WebCE General Insurance and Life Insurance Exam Latest Questions and Answers (2024 / 2025) (Verified by Expert)

WebCE General Insurance and Life Insurance Exam Latest Questions and Answers (2024 / 2025) (Verified by Expert)

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Webce General Insurance & Life Insurance Exam
Questions and Answers (Verified Answers)

1. Buying life or health insurance is an example of which risk
   management technique?
   risk avoidance
   risk reduction
   risk retention
   risk transfer
   : risk transfer
2. What is the mathematical concept of probability that helps insurers
   estimate the statistical likelihood of mortality or morbidity losses at any
   given age?
   law of large numbers
   underwriting principle
   law of probability
   actuarial principle
   : law of large numbers

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3. A person who refuses to engage is risky activities like rock climbing for
   fear of injury or death is demonstrating which risk management technique?
   risk avoidance
   risk reduction
   risk retention
   risk sharing
   : risk avoidance
4. Which of the following is an insurable risk?
   the possibility of losing money in stock investments
   the possibility of losing money gambling in Las Vegas
   the possibility of becoming disabled and unable to earn an income
   the possibility of one’s home value decreasing due to a drop in market
   prices-
   : the possibility of becoming disabled and unable to earn an income
5. All the following statements regarding reinsurance are correct EXCEPT:
   Reinsurance is a risk-sharing process used by insurance companies.
   Claims are paid to the policyowner separately by each insurer participating

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in the reinsurance agreement.
The insurer accepting some of the risk being transferred from another
insurer is known as the reinsuring company.
The insurer seeking to transfer some of its risk to another insurer is known
as the ceding company.
: Claims are paid to the policyowner separately by each insurer
participating in the reinsurance agreement.

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6. All of the following are characteristics of a stock insurance company
   EX- CEPT:
   They are governed by a board of
   directors. They may issue dividends.
   They have minimum financial capital requirements that must be met
   before they can conduct business.
   They are owned by policyowners.
   : They are owned by policyowners.
7. All of the following statements regarding the career agency
   distribution system are correct EXCEPT:
   The managerial form of career agency system uses company employees
   as the agency managers.
   There are two types, the general agency system and the managerial
   system. It uses agents who primarily if not exclusively represent one
   insurer.
   Personal producing general agents (PPGAs) are commonly hired to manage
   career agencies.
   : Personal producing general agents (PPGAs) are commonly hired to
   manage career agencies.
8. The federal Risk Retention Act of 1986 contains guidelines for which of
   the following entities?
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Buying life or health insurance is an example of which risk management technique?

risk avoidance
risk reduction
risk retention
risk transfer
risk transfer

What is the mathematical concept of probability that helps insurers estimate the statistical likelihood of mortality or morbidity losses at any given age?

law of large numbers
underwriting principle
law of probability
actuarial principle
law of large numbers

A person who refuses to engage is risky activities like rock climbing for fear of injury or death is demonstrating which risk management technique?

risk avoidance
risk reduction
risk retention
risk sharing
risk avoidance

Which of the following is an insurable risk?

the possibility of losing money in stock investments
the possibility of losing money gambling in Las Vegas
the possibility of becoming disabled and unable to earn an income
the possibility of one’s home value decreasing due to a drop in market prices
the possibility of becoming disabled and unable to earn an income

All the following statements regarding reinsurance are correct EXCEPT:

Reinsurance is a risk-sharing process used by insurance companies.
Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement.
The insurer accepting some of the risk being transferred from another insurer is known as the reinsuring company.
The insurer seeking to transfer some of its risk to another insurer is known as the ceding company.
Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement.

All of the following are characteristics of a stock insurance company EXCEPT:

They are governed by a board of directors.
They may issue dividends.
They have minimum financial capital requirements that must be met before they can conduct business.
They are owned by policyowners.
They are owned by policyowners.

All of the following statements regarding the career agency distribution system are correct EXCEPT:

The managerial form of career agency system uses company employees as the agency managers.
There are two types, the general agency system and the managerial system.
It uses agents who primarily if not exclusively represent one insurer.
Personal producing general agents (PPGAs) are commonly hired to manage career agencies.
Personal producing general agents (PPGAs) are commonly hired to manage career agencies.

The federal Risk Retention Act of 1986 contains guidelines for which of the following entities?

reinsurance companies
surplus lines insurance companies
Fraternal insurance companies
risk retention groups
risk retention groups

Which of the following best describes an agent’s responsibilities?

An agent has no fiduciary duty toward insurers, applicants, or insureds.
An agent has to act in the best interests of insureds, applicants, and insurers.
An agent only has to act in the best interests of the insured or applicant, but not the insurer.
An agent only has to act in the best interests of the insurer he or she represents.
An agent has to act in the best interests of insureds, applicants, and insurers.

An insurance producer tells a life insurance applicant that he has the authority to waive the medical exam that is normally required by the insurer with every application. The insurer may be required to accept the application without a medical exam due to the producer’s:

implied authority
express authority
apparent authority
imputed authority
apparent authority

All of the following are part of a producer’s responsibilities to an applicant EXCEPT:

avoiding replacing an insurance policy unless doing so will clearly benefit the applicant
research other insurance companies’ insurance products if requested by the applicant
disclose all important information about a proposed policy
recommend insurance products that are suitable for the customer’s needs
research other insurance companies’ insurance products if requested by the applicant

The purpose for the Policy Summary, which must be given to every insurance applicant before an application is signed, is to:

explain the step-by-step process involved in purchasing the recommended product
explain the general features, benefits, and conditions of the type of insurance being considered
disclose all the hidden costs associated with the policy being applied for
provide buyers with details of the specific insurance contract they are considering for purchase
provide buyers with details of the specific insurance contract they are considering for purchase

If an applicant for an insurance policy submits an application without the first premium, which of the following is correct?

The insurer may not make a counteroffer to the applicant.
The applicant has invited the insurer to make an offer.
The insurer has made an offer to the applicant.
The applicant has made an offer to the insurer.
The applicant has invited the insurer to make an offer.

How long from when an insurance contract is issued does an insurance company have to void a life insurance policy on the basis of fraud?

12 months
24 months
18 months
6 months
24 months

Statements made on a life insurance application are considered:

conditional promises
representations
warranties
unconditional promises
representations

An applicant for a $500,000 whole life insurance policy pays the initial premium along with his application. In this case, what has the applicant done?

accepted an offer from the insurer
accepted a counteroffer from the insurer
made a counteroffer to the insurer
made an offer to the insurer
made an offer to the insurer

All the following statements regarding perils and hazards are correct EXCEPT:

A hazard is a condition that raises the chance of a peril occurring.
Smoking cigarettes is an example of a peril.
A peril is the immediate cause of a loss and is the event that insurance protects against.
Indifference to loss is an example of a hazard.
Smoking cigarettes is an example of a peril.

The tendency of a person diagnosed with a serious illness to try to buy life or health insurance is known as:

adverse selection
concealment
risk avoidance
exposure reduction
adverse selection

All of the following are elements of an insurable risk EXCEPT:

Any losses resulting from the insured peril must be definable as to time, cause, and location.
The loss must be measurable.
The insured peril must be outside of the insured’s control.
Losses resulting from the insured peril must be potentially catastrophic.
Losses resulting from the insured peril must be potentially catastrophic.

From an insurance perspective, the term “loss exposure” means:

the extent to which an insurer discloses its marketing practices
the extent to which insurers are required to open their financial books for public inspection
the extent to which an insurer is subject to a possible loss
the extent to which an insurer discloses the components making up its policy premium rates
the extent to which an insurer is subject to a possible loss

A not-for-profit insurance provider operated by an organization that has a representative form of leadership, operates on a lodge system, and exists solely for the benefit of its members and their beneficiaries is called a:

mutual insurance company
home service insurance company
risk retention group
fraternal insurance company
fraternal insurance company

Which of the following is an example of an unauthorized insurance company in Illinois?

Company C, a Florida-based company that does not hold a certificate of authority Illinois but whose products are approved by the Illinois insurance department
Company A, an Illinois-based company that holds a certificate of authority in Illinois and 32 other states
Company B, an Iowa-based company that does not hold a certificate of authority in Illinois and sells products that are not approved by the Illinois insurance department
Company D, a Canadian company that holds a certificate of authority in Illinois
Company B, an Iowa-based company that does not hold a certificate of authority in Illinois and sells products that are not approved by the Illinois insurance department

The Excalibur Insurance Company, domiciled in Iowa, transacts business legally in Nebraska. In Nebraska, Excalibur is a(n):

non-admitted insurance company
alien insurance company
foreign insurance company
domestic insurance company
foreign insurance company

The Royale Insurance Company, domiciled in Toronto, Canada, transacts business legally in New York. In New York, Royale is classified as a(n):

unauthorized insurance company
domestic insurance company
alien insurance company
foreign insurance company
alien insurance company

The contract between the producer and insurer, setting forth certain acts and duties the producer is specifically authorized to perform, describes the producer’s:

express authority
implied authority
agency authority
apparent authority
express authority

The main purpose for errors and omissions insurance (E&O) is to:

cover damages that arise due to services a producer non-willfully failed to render
allow the producer to be less diligent in complying with insurance sales disclosure requirements
provide legal protection to the producer who is charged with willfully engaging in an unfair trade practice
pay for an insurance company executive to meet with a policyowner to correct an error made by the producer during the sales process
cover damages that arise due to services a producer non-willfully failed to render

With respect to the field of insurance, who are the two parties bound by the law of agency?

the producer and the policyowner
the insurance company and the producer
the insurer and the insured
the state insurance department and the insurer
the insurance company and the producer

In its fiduciary responsibility to its principal, a producer is required to do all the following EXCEPT:

fully disclose to the insurer all pertinent information that affects the placement of an insurance policy
solicit business that is certain to be profitable to the insurer
fully account for premiums and submit them to the insurer on a timely basis
carry out authorized activities with reasonable care
solicit business that is certain to be profitable to the insurer

When first meeting prospective insurance applicants, a producer must give them a document that explains the general features, benefits, and conditions of the type of insurance being considered, which is called a

policy summary
buyer’s guide
key points document
prospectus
buyer’s guide

In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to do all the following EXCEPT:

avoid all forms of rebating
disclose all pertinent information concerning a proposed policy
seek opportunities to replace existing policies with newer products
make sure all product recommendations are suitable for the customer
seek opportunities to replace existing policies with newer products

All the following statements regarding apparent authority are correct EXCEPT:

The agent’s contract does not create it.
The insurer does not intend it.
The insurer is not liable for an agent’s acts when he or she is acting under apparent authority.
A third party reasonably believes that the producer has it based on the reasonable statements and actions by the insurer and agent.
The insurer is not liable for an agent’s acts when he or she is acting under apparent authority.

The purpose for the Buyer’s Guide, which must be given to every insurance prospect in the first meeting with a producer, is to:

advise the buyer to consider an alternative to the insurance product being considered
explain the general features, benefits, and conditions of the type of insurance being considered
provide buyers with details of the insurance policy they are considering for purchase
explain the step-by-step process involved in purchasing the recommended product
explain the general features, benefits, and conditions of the type of insurance being considered

All the following types of insurance involve a personal contract EXCEPT:

a life insurance policy
an automobile policy
a disability income insurance policy
a medical expense insurance policy
a life insurance policy

What is the term for voluntarily giving up a known right?

estoppel
waiver
conditional
voidable
waiver

Tim had paid only four premiums totaling $1000 on his health insurance policy when he was diagnosed with cancer. The insurance company paid more than $100,000 to cover the medical bills for his treatment during the next year. This situation demonstrates which of the following characteristics of insurance contracts?

They are contracts of adhesion.
They are unilateral.
They are personal.
They are aleatory.
They are aleatory.

Which of the following statements about representations and warranties is most correct?

Promises made by the insurer in the insurance contract are deemed representations.
Insurers can rescind (cancel) an insurance contract if a misrepresentation is discovered on the application during the contestability period.
A statement made on the application which is true to the applicant’s best knowledge is deemed a misrepresentation if it is later discovered to be inaccurate.
Statements made by the applicant on the application are deemed warranties.
Insurers can rescind (cancel) an insurance contract if a misrepresentation is discovered on the application during the contestability period.

