is taxable
C. qualified plans an only be offered to company officers
C. a percentage of the policy’s face value
D. risk selection and classification
a statement which is the absolute truth is
a. warranty
b. representation
c. misrepresentation
d. fraud
which of the following statements describes an insurable interest?
a. the policy owner must expect to benefit from the insureds death
b. the policyowner must expect to suffer a loss when the insured dies
c. the beneficiary, by definition, has an insurable interest in the insured
d. the insured must have a personal or business relationship with the beneficiary
B. the policywner must expect to suffer a loss when the insured dies
B. the insurance portion is whole life insurance
D. the owner assumes the investment risk
which of the following is NOT true about variable annuities?
a. a producer must hold a securities and an insurance license to see them
b. there is no guarantee of annuity values or benefit amounts
c. premiums are invested in conservative investments such as real estate and mortgages
d. premiums are held in a separate account
C. premiums are invested in conservative investments such as real estate or mortgages
C. premium paid or cash value, whichever is greater
B. pay dividends to the policyowner
D. certain groups of employees only
an insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
a. one of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies
b. the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficaries were alive
c. the beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid overtime
d. the beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies
The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
a.$0
b. $50,000 (50% of the policy value)
c. $100,000
d. $300,000 (triple the amount of the policy value)
Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT
a. an agent offers the use of his lake house to person and inducement to buy
b. an agent offers to share his commission with a policyholder
c. an agent offers tickets to a baseball hame as an inducement to buy insurance
d. an agent misrepresents policy benefits to convince a policyowner to replace policies
D. an agent misrepresents policy benefits to convince a policyowner to replace policies
A. the rider is usually level term insurance
B. require evidence of insurability
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
a. the insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums
b. the insureds premiums will be waived until she is 21
c. the premiums will become tax deductible until the insureds 18th birthday
d. since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected
B. the insureds premiums will be waived until she is 21
A. decrease in purchasing power of the benefit in times of inflation
D. employers contributions are not tax deductible
which of the following statements about group life is correct?
a. the cost of coverage is based on the ratio of men and women in the group
b. the premiums are higher than in an individual policy because there is no medical exam
c. the group sponsor receives a certificate of insurance
d. the ploy can be converted to an individual term insurance policy
A. the cost of coverage is based on the ratio of men and women in the group
A. simplified employee pension plan
a simplified employee pension plan(SEP) is an employer sponsored IRA. contributions to the plan are not included in the employers taxable income for the year, to the extent that they do nt exceed the maximums allowed. distributions from a SEP are taxable as ordinary income when received at retirement
a long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has be raised 7% as a result. Which policy rider caused this change?
a. inflation rider
b. cost of living rider
c. value of adjustment rider
d. return of premium rider
B. cost of living rider
the cost of living rider annually adjusts the policy’s face vale in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time
an individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?
a. nonforfeiture options
b. guaranteed insurability option
c. dividend option
d. guaranteed renewable option
A. to allow the consumer to compare the costs of different policies
the buyers guide provides generic information about the life insurance policies and allows the consumer to compare the costs of different policies. the policy summary provides specific information about the issued policy as well as the insurer’s information
C. predicted needs of the family after the insureds death
the human life value approach is determining the value of an individuals life requires the calculation of probable future earnings of the insured, which involves wages expenses, inflation, amount of time until retirements and the time value of money. Predicted needs of the family after the insureds death are used in the needs approach
D. a level annual premium for the life of the insured
If an annuitant dies before annuitization occurs, what will the beneficiary receive?
a. either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount
b. amount paid into the plan
c. cash value of the plan
d. either the amount paid into the plan or the cash value of the plan, whichever is greater amount
D. either the amount paid into the plan or the cash value of the plan, whichever is greater amount
all of the following are TRUE statements regarding the accumulation interest option EXCEPT:
a. the annual dividend is retained by the company
b. the interest is credited at a rate specified by the policy
c. the policyholder has the right to withdraw the accumulations at anytime
d. the interest is not taxable since it remains inside the insurance policy
D. the interest is not taxable since it remains inside the insurance policy
D. both a life license and securities license
which of the following statements is NOT true concerning insurable interest as it applies to life insurance?
a. a debtor has an insurable interest in the life of a lender
b. business partners have an insurable interest in each other
c. a husband or wife has insurable interest on their spouse
d. an individual has an insurable interest on his or her own life
A. a debtor has an insurable interested on the life of a lender
A. withdrawals are not taxable
what happens when a policy is surrendered for its cash value?
a. the policy can be converted to term coverage
b. coverage ends and the policy cannot be reinstated
c. coverage ends but the policy can be reinstated at any time
d. the policy can be reinstated by paying back all policy loans and premiums
D. the policy can be reinstated by paying back all policy loans and premiums
what is an example of a limited pay policy?
decreasing term
to pay off mortgages
On an annual renewable level term policy
increase premium and renew each year
it can be increased by providing evidence of insurability
which of the following is true with regards to universal life?
with a traditional whole life policy?
the death benefit remains constant overtime
what is a disadvantage of term insurance?
The renewable provision allows the policy-owner to renew the coverage at the expiration date____
without evidence of insurability