If the Texas insurance commissioner asks an insurer or producer for information about its financial condition or any matter involving its business transactions, the insurer or agent must reply in writing within:

45 days
48 hours
30 days
10 days
10 days

To a consumer in Texas, an insurance company that is headquartered in Missouri but admitted to do business in Texas is a(n):

nonresident insurer
domestic insurer
alien insurer
foreign insurer
foreign insurer

It is illegal for an insurance company to transact insurance business in Texas without:

selling all types insurance
maintaining its corporate home office in Texas
a certificate of authority
maintaining both a career agency and independent broker distribution system
a certificate of authority

The Texas Department of Insurance regulates the state’s insurance industry. Which of the following is NOT one of its responsibilities?

issuing certificates of authority to insurers
licensing producers
imposing civil and criminal penalties on producers who violate the state’s insurance laws
overseeing the marketing practices of insurers
imposing civil and criminal penalties on producers who violate the state’s insurance laws

Harvey and Jim want to set up an insurance partnership that would advertise and place insurance. They both will sell policies in the partnership. How many licenses are required?

three licenses-one for each partner and one for the partnership
two licenses only-one each for Jim and Harvey
one license, for the partnership only
one agent’s license for either Jim or Harvey
three licenses-one for each partner and one for the partnership

Abby, who lives in New Mexico where she is a licensed life insurance agent, wants to apply for a nonresident license in Texas. To do so, she must submit which of the following to TDI?

a copy of her criminal history records
an application, fee and letter of certification from her home state
a set of her fingerprints
proof that she has completed an insurance pre-license education course
an application, fee and letter of certification from her home state

Which of the following persons must obtain a life and health insurance counselor’s license?

a licensed life insurance agent who sells policies for a commission
a licensed lawyer
a salaried employee of an insurance company
a financial advisor who offers insurance recommendations for a fee
a financial advisor who offers insurance recommendations for a fee

Tom, Henry, Stacey, and Alison are licensed agents in Texas. Given the following circumstances, which of them will NOT be subject to disciplinary action by the Texas Department Insurance?

Alison, who was convicted of a misdemeanor traffic violation
Tom, who misrepresented the terms of an insurance policy to induce a prospect to buy the policy
Stacey, who is primarily engaged in controlled business
Henry, who willfully violated Texas insurance laws by misappropriating premiums
Alison, who was convicted of a misdemeanor traffic violation

Samantha has a life insurance license in Missouri and wants to sell life insurance part-time in Texas. Which of the following describes what she can or cannot do given her licenses?

She can sell in Texas using her Missouri license.
She must work full-time as an agent in Texas for Texas to grant a license to her.
She must submit a letter of certification and an application.
She cannot sell in Texas unless she establishes a residence here.
She must submit a letter of certification and an application.

Larry, Brian, Susan, and Jennifer just started working for AllPro Insurance Company in Texas. Based on their job descriptions below, which of them is NOT an agent?

Jennifer, who advertises insurance policies for AllPro
Larry, who receives insurance applications from the public
Susan, who collects insurance premiums for AllPro
Brian, who is a vice president in AllPro’s human resources department and does not receive commissions
Brian, who is a vice president in AllPro’s human resources department and does not receive commissions

Molly, Lisa, Andy, and Chris want to become licensed agents in Texas. Which of them would be eligible to obtain a license?

Andy, who only wants to work part-time as an agent but otherwise meets the licensing requirements
Chris, who passed the licensing examination 18 months ago and otherwise meets the licensing requirements to become a resident agent
Molly, who is 17 years old and will be graduating from high school this year
Lisa, who failed the licensing examination but completed an insurance prelicense education course
Andy, who only wants to work part-time as an agent but otherwise meets the licensing requirements

In Texas, a person is considered to be an agent (producer) if he or she does any of the following on behalf of an insurance company, EXCEPT:

distributes information relating to coverage or rates
adjusts a claim or loss
writes and submits an insurance application to the insurer
processes applications as a salaried employee in the insurer’s home office
processes applications as a salaried employee in the insurer’s home office

Janet has been continuously licensed as an agent in Texas for the past 25 years. Her friend Steven is a nonresident licensee in Texas and every year completes his state’s continuing education requirements. When they ask you for advice on meeting the Texas continuing education requirements, you inform them that:

only Steven must complete Texas’s continuing education requirements
neither Steven nor Janet needs to comply with Texas’s continuing education requirements
only Janet must complete Texas’s continuing education requirements
both Steven and Janet must comply with Texas’s continuing education requirements
neither Steven nor Janet needs to comply with Texas’s continuing education requirements

Janet is a licensed life insurance agent in Texas and was so busy with her insurance practice that she forgot to complete all of her continuing education credits. How long is the grace period she has to make up the missing credits?

six months
45 days
She cannot make up the missing credits.
90 days
She cannot make up the missing credits.

To maintain their license, resident insurance producers in Texas must meet a continuing education (CE) requirement:

once, before the end of their initial two-year license renewal cycle
once, within five years of becoming licensed
every year
in every two-year license renewal cycle
in every two-year license renewal cycle

Fred’s license was revoked on January 15, 2019 because he had engaged in controlled business on a regular basis. If he did not seek a judicial review of the license revocation, what is the earliest date that he can re-apply for an agent’s license?

January 15, 2024
January 15, 2023
January 15, 2021
Fred cannot re-apply for an agent’s license.
January 15, 2024

Which of the following is NOT a penalty that TDI may impose?

reprimand
suspension of license
imprisonment for up to 5 years
administrative penalty
imprisonment for up to 5 years

Harry meant to complete his CE courses on time but was just too busy to do it. How long of an extension is available to Harry to make up the missing credits?

6 months
one year
none
90 days
none

Agents who willfully violate a Texas insurance law may be subject to disciplinary action. Which of the following is NOT a remedy available to the insurance commissioner?

requiring the agent to make restitution
assessing an administrative penalty
suspending or revoking the agent’s license
imposing a jail sentence
imposing a jail sentence

In Texas, holders of limited lines and county mutual licenses must complete how many hours of continuing education (CE) every two years?

five hours
24 hours
10 hours
two hours
10 hours

The Commissioner issued a cease and desist order against Nether Insurance Company for committing certain practices when settling claims. Nether ignores the order. The Commissioner may refer the case to which of the following for enforcement?

State attorney general
State supreme court
Sheriff
Governor
State attorney general

An insurer’s record of complaints must include all of the following information EXCEPT:

The total number of complaints received
A classification of complaints by line of insurance
The time spent processing each complaint
The commissions paid on policies for which complaints were received
The commissions paid on policies for which complaints were received

Superior Insurance Company receives a claim and proof of loss from an insured on April 1. It investigates the claim on April 5 and determines that the claim is a valid one on April 12. The insured submits additional information in support of the claim on May 1. On which date did Superior first become obligated to settle the claim?

May 1
April 1
April 5
April 12
April 12

Which of the following practices may an insurer adopt for lawfully settling its claims?

Compelling insureds to sue the insurer first before it offers a settlement.
Requiring the insured to sign a full release after getting payment on part of a claim.
Requiring the insured to provide his or her federal income tax records with a claim.
Requiring a prompt investigation of a claim, even if the insured has not submitted all proofs of loss.
Requiring a prompt investigation of a claim, even if the insured has not submitted all proofs of loss.

KLM Insurance has a policy of promptly responding to policyholder communications regarding claims. That means it probably responds within how many days?

30 days
45 days
90
15 days
15 days

State Insurance Company keeps a record of all complaints it receives from its policyholders. State is required to maintain this record for no less than:

Five years
One year
Three years, or three years since the date of their last examination by the Department, whichever is shorter
Three years, or three years since the date of their last examination by the Department, whichever is longer
Three years, or three years since the date of their last examination by the Department, whichever is shorter

The Texas Department of Insurance has found that ABT Insurance has consistently failed to promptly respond to policyholder communications regarding claims. This means that it typically fails to respond within:

60 days
90 days
15 days
30 days
15 days

Which of the following does NOT constitute an unfair claims settlement practice in Texas?

Failing to pay a claim for which the insurer’s liability is uncertain.
Failing to respond to a claim promptly.
Routinely denying claims as a matter of company policy.
Denying liability when the policy calls for payment of the claim.
Failing to pay a claim for which the insurer’s liability is uncertain.

Wanda suggests to a client that his credit rating might suffer if he does not purchase a life insurance contract from her. This is an unfair trade practice known as:

twisting
defamation
rebating
coercion
coercion

If a producer believes or suspects that a fraudulent insurance act has been or is about to be committed, he or she must report it in writing to the TDI insurance fraud unit within what time period of making this determination?

14 days
7 days
30 days
48 hours
30 days

Jack, an insurance agent, offers free season football tickets to anyone who buys a life insurance policy from him. This sales practice is called:

twisting
disparagement
replacement
rebating
rebating

Steven was having lunch with a group of agents when he made some false statements about a competitor’s financial condition in order to hurt their reputation. In this case, Steven has committed:

unfair discrimination
misrepresentation
false information
defamation
defamation

Gwen knows that there is a limit to the amount of insurance she can place on herself and her family each year. How much business must she place with persons outside her family and business associates?

25 percent of the number of contracts sold each year
50 percent of the first year premium
25 percent of the total premium volume
50 percent of the annual premium
25 percent of the total premium volume

Ella is an agent for State Industry Insurance Company in Texas. After meeting with several family members, she learns that they would like to buy some life and health insurance contracts from her company. Which of the following statements is correct?

Ella cannot sell any policies to her own family because it is considered controlled business.
Another agent from her company must be involved in the sale in order to prevent it from being considered controlled business.
Ella can sell insurance to her family members provided at least 25 percent of the total volume of her premiums comes from non-family members.
Ella will not be engaged in controlled business if she gets at least 50 percent of her total business from non-family members.
Ella can sell insurance to her family members provided at least 25 percent of the total volume of her premiums comes from non-family members.

Raphael is an agent for ABC Insurers and refers a prospective client to Dana, an agent at XYZ Insurers. Which of the following statements about commissions in this case is correct?

Dana will be engaged in controlled business if she shares her commissions with Raphael.
It is considered rebating for Dana to share her commission with Raphael.
It is illegal for Dana to share her commission with Raphael.
Dana can legally share her commission with Raphael under Texas law.
Dana can legally share her commission with Raphael under Texas law.

In Texas, a producer will avoid charges of engaging in controlled business as long as at least what percentage of the agent’s total premiums is derived from persons other than the producer’s work associates or family?

25 percent
50 percent
15 percent
10 percent
25 percent

All the following statements regarding the Texas Life and Health Guaranty Association are correct EXCEPT

The purpose of the Insurance Guaranty Association is to protect policyholders when an insurance company becomes insolvent.
An agent may use the existence of the Guaranty Association to assure a claimant that his policy will be protected even if the insurer becomes insolvent.
All insurance companies licensed to sell insurance in Texas must be members of the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association.
Benefits paid to claimants and policyholders are subject to limits
An agent may use the existence of the Guaranty Association to assure a claimant that his policy will be protected even if the insurer becomes insolvent

Which of the following statements regarding the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association is correct?

A producer may tell applicants their purchase of a life insurance policy will be protected even if the insurer becomes insolvent.
An insurer may not use the existence of the guaranty association to market insurance, but producers are permitted to do so when meeting with an applicant for insurance.
A producer may not use the existence of the guaranty association to sell insurance, but insurers are permitted to do so in their advertising.
Neither a producer nor an insurer may use the existence of the guaranty association to sell insurance covered by the association.
Neither a producer nor an insurer may use the existence of the guaranty association to sell insurance covered by the association.

Which of the following statements regarding the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association is correct?

While producers may not use the existence of the guaranty association to sell insurance, insurers are permitted to do so in their advertising with prior approval by TDI.
If the topic is mentioned, a producer must tell an applicant that the guaranty association is not a substitute for a well-managed, financially stable insurance company.
A producer may tell applicants their purchase of a health insurance policy will be protected even if the insurer becomes insolvent.
While insurers may not use the existence of the guaranty association to market insurance, a producer is permitted to tell applicants the Guaranty Association will protect them if the insurer becomes insolvent.
If the topic is mentioned, a producer must tell an applicant that the guaranty association is not a substitute for a well-managed, financially stable insurance company.

Which association protects owners of life and health insurance policies issued by insurers who become financially unable to pay claims and benefits?

Life, Accident, Health and Hospital Service Insurance Guaranty Association
Texas Health Insurance Risk Pool
Texas Insurance Fraud Unit
Texas Department of Insurance
Life, Accident, Health and Hospital Service Insurance Guaranty Association

All of the following are automatically deemed to represent an insurable interest EXCEPT:

Karen (the disabled applicant, age 28), and her father who cares for her.
Sue (the applicant) and her husband
Frank (the applicant) and his elderly neighbor
ABC Corp. (the applicant) and its key executive
Frank (the applicant) and his elderly neighbor

When must insurable interest exist for a life insurance policy to be valid?

Insurable interest is never required for a life insurance policy to be valid.
Insurable interest must exist only at the time of the insured’s death for a life insurance policy to be valid.
Insurable interest must always exist for a life insurance policy to be valid.
It is only necessary for insurable interest to exist at the time the applicant applies for a life insurance contract.
It is only necessary for insurable interest to exist at the time the applicant applies for a life insurance contract.

Which of these personal relationships does NOT automatically constitute insurable interest?

people in themselves
neighbors in each other
spouses in each other
children in their parents or grandparents
neighbors in each other

Which of the following most accurately describes “insurable interest” in a life insurance policy?

Insurable interest is the relationship between the person applying for insurance and the insured at the time of the insured’s death.
Insurable interest is the financial relationship at the time of application between the person applying for life insurance and the person whose life is to be insured.
Insurable interest is the primary factor in determining how much life insurance the insurer will issue on a person.
Insurable interest is the relationship between the person paying for the insurance and the designated beneficiary.
Insurable interest is the financial relationship at the time of application between the person applying for life insurance and the person whose life is to be insured.

All the following uses for life insurance in a business represent a valid insurable interest, EXCEPT:

Life insurance bought by businesses to cover the lives of their key employees or owners.
Life insurance purchased by business partners to provide funds that can be used to buy out the business interest of the one who dies.
Life insurance used to provide funds in the event an insured key employee or partner dies.
Life insurance purchased on an important customer to make up for the financial losses that might occur when that customer dies.
Life insurance purchased on an important customer to make up for the financial losses that might occur when that customer dies.

In life insurance, for how long must insurable interest exist?

Insurable interest must exist only at the time the applicant enters into a life insurance contract.
If no insurable interest exists when a policyowner buys a life insurance policy, the contract may still be enforced.
It must exist when a claim is submitted.
It must continue for the life of the policy.
Insurable interest must exist only at the time the applicant enters into a life insurance contract.

Life insurance has been purchased by ABC Company on the lives of two partners, Hugh and Danny, and three key employees Eileen, Vern, and June. Which of the following would apply if Hugh and June were to leave the business?

The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there.
The company can only retain its coverage on June because she is not a principal of the company.
The company would have to drop its coverage for both Hugh and June within 30 days of their departures.
The company could keep the life insurance it has on Hugh, since he is a principal of the company, but would have to drop June’s coverage, because she is not.
The company could keep the life insurance it has on both Hugh and June, even though both are no longer employed there.

All the following reasons that a business might buy life insurance represent a valid insurable interest, EXCEPT:

to insure liquidity in case one of the owners or key employees dies
to insure the lives of key employees or owners
to insure partners’ lives to provide funds to buy out a deceased partner’s interest
to provide insurance coverage for large-volume customers
to provide insurance coverage for large-volume customers

Which of the following best describes insurable interest?

It describes the basic relationship between the insurance company and the policyowner.
It refers to the financial relationship between the policyowner and the insured person or property.
It refers to the role life insurance can play in protecting policyowners from investment fraud.
It refers to the maximum amount of insurance that may be purchased on the insured person or property.
It refers to the financial relationship between the policyowner and the insured person or property.

The requirement that an insurable interest must exist when life insurance is purchased is intended to prevent people from doing which of the following?

using life insurance as a speculative investment on another person’s life
designating an ineligible person as the policy beneficiary
overusing life insurance
using life insurance to fund future cash needs
using life insurance as a speculative investment on another person’s life

In a participating life insurance policy, the insurance company pays the policyowner a dividend out of which of the following?

set amounts prescribed in the policy
the policyowner’s life insurance policy cash value
the company’s cash reserves
the insurer’s divisible surplus
the insurer’s divisible surplus

Dan owns a fixed whole life insurance policy. What type of death benefit is Dan guaranteed?

The policy guarantees a fixed death benefit amount.
The policy has no guaranteed death benefit.
The amount depends on the number of premium payments Dan has made.
The policy guarantees a death benefit will be paid, but not the amount.
The policy guarantees a fixed death benefit amount.

If the Alpha-Omega Corporation wants to provide cost-effective life insurance for all its full-time employees, it will most likely buy which of the following?

group term life insurance
individual term life insurance
whole life insurance
business life insurance
group term life insurance

Sylvia’s insurer guarantees a fixed death benefit for the policy she owns. Based on this, which one of the following benefits is also most likely guaranteed with this policy?

the policy’s cash value
policy dividends
her ability to borrow an interest-free loan from the cash value
payment of premiums on Sylvia’s behalf in the event of emergencies
the policy’s cash value

Which one of the following best describes a policy that has a relatively low face amount and has premiums that are paid to an insurance agent who generally calls on the policyowner at home to collect them?

group life insurance
ordinary whole life insurance
industrial life insurance
ordinary term insurance
industrial life insurance

Which of the following play a role in the regulation of variable insurance product sales?

both FINRA and state insurance departments
the Securities Exchange Commission (SEC) only
Financial Industry Regulatory Authority (FINRA) only
state insurance departments only
both FINRA and state insurance departments

All of the following statements about the regulation of the sale of variable products are correct, EXCEPT:

The sale of variable products is regulated by the Financial Industry Regulatory Authority (FINRA).
Agents who only sell variable life products and do not sell fixed life products are not required to hold a life insurance license.
Many states also require a state-issued variable life or variable producer’s license.
Agents who sell variable life products are required to comply with all state laws and regulations dealing with the sale of life insurance.
Agents who only sell variable life products and do not sell fixed life products are not required to hold a life insurance license.

Which of the following best describes how the insured’s money is handled in a variable life insurance policy?

Premiums are placed in the insurance company’s general account.
Premiums are placed in investment subaccounts selected by the policyowner.
Premiums are invested in certificates of deposit issued by the insurance company.
Premiums are placed in investment subaccounts selected by the insurance company.
Premiums are placed in investment subaccounts selected by the policyowner.

Permanent life insurance can also provide funds, through its cash value, that may be used during the insured’s lifetime. What is that feature called?

permanent values
capital accumulation
the money feature
living benefits
living benefits

Bob’s insurance goal is to provide additional death benefit protection for his family in case he dies while his children are young. What type of life insurance is best suited to this need?

group life insurance
whole life insurance
term life insurance
business life insurance
term life insurance

Under group insurance coverage, one policy covers a number of people. Who owns these group polices?

the organization that represents the group and which sponsors the coverage
the insurance company who issues the policy
the insureds
representatives of the sponsoring companies
the organization that represents the group and which sponsors the coverage

Kevin tells his insurance agent that he wants a life insurance policy that will last for his entire lifetime as long as he pays the premiums, will maintain a level premium, and will generate a cash value. This may describe any of the following types of policy, EXCEPT:

industrial whole life insurance
variable life insurance
ordinary whole life insurance
term life insurance
term life insurance

All of the following statements about participating policies are correct EXCEPT:

Participating life policies pay the policyowner a policy dividend out of its divisible surplus.
They are generally issued only by mutual insurance companies.
They may also be called par policies.
Though not required to do so, insurers may guarantee their participating policy dividends.
Though not required to do so, insurers may guarantee their participating policy dividends.

Which one of the following statements about term life insurance is correct?

A cash value accumulates in term life policies.
The policy pays a death benefit only if the insured dies during the term.
It is permanent insurance.
It is intended to cover the insured to age 120.
The policy pays a death benefit only if the insured dies during the term.

All of the following statements about fixed whole life insurance cash values are correct EXCEPT:

Withdrawing or borrowing from the cash value will have no impact of the policy’s death benefit.
Cash values grow over the life of the policy and are calculated to equal the policy’s face amount at the insured’s age 120 (age 95 in the case of universal life insurance).
The policyowner owns the cash value in the policy and can access it.
As long as premiums are paid, the insurance stays in force, the cash values grow, and the policy is guaranteed to pay its specified death benefit.
Withdrawing or borrowing from the cash value will have no impact of the policy’s death benefit.

Harry and Connie each want to buy life insurance that will provide a guaranteed death benefit whenever they die, will generate a guaranteed cash value they can access while living, and even return excess premiums to them. Which of the following would best fit this couple’s needs?

variable life insurance
participating whole life insurance
term life insurance
group life insurance
participating whole life insurance

Which of the following is the actuary’s first step in determining the premium charged for a policy?

calculate the expected profit
calculate the net premium
calculate the gross premium
calculate the annual policy dividend
calculate the net premium

All the following statements about the net premium for a traditional life insurance policy are correct EXCEPT:

The net premium is the insurer’s estimated cost to provide the policy benefits without accounting for the insurer’s expenses.
The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment.
The net premium reflects two of the three premium factors: mortality and interest.
Calculating the net single premium is the first step in calculating the gross premium charged to the policyowner.
The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment.

In setting premiums for a new policy, when do actuaries assume those premiums will be paid?

They will be paid monthly.
They will be paid in full at the beginning of the policy year.
They will be paid in full at the end of the policy year.
They will be paid in full in the middle of the policy year.
They will be paid in full at the beginning of the policy year.

An insurance company is developing a new product. Which of the following is the actuaries’ most important responsibility?

designing the product’s features and benefits
determining the actual premium to be charged to an applicant for the new product
assuring that the new product will appeal to average consumers
determining the basic premium rates for the new product
determining the basic premium rates for the new product

Which of the following most accurately describes the basic function of a life insurance policy’s net premium?

The net premium represents the insurer’s mortality charge.
The net premium is the amount an individual actually pays to provide all the benefits promised in the policy regardless of premium mode.
The net premium is the amount actually charged to the policyowner.
The net single premium is the amount required to cover the policy’s promised benefits, without accounting for the insurer’s policy-related expenses.
The net single premium is the amount required to cover the policy’s promised benefits, without accounting for the insurer’s policy-related expenses.

Carl is a policyowner who prefers to pay premiums monthly rather than annually. How will Carl’s insurance company adjust his premium to accommodate this request?

The insurer divides the annual premium by 12 and then adds a modest charge in the first policy year after which premiums equal the annual premium divided by 12.
The insurer divides the annual premium by 12 and then reduces the premium amount to reflect the fact that premiums will be paid throughout the year.
The insurer divides the annual premium by 12 and then adds a modest charge.
The insurer simply divides the annual premium by 12.
The insurer divides the annual premium by 12 and then adds a modest charge.

Actuaries base traditional life insurance premiums on all of the following factors, EXCEPT:

interest rates
expenses
mortality
sales projections
sales projections

Which one of the following statements best describes if and when a traditional whole life insurance premium may change under the level premium concept?

Premiums are set and remain fixed over the full term of the premium-paying period.
Premiums may change if the risk to the insurer increases over time.
Premiums may vary each time they are due based on the insured’s current insurability.
Premiums are either fixed or flexible at the option of the insurer.
Premiums are set and remain fixed over the full term of the premium-paying period.

Stephanie is a policyowner who pays premiums monthly. How does her insurer cover the cost of sending her more frequent premium notices?

The insurer views the lost earnings as a cost of doing business.
The insurer charges a one-time lost-earnings fee.
The insurer imposes policy loan restrictions.
The insurer charges higher premiums.
The insurer charges higher premiums.

Actuaries calculate net life insurance premiums based on which of the following?

morbidity and interest assumptions
interest and expense assumptions
mortality and expense assumptions
mortality and interest assumptions
mortality and interest assumptions

Which one of the following best describes a “level premium” payment plan?

The policyowner does not have the choice of paying the premium on a level basis or a flexible basis.
Level premiums are always used in life insurance.
The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period.
The premium may increase or decrease over the policy’s term, depending on the performance of the policy.
The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period.

In the actuary’s calculation of life insurance premium rates, what affect will a higher interest rate assumption have on the premium rate?

Premiums will be higher.
The effect cannot be known.
It will have no effect.
Premiums will be lower.
Premiums will be lower.

Loading reflects the costs that the insurance company can expect to pay for its operations. These costs include all of the following, EXCEPT:

commissions paid to the insurer’s agents
employee benefits
mortality costs
the insurance company’s employee salaries
mortality costs

All the following statements regarding life insurance level premiums are correct EXCEPT:

For most types of permanent life insurance policy, premiums remain level regardless of the mode of premium selected.
The premium amount does not change even though the risk to the insurer increases over time.
The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy.
The policyowner pays the same premium amount each time it is due for as long as the policy is in force.
The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy.

All of the following statements regarding life insurance premium modes are correct EXCEPT:

The sum of premiums paid monthly over the course of a year will be greater than the annual premium for that policy.
Actuaries base premium calculations on the assumption that the premium will be paid annually, at the start of the policy year.
There is no additional cost for paying premiums more frequently than annually.
common premium modes include monthly, quarterly, and semi-annually
There is no additional cost for paying premiums more frequently than annually.

Which of the following do variable life insurance premiums generally include to cover the cost of managing the investment element of the contract?

compensation fee
maintenance fee
quarterly administrative fee
premium surcharge
maintenance fee

In a third-party life insurance contract, the parties to the contract are the:

the owner, the insured, and the beneficiary
the insurance company, the owner, and the beneficiary
the owner, the insured, and the insurance company
the insured, the beneficiary, and the insurance company
the owner, the insured, and the insurance company

All of the following statements about key person life insurance are correct, EXCEPT:

Key person, or key employee, life insurance is an example of third-party ownership.
Upon the insured employee’s death, the employee’s surviving family receives the policy’s death benefit.
The business applies for, owns, and is the beneficiary of the policy covering the life of a key employee.
Life insurance used as key person life is normally owned by the business rather than the insured.
Upon the insured employee’s death, the employee’s surviving family receives the policy’s death benefit.

The primary reason for using third-party ownership in personal life insurance for estate planning purposes is to:

reduce the tax rate used in calculating the estate tax
remove the life insurance proceeds from the insured’s estate and thus reduce the value of the taxable estate
convert the life insurance proceeds from an estate taxable asset to an income taxable asset
transfer the estate tax liability from the owner to the beneficiary
remove the life insurance proceeds from the insured’s estate and thus reduce the value of the taxable estate

Who normally owns life insurance that is used to meet business insurance needs?

the business jointly with the insured
the insured
the employees
the business
the business

Robert is purchasing a life insurance policy in which he is the insured. If he wants to keep the policy proceeds out of his estate for tax purposes, all of the following arrangements would help him meet that goal EXCEPT:

designate an adult son to be the owner and allow him to designate a beneficiary other than Robert’s estate
purchase the policy as the owner, but then transfer policy ownership to a third party at least three years before his death
designate an irrevocable life insurance trust to be the owner and beneficiary of the policy
designate an irrevocable life insurance trust to be the owner and Robert’s estate to be the policy beneficiary
designate an irrevocable life insurance trust to be the owner and Robert’s estate to be the policy beneficiary

With respect to third-party ownership of life insurance in the personal insurance market, all the following statements are true EXCEPT:

Third-party ownership is common in estate planning.
Third-party ownership is the basis of stranger-oriented life insurance (STOLI).
Policy ownership can be transferred to anyone without there having to be an insurable interest between that person and the insured.
The insured has the right to name the beneficiary.
The insured has the right to name the beneficiary.

Under the standard bring-back rule, assets transferred out of a decedent’s estate will be valued in the estate if the transfer occurred within how many years before death?

5 years
7 years
4 years
3 years
3 years

All the following statements regarding stranger-owned life insurance (STOLI) are correct EXCEPT:

STOLI is an arrangement in which investors convince an individual to purchase a life insurance policy on himself which is transferred to the investor in exchange for a sum of money.
STOLI and investor-owned life insurance (IOLI) are the same thing.
STOLI is financed through premium loans during the first several years, until it is transferred from the insured to the investors.
The insured retains the right to designate the policy’s beneficiary.
The insured retains the right to designate the policy’s beneficiary.

In cases where an existing life insurance policy is going to be replaced by new life insurance policy, the producer must do all the following EXCEPT:

sign a form assuming full responsibility for any consequences that may result from the replacement
list all existing life insurance policies that will be replaced
give the applicant a “Notice to Applicants Regarding Replacement of Life Insurance”
give the applicant a policy comparison statement signed by the producer
sign a form assuming full responsibility for any consequences that may result from the replacement

Which of the following statements about agent/producer responsibilities is correct?

To policyowners, the agent who sold them their insurance coverage is clearly separate from, and does not represent, the insurer.
How the agent conducts business has no bearing on the insurance company and directly impacts the agent’s ultimate success.
Agents must always act ethically and professionally in all dealings with policyowners and future policyowners.
As long as the applicant understands the life insurance product being recommended, it is not necessary for the agent to be concerned with the product’s suitability for the applicant.
Agents must always act ethically and professionally in all dealings with policyowners and future policyowners.

All the following statements regarding life insurance cost comparison methods are correct EXCEPT:

Cost indexes are used to compare the cost of two or more life insurance policies.
Cost indexes calculate the cost of pure insurance protection over a specified period of time.
There are two common cost indexes in use today.
All cost comparison methods recognize the role of the cash value in projecting future costs of coverage.
All cost comparison methods recognize the role of the cash value in projecting future costs of coverage.

When Tom, an agent for ABC Insurance, receives an approved policy, he MUST do all of the following, EXCEPT:

mail the policy to the applicant by certified mail and set up a time for the policyowner to meet with Tom to review it
review it to make sure that it is what the applicant applied for and expected
verify that any applied-for benefit riders have been added
verify that any requested backdating has been done
mail the policy to the applicant by certified mail and set up a time for the policyowner to meet with Tom to review it

The insurance coverage provided under a temporary insurance agreement (or receipt) is:

whatever type of life insurance was applied for
not insurance coverage at all, but the insurer’s general account assets
term insurance
whole life insurance
term insurance

All of the following must sign life insurance applications, EXCEPT:

the agent
the applicant
the insured (if not the applicant)
the beneficiary
the beneficiary

Which of the following statements regarding the replacement of a life insurance policy is correct?

the new policy may be cancellable by the insurer
replacement can be achieved without requiring the applicant to prove insurability once again
replacing a policy usually results in a lower premium
replacing a policy will require the insured to go through a new contestability period
replacing a policy will require the insured to go through a new contestability period

The activities a producer performs to support the insurance company in learning all it can about the applicant when seeking applications for insurance are generally called:

due diligence
field underwriting
agency development
fiduciary process
field underwriting

In which of the following areas may a life insurance underwriter discriminate in determining policy eligibility and coverage limits?

sexual orientation
personal health history
physical defects
race
personal health history

Life insurance underwriters are most likely to request a consumer (inspection) report on which of the following?

applicants whom the agent does not know well
business life insurance applicants who have already been issued high amounts of life insurance
all applicants
applicants who are seeking very high amounts of life insurance
applicants who are seeking very high amounts of life insurance

A life insurance application’s main purpose is to provide underwriters with information regarding:

the type of policy being applied for
the reason for the requested coverage
the applicant’s personal risk data and health
the applicant’s wealth
the applicant’s personal risk data and health

Which statement best describes the restrictions an insurer must operate under when using information from the MIB?

Insurers cannot rate or decline a life insurance applicant based solely on MIB information.
Insurers must rate or decline a life insurance applicant based solely on MIB information.
Insurers cannot rate, but can decline, a life insurance applicant based solely on MIB information.
Insurers may rate or decline a life insurance applicant based solely on MIB information, as long as they do so consistently for all applications.
Insurers cannot rate or decline a life insurance applicant based solely on MIB information.

During the underwriting process, a life insurance company may request a medical exam based on any of the following criteria, EXCEPT:

the type or amount of the proposed insurance
how the applicant answered health questions on the application
the applicant’s race
the age of the applicant
the applicant’s race

The Genetic Information Nondiscrimination Act (GINA) essentially does which of the following?

It requires insurance companies to consider genetic test information when underwriting applicants for life insurance.
It requires insurance companies to tell applicants that they were rejected on the basis of information derived through a genetic test (if that is the case).
It prohibits insurance companies from discriminating on the basis of information derived through a genetic test.
It prohibits insurance companies from telling applicants that they were rejected on the basis of information derived through a genetic test (if that is the case).
It prohibits insurance companies from discriminating on the basis of information derived through a genetic test.

Who completes an attending physician’s statement (APS)?

the proposed insured’s doctor, who is familiar with how the medical condition is being treated
a member of the MIB
a doctor assigned by the insurer in the state where the insurance is being written
a local doctor, other than applicant’s, who is familiar with how the medical condition is being treated
the proposed insured’s doctor, who is familiar with how the medical condition is being treated

A life insurance applicant who is a preferred risk can expect to pay a premium that is best described as which of the following?

generally lower premiums than for standard risks, but over a short period of time, at which point rates increase to the same as standard rates
generally the same premiums as for standard risks, for the life of the policy
generally lower premiums than for standard risks for the life of the policy
generally higher premiums than for a standard risk
generally lower premiums than for standard risks for the life of the policy

Who normally pays for medical exams or lab tests that insurance companies request during the life insurance underwriting process?

the applicant
the MIB
the agent
the insurance company
the insurance company

In what form does the MIB present its information to insurers?

numeric codes, indicating risks identified in previous applications, that are communicated electronically
a telephone call from a MIB analyst discussing the MIB’s findings on the applicant
a written report, which includes an underwriting recommendation, detailing the MIB’s findings on the applicant
a posting on the MIB website describing the applicant’s medical history
numeric codes, indicating risks identified in previous applications, that are communicated electronically

All other factors being equal, which of the following applicants can expect to pay the lowest premium for a given face amount of life insurance protection?

Jim, a standard risk
Carl, a substandard risk
Pete, a preferred risk
Shaun, whose application was declined as uninsurable
Pete, a preferred risk

The Fair Credit Reporting Act (FCRA) generally requires insurers that seek a credit report to notify the applicant of the request within:

one day of requesting the report
seven days of requesting the report
15 days of requesting the report
three days of requesting the report
three days of requesting the report

The Fair Credit Reporting Act (FCRA) of 1971 does which of the following?

sets procedures insurers must follow to make sure they use information effectively
sets protocols agents must follow when requesting confidential financial information from applicants
sets procedures credit reporting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information
monitors the code the MIB uses to send confidential information to insurers
sets procedures credit reporting agencies must follow to ensure confidentiality, accurate reporting, and proper use of the information

Frank, an applicant for life insurance who is a substandard risk, can expect to pay a premium that is best described as which of the following?

generally lower than for standard risks
generally the same as for standard risks for the duration of the policy
generally higher than for a standard risk
generally the same as for standard risks, but over a shorter period of time
generally higher than for a standard risk

What happens to a signed application after the applied-for policy is issued?

It becomes property of the state.
It is sent to the MIB for permanent storage.
It is destroyed.
It becomes part of the contract between the insurer and the policyowner.
It becomes part of the contract between the insurer and the policyowner.

Insurers will decline applicants with very high substandard risk ratings. What percentage of applicants do insurers reject?

about 5 percent
about 2 percent
about 10 percent
Practically speaking, no applicants are rejected as uninsurable.
about 2 percent

Which one of the following statements about term life insurance is most correct?

At any given age when issued, a level term policy will be less expensive than a permanent policy of the same face amount.
Term life insurance builds a cash value.
Term life insurance is an inexpensive way to provide permanent lifetime coverage.
Term life insurance cannot be converted to permanent coverage.
At any given age when issued, a level term policy will be less expensive than a permanent policy of the same face amount.

Under the re-entry method, an insured can renew a level term life insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing which of the following?

paying a premium surcharge
proving insurability
agreeing to convert to a permanent life insurance policy
proving that he or she is under age 50
proving insurability

Amanda, age 45, bought a $50,000 ten-year renewable and convertible term life policy. Regarding this, all the following statements are correct EXCEPT

premiums for this policy will be more than for a $50,000 ten-year nonrenewable and nonconvertible term life policy.
premiums for this policy will be more than for a $50,000 ten-year nonrenewable but convertible term life policy.
premiums for this policy will be more than for a $50,000 ten-year renewable but non-convertible term life policy.
premiums for this policy will be more than for a $50,000 permanent life insurance policy.
premiums for this policy will be more than for a $50,000 permanent life insurance policy.

How is increasing term life insurance normally sold?

as an endorsement
as a rider attached to a permanent life insurance policy
as a stand-alone term life insurance policy
as a permanent insurance policy
as a rider attached to a permanent life insurance policy

Which of the following most correctly describes the difference between decreasing term insurance and level term insurance?

Under decreasing term insurance, the death benefit decreases over the policy period while a level term policy maintains a level death benefit over the policy period.
The insured can renew decreasing term life insurance but not level term.
Premiums decrease over the life of a decreasing term policy but stay the same for level term policies.
Decreasing term life insurance can be converted to a permanent policy while level term cannot.
Under decreasing term insurance, the death benefit decreases over the policy period while a level term policy maintains a level death benefit over the policy period.

Which of the following types of life insurance is the least expensive way to provide mortgage loan protection?

level term insurance
permanent life insurance
increasing term insurance
decreasing term insurance
decreasing term insurance

The convertibility provision of a term life policy lets the owner convert the term coverage into what type of policy?

a paid-up whole life insurance policy
a renewable term policy
a permanent life insurance policy
a convertible term policy
a permanent life insurance policy

The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policyowner:

renew the policy with a higher face amount without having to provide evidence of insurability
convert the term policy to a permanent life insurance policy
renew the policy at lower current rates rather than guaranteed renewal rates
reinstate the policy after it has lapsed for nonpayment of premiums without having to provide evidence of insurability
renew the policy at lower current rates rather than guaranteed renewal rates

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, all the following statements are correct, EXCEPT:

Gina must prove insurability before the insurer can renew the policy.
Gina will be able to renew the policy any time before the policy expires.
The insurer will base the premium for the renewal coverage on Gina’s age at the time of renewal.
The policy may prohibit policy renewals beyond a certain age, such as 65 or 70.
Gina must prove insurability before the insurer can renew the policy.

Term life insurance is well suited for all the following needs EXCEPT:

protection while the family children are living at home or attending college
a source of emergency cash for any financial need
mortgage protection
inexpensive protection until the policyowner can afford permanent life insurance
a source of emergency cash for any financial need

All the following statements about term life insurance are correct EXCEPT:

It pays a benefit only if the insured dies during the specified period.
A small cash value gradually accumulates while the policy is in force.
Upon issue, it is generally less expensive than permanent insurance of comparable face amount.
It offers protection for a specified, limited period.
A small cash value gradually accumulates while the policy is in force.

Bob bought a $100,000 ten-year level term insurance policy on March 1, 2012. What will happen if he dies on April 1, 2022?

The beneficiary of Bob’s policy will get $100,000.
The beneficiary of Bob’s policy will be permitted to pay a one-month premium to extend the policy coverage to April 1, 2022, in which case he or she would be entitled to the $100,000 death benefit.
Bob’s beneficiary will not get any benefits.
The beneficiary of Bob’s policy will be entitled to the policy’s cash value but not the death benefit.
Bob’s beneficiary will not get any benefits.

A producer must be registered with the Financial Industry Regulatory Authority (FINRA) to sell which one of the following types of life insurance?

ordinary whole life insurance
indeterminate premium whole life insurance
variable life insurance
interest-sensitive whole life insurance
variable life insurance

In a current assumption whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation?

Premiums stay the same.
Premiums return to their original introductory rate.
Premiums decrease to a new rate supported by the actual investment experience.
Premiums increase to a new rate supported by the actual investment experience.
Premiums decrease to a new rate supported by the actual investment experience.

A whole life insurance policy matures, or endows, when:

the premiums the owner has paid equal the policy’s cash value
the policy’s cash value equals its loan value.
the policy’s cash value equals its face amount
the premiums the owner has paid equal the policy’s face amount
the policy’s cash value equals its face amount

All of the following statements comparing whole life insurance and term life insurance are correct EXCEPT:

Term life insurance is designed for temporary needs while whole life insurance is designed to cover the insured’s entire life.
Only term life insurance has a renewal provision.
Both whole life insurance and term life insurance build a cash value.
Both whole life and term life insurance have level premiums, but only whole life guarantees a level premium for as long as the insured lives.
Both whole life insurance and term life insurance build a cash value.

Which one of the following statements about variable life insurance is correct?

Variable life policyowners can invest all of their premiums in the insurer’s general account.
Variable life policyowners can choose flexible premium payment schedules.
With a variable life insurance policy, the policyowner assumes most of the investment risk.
Subaccounts are managed within the insurer’s general account.
With a variable life insurance policy, the policyowner assumes most of the investment risk.

What typically happens to the face amount of an indexed whole life insurance policy over time?

It increases annually as long as the insured continues to prove insurability.
It increases every year at the same rate as the national inflation rate.
It increases annually to reflect increases in the consumer price index.
It increases annually based on a fixed rate specified in the policy.
It increases annually to reflect increases in the consumer price index.

Which of the following statements best explains the basic level premium concept of ordinary whole life insurance?

The steady reduction of the policy’s net amount at risk offsets the cost of pure insurance that rises with age.
The insurer averages the cost of pure insurance over the insured’s life expectancy so that the mortality charge remains level.
Funds are withdrawn from the policy’s cash value in the later years to pay the rising cost of pure insurance.
The death benefit is decreased to offset the rising cost of insurance with age.
The steady reduction of the policy’s net amount at risk offsets the cost of pure insurance that rises with age.

With interest-sensitive whole life insurance policies, insurers may change premium rates after reviewing their investment experience in a process called:

redetermination
renewal underwriting
reconfiguration
indexing
redetermination

All the following statements about ordinary (or straight) whole life insurance are correct EXCEPT:

The policy death benefit remains level.
The premium level is higher than the actual mortality costs during the early years of the policy.
The insured pays level premiums for life.
The cash value remains level throughout the life of the policy.
The cash value remains level throughout the life of the policy.

Which one of the following statements about indexed whole life insurance is correct?

There are two different premium plans available to indexed whole life policyowners, with one plan starting out with a lower premium than the other.
The policyowner may adjust the policy premium up or down.
It combines whole life insurance and term life insurance.
Its cash values may decrease as well as increase.
There are two different premium plans available to indexed whole life policyowners, with one plan starting out with a lower premium than the other.

Which one of the following statements about variable life insurance is correct?

There is no guaranteed death benefit with variable life.
Variable life policyowners cannot choose how their contract premiums are invested.
The cash value is not guaranteed with variable life.
Variable life’s premiums are only invested in safe, conservative investments.
The cash value is not guaranteed with variable life.

Which statement is correct with respect to the contract charges and fees charged by variable life and traditional whole life policies?

Both base the premium on a mortality charge that reflects the insured’s risk of death.
Both charge investment advisory fees.
Both charge a fee for expenses incurred by the separate investment accounts.
Both charge account transfer fees.
Both base the premium on a mortality charge that reflects the insured’s risk of death.

Sarah, age 40, has just bought a 20-pay whole life policy. Which of the following statements is correct when she turns 60?

She will receive the policy’s cash value.
She will receive the policy’s death benefit.
She will have a fully matured policy.
Premiums will no longer be required, but her coverage will remain in effect for her entire life.
Premiums will no longer be required, but her coverage will remain in effect for her entire life.

Premium rates will vary unpredictably depending on the insurer’s actual experience in which one of the following types of whole life insurance?

straight whole life
graded premium whole life
current assumption whole life
limited pay whole life
current assumption whole life

Which of the following statements regarding the way whole life insurance differs from term life insurance is most correct?

Only whole life insurance offers protection until age 80.
Only whole life insurance offers level premium payments.
Only whole life insurance can be renewed.
Only whole life insurance builds a cash value.
Only whole life insurance builds a cash value.

All the following statements about ordinary (straight) whole life insurance are correct EXCEPT:

Premiums remain level.
It has a steadily increasing cash value.
The death benefit increases during the early policy years and then levels off.
The insured pays premiums for his or her entire life.
The death benefit increases during the early policy years and then levels off.

Unlike traditional fixed interest UL policies, many variable universal life policies offer a third death benefit option, which provides a guaranteed minimum death benefit equal to:

the policy’s net amount at risk plus its cash value plus the sum of premiums paid
the policy’s net amount at risk plus its cash value
the policy’s net amount at risk plus its cash value minus the sum of premiums paid
the policy’s net amount at risk plus the greater of the actual cash value or the sum of premiums paid
the policy’s net amount at risk plus the greater of the actual cash value or the sum of premiums paid

In a front-end loaded universal life contract, when does the insurer deduct a charge to cover the costs of administering the policy?

at the start of each policy year
from the cash value after the premium has been deposited to it
from the premium payment before it is credited to the policy’s cash value
once, when the first premium is paid
from the premium payment before it is credited to the policy’s cash value

Andrea owns a variable universal life insurance policy and would like to stop making premium payments for several years while her son attends college and resume them when he graduates. Regarding her policy, which of the following statements is most correct?

Andrea’s policy will lapse.
Andrea can stop making premium payments while her son is in college as long as she makes up the missed payments later.
As long as the policy’s cash value covers the monthly deductions for the cost of insurance and expenses, Andrea’s policy will remain in force.
Andrea can increase or decrease premium payments under her policy but cannot stop making payments altogether.
As long as the policy’s cash value covers the monthly deductions for the cost of insurance and expenses, Andrea’s policy will remain in force.

Variable life and variable universal life insurance are similar in all of the following ways EXCEPT:

Both are considered securities.
Both require fixed, set premiums.
Both offer a death benefit that varies based on the performance of the subaccount investments.
Both let the policyowner put funds in investment subaccounts.
Both require fixed, set premiums.

To meet the federal definition of life insurance and thus qualify for life insurance’s favorable tax treatment, all permanent life insurance policies must have:

a cash value that never equals the death benefit
a cash value that eventually exceeds the policy’s death benefit
a corridor of pure insurance protection between the cash value and death benefit, the amount of which depends on the insured’s age
a cash value that grows to equal the death benefit no later than the insured’s life expectancy
a corridor of pure insurance protection between the cash value and death benefit, the amount of which depends on the insured’s age

A policyowner owns a variable universal life insurance policy that offers a wide array of variable subaccounts. With respect to this policy, all of the following statements are correct EXCEPT:

Subaccount funds are not guaranteed by the insurer.
The variable subaccounts allow policyowners to participate in the investment performance of the assets underlying their contracts.
The insurance company bears the investment risk for funds allocated to variable subaccounts.
Cash value funds can be transferred from one subaccount to another without income tax consequences.
The insurance company bears the investment risk for funds allocated to variable subaccounts.

Kate bought a universal life policy with a $200,000 death benefit and chose death benefit Option 1. In year five of the policy, she withdrew $50,000 from the policy’s cash value. If she dies shortly after withdrawing the $50,000, what will her beneficiary receive?

$200,000
$150,000
$250,000
$50,000
$150,000

All the following statements regarding adjustable life insurance are correct EXCEPT:

Changing the premium will change the policy’s future cash value growth.
Policy premiums can be changed up or down whenever the policyowner wants to do so.
The policy death benefit may be increased by increasing the premium.
Adjustable life is a good choice for someone who wants the ability to change the policy value as insurance needs change.
Policy premiums can be changed up or down whenever the policyowner wants to do so.

Nicole, age ten, is the insured in a traditional “jumping juvenile” policy with a $5,000 face amount. When she reaches age 21, what will most likely happen to the policy’s face amount?

It will increase to $25,000.
It will increase to $10,000.
It will increase to $20,000.
It will remain $5,000.
It will increase to $25,000.

With a joint life insurance policy, which of the following best describes the coverage continuation option available to the surviving insured upon the death of the first insured?

The surviving insured may buy an individual policy with the same or a lesser face amount, without having to provide evidence of insurability.
The surviving insured may continue the existing joint life policy, without having to provide evidence of insurability.
The surviving insured may buy an individual policy with the same or a lesser face amount, after providing evidence of insurability.
The surviving insured may continue the existing joint life policy, after providing evidence of insurability.
The surviving insured may buy an individual policy with the same or a lesser face amount, without having to provide evidence of insurability.

How does a family income policy differ from a family maintenance policy?

A family income policy combines whole life insurance with increasing term insurance, while a family maintenance policy combines whole life and level term insurance.
A family income policy combines whole life insurance with decreasing term insurance, while a family maintenance policy combines whole life and level term insurance.
A family income policy combines whole life insurance with level term insurance, while a family maintenance policy combines whole life and decreasing term.
A family income policy combines whole life insurance with increasing term insurance, while a family maintenance policy combines whole life and decreasing term.
A family income policy combines whole life insurance with decreasing term insurance, while a family maintenance policy combines whole life and level term insurance.

Jack bought a life insurance policy that will provide a lump-sum death benefit plus a ten-year stream of income should he die before a specified date. Five years after purchasing the policy, before the specified date, Jack died and the policy began paying a monthly benefit to his family for ten years. What type of policy did Jack buy?

ten-year family income policy
ten-year family maintenance policy
ten-year family protection policy
survivorship life insurance policy
ten-year family maintenance policy

Tax law considers any limited payment life insurance policy that is paid-up in seven years or less to be which of the following?

a modified endowment contract
an endowment policy
an insured security
a modified premium whole life policy
a modified endowment contract

An endowment policy matures (endows) when its cash value equals its face amount, which may be:

no earlier than the insured’s age 120
only between ages 95 and 120
at almost any age
no earlier than the insured’s age 95
at almost any age

What do covered employees receive to show they have coverage under a group life insurance policy?

certificate of insurance
certificate of enrollment
copy of the master plan
individual insurance contract
certificate of insurance

Which of the following employees of ABC Computers could NOT convert their group life coverage to an individual policy?

Bill, who is on long-term disability this month
Emily, who was laid off from her job this month
Sue, who voluntarily terminated employment this month to work for a competitor
Paul, who retired this month
Bill, who is on long-term disability this month

Which statement is correct if a group offers noncontributory group life insurance?

The plan must cover at least 75 percent of eligible group members.
The employer must pay most of the premiums.
The employees must pay part of the premiums.
The plan must cover 100 percent of eligible group members.
The plan must cover 100 percent of eligible group members.

If the employer pays the entire premium for group term life insurance, what is the plan called?

noncontributory
self-insured
contributory
fully insured
noncontributory

With respect to life and health insurance policies, the term “modal premium” generally refers to

The minimum, maximum and recommended premium amount for the policy being purchased
the distinction between a fixed premium policy and a flexible premium policy
the policy’s premium amount for each of several different premium payment frequencies
the average premium amount for a policy of the proposed type and face amount.
the policy’s premium amount for each of several different premium payment frequencies

What does the life insurance company do upon an insured’s death if there is a collateral assignment attached to the insured’s policy?

The insurer pays the collateral assignee the balance of the loan still owed out of the death benefit, and the rest of the death benefit goes to the beneficiary.
The insurer pays the collateral assignee the entire death benefit.
The collateral assignee and beneficiary split the death benefit equally.
The policyowner decides at the time of the assignment how to divide up the death benefit.
The insurer pays the collateral assignee the balance of the loan still owed out of the death benefit, and the rest of the death benefit goes to the beneficiary.

The entire contract provision states that changes can be made to policy provisions by:

the policyowner only
the policyowner, an insurance company executive, or the producer
an executive officer of the company only
the producer only
an executive officer of the company only

Karen transfers all rights in her life insurance policy to her brother, David, through an absolute assignment. Who is responsible for paying the policy’s premiums from that point forward?

Premiums are split between Karen and David.
David must pay the premiums.
Karen must continue paying the premiums.
The policy is converted to paid-up status and there are no future premiums required.
David must pay the premiums.

Which one of the following would a state NOT permit as a life insurance policy exclusion?

death directly resulting from war
death resulting from a plane crash in which the insured was a fare-paying passenger
death resulting from the insured’s hobby
death resulting from suicide in the first couple policy years
death resulting from a plane crash in which the insured was a fare-paying passenger

What is the standard life insurance policy suicide exclusion period?

18 months
three years
four years
one to two years
one to two years

Which of the following most accurately describes the standard life insurance policy war clause?

The war exclusion excludes paying the death benefit if the insured dies when there is a declared war in effect.
The war exclusion excludes paying the death benefit if the insured dies while in the military, but only if there is a declared war in effect.
The war exclusion excludes paying the death benefit only if the death is the direct result of war action.
The war exclusion excludes paying the death benefit if the insured dies while in the military, whether or not there is a declared war in effect.
The war exclusion excludes paying the death benefit only if the death is the direct result of war action.

All the following statements about standard policy exclusions are correct EXCEPT:

The war and commission of a felony exclusions are required by law.
Standard exclusions found in most policies last for the life of the policy, even after the contestability period ends.
If a policy excludes a risk from coverage, the insurer will not pay the policy’s benefit if death results from that risk.
The war exclusion usually excludes paying the death benefit only if the death directly resulted from war.
The war and commission of a felony exclusions are required by law.

When paying death benefits, life insurance companies must consider all of the following, EXCEPT:

the order of beneficiaries and their succession
the relationship between the insured and beneficiary
the succession of beneficiaries
the share of the death benefits that goes to each beneficiary, if the insured has named more than one
the relationship between the insured and beneficiary

All the following statements about life insurance beneficiary designations are correct EXCEPT:

Non-human entities, such as trusts and corporations, cannot be beneficiaries of individual life insurance.
A policyowner can choose a natural person such as a spouse, a child, or children as beneficiaries.
Beneficiaries get the policy’s proceeds after the insured dies.
Insurance buyers are relatively free to choose the beneficiaries of their policies.
Non-human entities, such as trusts and corporations, cannot be beneficiaries of individual life insurance.

Who is the contingent beneficiary in the following beneficiary designation: “Sally Grant, wife of the insured, if she survives the insured; otherwise Jim Grant, son of the insured, if he survives the insured; otherwise Frank Grant, brother of the insured.”

Sally Grant
Jim Grant
the insured’s estate
Frank Grant
Jim Grant

Sandra names her father and mother joint beneficiaries of her life insurance without specifying what percentage each should receive. How will the insurance company pay the benefits if Sandra dies before her parents?

It will pay the death benefit to the estate and let the executor decide how to split it up.
It will pay the father the entire amount.
It will hold up payment until the father and mother instruct it on how to split up the payment.
It will pay each parent 50 percent of the benefit.
It will pay each parent 50 percent of the benefit.

A policyowner who lapses his whole life policy and applies its cash value to buy paid-up whole life coverage has chosen which of the following?

extended term option
reduced paid-up option
cash surrender and withdrawal provision
cash surrender option
reduced paid-up option

Which of the following most correctly describes the option(s) available with a universal life insurance policy the owner no longer wishes to maintain?

surrender the policy for its cash value or convert it to paid-up whole life insurance
surrender the policy for its cash value, convert it to extended term insurance, or convert it to paid-up whole life insurance
surrender the policy for its cash value or convert it to extended term insurance
surrender the policy for its cash value or let the policy continue without premiums until the cash value can no longer cover monthly deductions
surrender the policy for its cash value or let the policy continue without premiums until the cash value can no longer cover monthly deductions

All of the following statements regarding the extended term nonforfeiture option are correct EXCEPT:

The extended term option is not available if the original policy was issued on a substandard (rated) basis.
If the extended term option is elected, the face amount of the term policy is the same as the face amount of the lapsed policy.
An extended term option allows the policyowner to have insurance coverage for some period with no further premium payments required.
Coverage under the extended term insurance option continues for the insured’s entire life.
Coverage under the extended term insurance option continues for the insured’s entire life.

What is the maximum amount of time most states allow insurers to delay paying cash surrender values?

one month
six months
one week
nine months
six months

All the following statements about universal life insurance partial surrenders are correct EXCEPT:

Partial surrenders reduce the death benefit dollar-for-dollar.
They incur interest charges.
Policyowners can withdraw funds as long as the policy has a cash surrender value.
Insurers do not require policyowners to repay partial surrenders.
They incur interest charges.

With a traditional whole life insurance policy, policy loans can be as high as:

25 percent of the cash value, less any outstanding debt against the policy
75-90 percent of the cash value, less any outstanding debt against the policy
50-75 percent of the cash value, less any outstanding debt against the policy
100 percent of the cash value, less any outstanding debt against the policy
100 percent of the cash value, less any outstanding debt against the policy

Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy?

A partial surrender is the same as a cash withdrawal under a universal life insurance policy.
A partial surrender is a loan against the policy’s cash surrender value.
Under a partial surrender, the death benefit is not affected by the amount of the surrender.
Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender.
Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender.

All the following statements regarding withdrawals from a universal life policy are correct EXCEPT:

Universal life insurance policies allow withdrawals from their cash values.
A policyowner can withdraw amounts less than the full cash value.
Policy loans are not permitted with universal life insurance policies
Withdrawals from a UL policy’s cash value are called partial surrenders.
Policy loans are not permitted with universal life insurance policies

With a variable life insurance policy, policy loans can be as high as:

100 percent of the cash value, less any outstanding debt against the policy
75-90 percent of the cash value, less any outstanding debt against the policy
50-75 percent of the cash value, less any outstanding debt against the policy
25 percent of the cash value, less any outstanding debt against the policy
75-90 percent of the cash value, less any outstanding debt against the policy

The automatic premium loan (APL) provision does which of the following?

provides liquidity if the insured wants to increase a policy’s face amount
prevents a life insurance policy from lapsing if the policyowner fails to pay a premium
improves the policyowner’s credit rating
provides cash for emergencies and opportunities
prevents a life insurance policy from lapsing if the policyowner fails to pay a premium

Which of the following will happen if the outstanding balance of a whole life insurance policy loan, including accrued interest, ever exceeds the policy’s cash value?

The policy will automatically go on the extended term option.
The insurer will cancel the policy.
The policy will remain in effect.
The policy will be surrendered for cash.
The insurer will cancel the policy.

If Rick withdraws funds from his universal life insurance policy, what will be the immediate effect on the policy’s death benefit?

It will not change, as long as Rick repays the amount withdrawn.
It will not change as a result of the withdrawal.
It will be reduced by the amount of the withdrawal.
It will be reduced by the amount of the withdrawal, plus projected interest.
It will be reduced by the amount of the withdrawal.

Paul dies with a $50,000 unpaid loan (including interest) against his $150,000 life insurance policy. What death benefit will the insurance company pay his beneficiary?

$100,000
$25,000
$50,000
$250,000
$100,000

All the following statements regarding the automatic premium loan (APL) are correct, EXCEPT:

The policy’s cash value must be at least equal to the unpaid premium for the automatic premium loan to be made.
Some policies prohibit automatic premium loans from paying any more than a total of 12 monthly premiums.
Some policies prohibit automatic premium loans from paying consecutive premiums.
Under the APL, a policy loan is created to pay a premium on its due date.
Under the APL, a policy loan is created to pay a premium on its due date.

If a policyowner partially surrenders an adjustable life insurance policy, which of the following happens to the policy’s premium?

It goes down.
It stays level.
It increases.
It fluctuates up and down thereafter.
It goes down.

All the following statements regarding traditional whole life insurance policy loans are correct EXCEPT:

The maximum loan amount may be as high as 100 percent of the cash value, less any prior debt against the policy.
Most states limit the maximum loan interest rate to no more than 8 percent.
Policy loans do not have to be repaid by the policyowner.
Policy loans are available from the moment the policy is issued.
Policy loans are available from the moment the policy is issued.

Regarding life insurance policy dividend options, which of the following types of life insurance is purchased under the paid-up additions option?

level premium whole life insurance
level premium term life insurance
one-year term life insurance
single premium life insurance
single premium life insurance

All the following statements regarding life insurance policy dividends are correct EXCEPT:

Dividends are generally received income tax free.
Dividends are guaranteed.
Participating life insurance policies include provisions that enable the policyowner to choose how he or she wants to apply any declared policy dividends.
Interest earned on dividends left with the insurer is taxable.
Dividends are guaranteed.

Which of the following correctly describes a life insurance policy dividend?

an amount paid to insurance company stockholders annually if profit margins are met
an insurer’s revenues in excess of costs
an amount returned to a policyowner out of an insurance company’s surplus funds, effectively representing unused premiums
a distribution of insurer profit to those holding stock in the company
an amount returned to a policyowner out of an insurance company’s surplus funds, effectively representing unused premiums

What type of life insurance company is owned by the policyowners?

stock company
privately traded company
mutual company
universal insurance company
mutual company

Policyowners can withdraw the interest earnings on their dividends or allow the interest to continue to accumulate. In either case, how is the interest treated for income tax purposes?

The interest earned on the dividend is taxable if withdrawn, but if paid out as part of the death benefit it is income tax free.
The dividend itself is generally tax free but the interest earned on the dividend is reported as taxable income in the year credited.
The interest earned is not taxable.
The interest earned is not tax free, but it is tax deferred
The dividend itself is generally tax free but the interest earned on the dividend is reported as taxable income in the year credited.

Phil selected the uncommon paid-up insurance option for his participating whole life insurance policy. Which of the following best describes the purpose for this type of dividend option?

pay up the whole life insurance policy several years early
reduce the policy face amount so that the dividend is sufficient to pay up the policy in the year that the dividend is issued
purchase additional units of term life insurance coverage
purchase additional units of paid-up whole life insurance
pay up the whole life insurance policy several years early

All the following statements about the accumulate at interest dividend option are correct EXCEPT:

The insurer credits a rate of interest to the dividends as they remain on deposit with the insurer.
Participating policy dividends are not generally taxable.
The dividends are retained in the insurer’s general account.
The policyowner can only withdraw the accumulated dividends and interest on the policy’s anniversary date.
The policyowner can only withdraw the accumulated dividends and interest on the policy’s anniversary date.

Sue’s annual premium is $1,500 and the declared dividend was $200. If Sue chooses the premium reduction dividend option, she will receive a premium notice for which of the following?

$200
$1,500
$1,700
$1,300
$1,300

Julie is the beneficiary of her husband’s $150,000 life insurance policy. When he dies, she chooses a settlement option that will pay monthly benefits to her as long as she lives, and will cease when she dies, with no further payments owed to anyone. Julie has chosen which settlement option?

straight life income settlement option
joint and survivor life income
life income with refund
life income with period certain
straight life income settlement option

Carl is owner and insured of a life insurance policy. If he were to die without having selected a settlement option, which of the following option(s) is available to the beneficiary?

The beneficiary may choose from all settlement options that would have been available to Carl.
The beneficiary must choose a settlement option that does not include a life contingency.
The beneficiary must take the cash value as a lump-sum payment only.
The beneficiary must leave the cash value with the insurer to accumulate interest for a period specified in the policy.
The beneficiary may choose from all settlement options that would have been available to Carl.

Settlement options that effectively work like an annuity by providing income payments the payee cannot outlive are called which of the following?

fixed period settlement options
fixed amount settlement options
period certain income options
life income options
life income options

All the following statements about life insurance settlement options are correct EXCEPT:

Available settlement options are listed in the insurance policy.
All settlement options include a life contingency.
A life insurance policy’s death benefit can be paid out or settled in many different ways at the death of the insured.
The policyowner or beneficiary can determine these options.
All settlement options include a life contingency.

All the following statements about the interest-only life insurance settlement option are correct EXCEPT:

The policy specifies a minimum interest rate.
Interest is most commonly distributed monthly or annually.
When a policyowner selects the interest only option, the insurer holds the policy proceeds until a future date and pays out the interest that those proceeds earn.
The interest rate used with this option is the lower of a current rate or the guaranteed rate specified in the policy.
The interest rate used with this option is the lower of a current rate or the guaranteed rate specified in the policy.

Under which of the following settlement options are the insurer’s responsibilities under the contract fulfilled upon the death of the insured?

fixed amount
fixed period
lump-sum cash payment
interest only
lump-sum cash payment

For any given life policy death benefit amount, which of the following settlement options generally provides the largest monthly income to the payee?

joint and survivor life income
life income with refund
life income with period certain
straight life income settlement option
straight life income settlement option

Under the interest-only life insurance settlement option, what happens to the death benefit proceeds at the end of the payment period (or upon request by the beneficiary)?

The insurer pays the proceeds to the beneficiary.
The insurer pays the proceeds, either in a lump sum or under one of the other settlement options.
The insurer keeps the interest, thus increasing the death benefit amount.
The insurer pays the proceeds in a lump sum.
The insurer pays the proceeds, either in a lump sum or under one of the other settlement options.

Life insurance waiver of premium riders most commonly require the insured to be disabled for a waiting period before premiums will be waived. How long is the typical waiting period?

10 months
6 weeks
12 weeks
6 months
6 months

Which of the following correctly describes the disability income benefit rider available with life insurance policies?

A disability income benefit rider distributes the policy’s death benefit in the form of monthly payments if the insured becomes disabled.
It pays a monthly income determined by a formula specified in the policy if the insured becomes disabled, without impacting the policy’s cash value or face amount.
A disability income benefit rider distributes the policy’s cash value in the form of monthly payments if the insured becomes disabled.
A disability income benefit rider pays a monthly income equal to the policy premium if the insured becomes disabled.
It pays a monthly income determined by a formula specified in the policy if the insured becomes disabled, without impacting the policy’s cash value or face amount.

Why do most insurers require a waiting period of four to six months before the disability income benefit rider begins payments?

They must meet federal disability waiting period requirements.
They want to control claims by eliminating claims for short-term disabilities.
They want to get at least six months of insurance premiums before they pay for the disability.
They want to eliminate disability income rider claims by letting disabled insureds die before qualifying for benefit payments.
They want to control claims by eliminating claims for short-term disabilities.

Under the payor benefit rider of a juvenile life insurance policy, which of the following happens if the payor becomes disabled before the maximum age specified in the rider?

The juvenile policy becomes paid-up.
Premiums are waived until the insured child reaches a certain age.
Premiums are waived until the payor recovers.
Premiums are waived until the payor recovers or the insured child reaches a certain age (e.g., 21 or 25), whichever occurs first.
Premiums are waived until the payor recovers or the insured child reaches a certain age (e.g., 21 or 25), whichever occurs first.

All the following statements about family term riders with life insurance are correct EXCEPT:

The policyowner can add or drop family members on a family term rider but must prove insurability if adding insureds other than newborn children.
A family term rider essentially combines the coverages of another insured rider and a children’s term rider into a single rider.
Children covered by this rider can convert their coverage to permanent coverage at age 21 without proof of insurability.
Spouses are provided more coverage than children under a family term rider.
Spouses are provided more coverage than children under a family term rider.

All the following statements regarding term life riders covering additional insureds are correct EXCEPT:

Coverage usually ends when the policyowner reaches age 65 or 70.
It is not necessary for the policyowner to have an insurable interest on the insured who is covered under the additional insured rider.
Term insurance is used to provide the additional insured coverage.
The additional insured rider covers individuals other than the base policy’s insured.
It is not necessary for the policyowner to have an insurable interest on the insured who is covered under the additional insured rider.

All the following statements about “other insured” term riders on a life insurance policy are correct EXCEPT:

Only spouses or partners can be covered under this rider.
The term life coverage provided by the rider is temporary.
Applicants often purchase this rider to cover their spouse or partner.
Coverage ends when the policyowner reaches a specified age such as 65 or 70.
Only spouses or partners can be covered under this rider.

Which statement about converting coverage under a children’s term rider is correct?

Conversion is possible even if the child is uninsurable, and the converted policy coverage amount may be greater than the amount provided under the rider.
Conversion is possible even if the child is uninsurable and is limited to the amount provided under the rider.
Conversion is possible only if the child is insurable, and the converted policy coverage amount may be greater than the amount provided under the rider.
Conversion is possible only if the child is insurable and is limited to the amount provided under the rider.
Conversion is possible even if the child is uninsurable, and the converted policy coverage amount may be greater than the amount provided under the rider.

(uninsurable refers to not requiring evidence of insurability)

If an insured qualifies for and takes an accelerated benefit from a life insurance policy, which of the following accurately describes the impact this will have on the death benefit?

The death benefit is not reduced; the cash value is reduced by the accelerated benefit payment.
The death benefit is reduced by the amount of the accelerated benefit payment and may be further reduced to cover lost interest.
The death benefit is reduced by an amount equal to the cash value.
The death benefit is reduced by the amount of the accelerated benefit payment, and no more.
The death benefit is reduced by the amount of the accelerated benefit payment and may be further reduced to cover lost interest.

All the following statements regarding the disclosure that must be made with accelerated benefits riders are correct EXCEPT:

The disclosure must explain the effect paying accelerated benefits will have on the policy’s cash value, death benefit, premium, and policy loans.
The disclosure must provide a brief description of accelerated benefits and definitions of conditions triggering payment of benefits.
Some states require that the disclosure must note that receiving accelerated benefit payments may adversely affect the recipient’s eligibility for Medicaid or other government benefits.
Insurers are required to provide a disclosure statement to the applicant only when an accelerated benefit payout is requested.
Insurers are required to provide a disclosure statement to the applicant only when an accelerated benefit payout is requested.

A life insurance policy’s long-term care rider requires that an insured diagnosed with a cognitive disorder do which of the following to be eligible for benefit payments?

provide a physician’s certification, obtained within the past 12 months, that his or her health or safety is at risk without supervision
that the mental condition first appeared within the past 12 months
demonstrate that his or her health or safety had been at risk at least once within the last 12 months
obtain a doctor’s statement that he has been mentally disabled for the past 12 months
provide a physician’s certification, obtained within the past 12 months, that his or her health or safety is at risk without supervision

All the following statements about life insurance living benefits riders or provisions are correct EXCEPT:

They provide access to the policy’s death benefit while the insured is alive.
Accelerated benefits are payable to insureds who require hospitalization for any reason.
There are two basic types.
If they are used, the net death benefit paid to beneficiaries is reduced in most cases.
Accelerated benefits are payable to insureds who require hospitalization for any reason.

Which statement regarding life insurance accelerated benefits is correct?

An accelerated benefit rider pays out part or all of the policy’s face value while the insured is still living.
There is a cost, in the form of additional premium, in having the accelerated benefit rider or provision in the policy.
The insured must use these funds only for medical care.
Accelerated benefits are payable anytime the insured requires hospitalization.
An accelerated benefit rider pays out part or all of the policy’s face value while the insured is still living.

To be eligible for payments under a life insurance policy’s long-term care rider, the insured must be certified as unable to perform which of the following?

at least two activities of daily living for at least 90 days
at least two activities of daily living for at least 30 days
at least five activities of daily living for at least 30 days
at least five activities of daily living for at least 90 days
at least two activities of daily living for at least 90 days

All of the following statements about life insurance policy long-term care riders are correct, EXCEPT:

If the insured’s diagnosis is due to a medical reason, the insured must be certified as unable to perform at least two activities of daily living (ADLs) for at least 90 days.
There may be an elimination or waiting period of 10 to 100 days before benefits are payable.
An insured must first be hospitalized before qualifying for LTC benefit payments.
An insured who bought a long-term care rider becomes eligible for its benefit when he or she is diagnosed as chronically ill.
An insured must first be hospitalized before qualifying for LTC benefit payments.

A long-term care rider on a life insurance policy will pay benefits if the insured is diagnosed as chronically ill due to which of the following?

any medical problem requiring hospitalization
terminal cancer only
a catastrophic accident only
either a medical or cognitive (mental health) reason
either a medical or cognitive (mental health) reason

Which of the following statements regarding the accidental death benefit (ADB) rider to a life insurance policy is correct ?

There is no age limit at which the policyowner may add an ADB rider to his or her policy.
Benefits are payable under the accidental death benefit rider only if the insured dies as the direct result of an accident.
As long as the death can be attributed to an accident, ADB benefits are payable regardless of the time that has elapsed since the accident. .
This rider is available with all life insurance policies at no charge.
Benefits are payable under the accidental death benefit rider only if the insured dies as the direct result of an accident.

The terms “double indemnity rider” and “triple indemnity rider” are common names for which type of life insurance policy rider?

accidental death benefit rider
return of premium rider
guaranteed insurability rider
cost-of-living rider
accidental death benefit rider

Which rider gives the policyowner the option to increase his or her life insurance policy’s face amount based on an inflation index?

accidental death benefit rider
guaranteed insurability rider
accelerated benefits rider
cost-of-living rider
cost-of-living rider

All the following are types of riders that are available with most types of life insurance policies EXCEPT:

cost-of-living rider
accidental death benefit rider
guaranteed insurability rider
guaranteed dividend rider
guaranteed dividend rider

If a life insurance policy’s death benefit is paid to the insured’s estate, which of the following statements is correct?

The proceeds can be used to pay for estate taxes or other costs that an estate may face.
The proceeds will never be subject to federal income tax.
The proceeds cannot be used to make charitable gifts.
The proceeds cannot be given to heirs named in a will.
The proceeds can be used to pay for estate taxes or other costs that an estate may face.

Which of the following would provide instant liquidity upon the death of an estate owner?

a life insurance policy on the owner’s life, payable to his estate
real estate owned by the owner for investment purposes
bank certificates of deposit whose maturity date is in the future
the estate owner’s home
a life insurance policy on the owner’s life, payable to his estate

John owns a whole life insurance policy with a $250,000 death benefit. Over the years, the policy’s cash value has grown to $25,000. All the following statements regarding this are correct EXCEPT:

John can take a loan from the policy’s cash value if he needs funds in an emergency.
John can withdraw funds from the policy’s cash value to pay for his son’s college education.
At John’s death, the beneficiary receives the policy’s full face amount even if there is an outstanding policy loan.
If John surrenders the policy, he will receive the policy’s cash value.
At John’s death, the beneficiary receives the policy’s full face amount even if there is an outstanding policy loan.

Which one of the following best describes the meaning of “life insurance death benefits avoid probate”?

anyone can be designated as the policy’s beneficiary
life insurance makes it easy to engage in money laundering
the death benefit is paid to the beneficiary without regard for what the insured’s will may say.
tax avoidance is easy
the death benefit is paid to the beneficiary without regard for what the insured’s will may say.

Joanna has a $500,000 permanent life insurance policy that she no longer wants to keep in force. In order to enter into a viatical settlement, what must Joanna prove?

She is terminally or chronically ill.
She has a financial need to sell her policy.
She will use the funds to pay for medical expenses.
She is her family’s breadwinner.
She is terminally or chronically ill.

Fred is terminally ill. He sells his $100,000 life insurance policy to a viatical settlement provider for $60,000. Six months later, Fred dies. Which of the following statements is correct?

Fred’s estate will receive $100,000 as a death benefit.
Fred’s estate will receive $60,000 as a death benefit under the policy, and the viatical settlement provider will receive $40,000.
The viatical settlement provider will receive the entire $100,000.
The death benefit will be split equally between the viatical settlement provider and Fred’s estate.
The viatical settlement provider will receive the entire $100,000.

Life insurance policy proceeds are protected from the claims of creditors due to the policy’s

incontestability clause
insuring clause
spendthrift clause
settlement options provision
spendthrift clause

Life insurance can provide both death benefits and living benefits. All the following are death benefit-related reasons for owning life insurance EXCEPT:

to protect survivors against the income lost when an insured dies
to supplement one’s retirement income
to create an estate
to preserve an estate
to supplement one’s retirement income

Mary inherited $10 million several years ago. She has just bought a life insurance policy to help preserve her estate. All of the following statements regarding this are correct EXCEPT:

The policy’s death benefit can be used to pay Mary’s estate settlement costs.
The policy’s death benefit can help eliminate the need to sell assets to pay estate taxes when Mary dies.
The policy’s death benefit can be used to pay Mary’s debts when she dies.
To keep policy proceeds out of her estate, Mary should make sure she is the owner.
To keep policy proceeds out of her estate, Mary should make sure she is the owner.

After a viatical settlement agreement is signed, which party owns the life insurance policy?

the viatical settlement provider
the insured
the viator
the viatical settlement broker
the viatical settlement provider

What is another name for the insured in a viatical settlement?

viator
viatical settlement provider
viatical settlement purchaser
viatical settlement broker
viator

Which of the following statements about the tax treatment of funds received through a qualified viatical settlement is correct?

The insured pays capital gains tax but no federal or state income tax.
The insured pays state income tax but no federal income tax.
The insured pays no taxes in any form.
The insured pays no federal income tax but may have to pay state income tax.
The insured pays no federal income tax but may have to pay state income tax.

When calculating the ongoing income that a surviving family will need after an insured dies, the insured must consider all of the following expenses EXCEPT:

family medical expenses
utilities
housing expenses
final funeral expenses
final funeral expenses

One of the first systems developed for determining life insurance needs, which it did by calculating a person’s economic value, was called the:

human life value approach
needs approach
financial loss analysis
cost-benefit analysis
human life value approach

When looking at how much income his family would need if he were to die prematurely, Tom discovered that the Social Security survivors’ benefit would not give them enough ongoing income. If securing his family’s financial future is his top priority, which of the following statements describes Tom’s best response?

Tom should apply to the Social Security Administration now to ensure that his family will receive higher benefits if he dies.

Tom can arrange to have his 401(k) account distribute its account value to his surviving dependents in monthly payments.
Tom should try to lower his monthly expenses and increase the amount of Social Security withheld from his paychecks to ensure his family will have enough income if he dies.
Tom can buy additional life insurance to cover the amount needed to provide an adequate stream of income upon his death.

Which of the following statements regarding the life insurance needs analysis is correct?

The human life value approach is best suited for calculating how much ongoing income a surviving family needs.
Most people do not need an insurance needs analysis because Social Security benefit payments will generally provide most of the ongoing income that surviving dependents might need.
Determining the ongoing income needs of surviving dependents is a critical part of the needs approach to life insurance needs analysis.
Because it includes an estimate of a person’s net future earnings, the human life value approach is best suited for determining surviving dependents’ ongoing income needs.
Determining the ongoing income needs of surviving dependents is a critical part of the needs approach to life insurance needs analysis.

Which statement regarding corporate-owned life insurance (COLI) plans is correct?

They do not benefit employees and their popularity has waned in recent years.
Though not as popular as they once were, they remain a valuable employee benefit.
They are a very popular form of employee benefit.
They remain very popular despite the fact they do not benefit employees.
They do not benefit employees and their popularity has waned in recent years.

Jackie Jones is the CFO of Delta Industries and has been instrumental in the company’s growth and success over the years. Because of the significant financial loss that it would suffer if she died, Delta purchased a key person insurance policy covering Jackie. All the following statements regarding this scenario are correct EXCEPT:

If Jackie dies, the death benefits can be used to pay Delta’s outstanding loans.
If Jackie ends her employment, Delta can keep the policy and collect the death benefit when she dies.
If Jackie ends her employment, she can demand that Delta surrender the policy and give her the cash value.
If Jackie dies, the insurer will pay the death benefit to Delta.
If Jackie ends her employment, she can demand that Delta surrender the policy and give her the cash value.

Which statement about deferred compensation plans is correct?

They are considered qualified plans.
They allow executives to delay receiving current compensation until a future time.
Although life insurance is not allowed to fund deferred compensation plans, annuities and mutual funds are allowed.
All employees over the age of 21 with at least one year of service must be eligible to participate in the plan.
They allow executives to delay receiving current compensation until a future time.

All the following statements regarding an insured executive bonus plan are correct EXCEPT:

The executive owns the life insurance policy.
The executive can choose the beneficiary under the policy.
The employer is required to pay all of the premiums for the policy.
The employer can take an income tax deduction for premium payments it makes under the policy.
The employer is required to pay all of the premiums for the policy

All the following statements about corporate-owned life insurance (COLI) plans are correct EXCEPT:

The employer must surrender a COLI when the insured employee retires or quits.
The corporation is the beneficiary under each policy.
The corporation receives the death benefit at the death of an insured employee.
The corporation owns the policies covering individual employees.
The employer must surrender a COLI when the insured employee retires or quits.

What is the main purpose of key person insurance?

to compensate the business for the loss of its key employee
to add to an employee’s salary at retirement
to compensate the key employee’s family when he or she dies
to provide retirement benefits to key employees
to compensate the business for the loss of its key employee

Which of the following statements about nonqualified deferred compensation plans is correct?

If the executive dies before retirement, his or her heirs will not receive any of the deferred compensation.
When an executive receives the deferred compensation, he or she will generally be in a lower tax bracket and will pay lower taxes.
The employer will not receive any tax deductions for its support of a deferred compensation plan.
Life insurance must be used with deferred compensation plans.
When an executive receives the deferred compensation, he or she will generally be in a lower tax bracket and will pay lower taxes.

The senior vice president of Salem Computers is covered by a salary continuation plan, which stipulates that he cannot work for a competitor. What will happen if he decides to leave his position and work for another computer company?

He will forfeit his benefits under the plan since he failed to meet the conditions in the agreement.
He will not receive any benefits under the salary continuation plan until he retires.
He will only receive that part of the benefit that he deferred from his own compensation.
He will only receive part of the benefits that he was entitled to receive under the salary continuation plan.
He will forfeit his benefits under the plan since he failed to meet the conditions in the agreement.

Which one of the following is the most appropriate use of life insurance?

buying life insurance to save for a big vacation in several years
buying life insurance to obtain workers’ compensation protection
buying life insurance to insure all the parties to a business buy-sell agreement
buying life insurance on an unrelated person as an investment
buying life insurance to insure all the parties to a business buy-sell agreement

All the following statements regarding split-dollar life insurance plans are correct EXCEPT:

Either the employee or the employer may own the policy.
There are three basic types of split-dollar plans.
If the employee owns the life insurance policy, the portion of the premium paid by the employer may be considered taxable income to the employee.
The employer pays the entire premium and the employee receives the policy benefits.
The employer pays the entire premium and the employee receives the policy benefits.

Four shareholders of ABC Corporation, who each own a $1,000,000 interest in the company, enter into a stock redemption agreement funded with life insurance. If one shareholder dies six months later, all the following statements are correct EXCEPT:

Each of the surviving shareholders will then own a one-third share of ABC Corporation.
The insurer will pay the $1,000,000 death benefit from the deceased owner’s policy to ABC Corporation.
This is a form of entity-purchase buy-sell plan.
The three remaining shareholders will buy the deceased owner’s interest from his estate.
The three remaining shareholders will buy the deceased owner’s interest from his estate.

All the following statements about key employee life insurance coverage are correct EXCEPT:

The business applies for and owns the policy.
The key employee’s family receives the death benefits.
The key employee has no ownership rights in the policy.
The amount of coverage typically reflects the financial loss that the business would suffer if the key employee died.
The key employee’s family receives the death benefits.

When an employee retires, what is the general income tax treatment of the benefit payments he or she receives under a deferred compensation plan?

They are fully taxable.
They are partially tax free.
They are entirely tax free.
They are taxable but the employee can also take a deduction on them, making them essentially tax free.
They are fully taxable.

Which statement correctly describes a deferred compensation plan?

They are nonqualified retirement plans that let executives permanently avoid paying taxes on compensation paid by the employer.
They are qualified retirement plans that let employees avoid taxes on future income.
They are qualified retirement plans that are only available to executives.
They are nonqualified retirement plans that allow executives to delay receiving current compensation until a future time.
They are nonqualified retirement plans that allow executives to delay receiving current compensation until a future time.

If four business partners enter into a cross-purchase buy-sell agreement, what is the total number of life insurance policies that will be needed to fully insure this agreement?

6
12
16
4
12

What is the main difference between a traditional deferred compensation plan and a salary continuation plan?

The employee funds the future benefit under a salary continuation plan.
The covered employee does not defer compensation with a salary continuation plan.
The employer cannot deduct benefits that are paid under a salary continuation plan.
Term life insurance is often used to fund a deferred compensation plan.
The covered employee does not defer compensation with a salary continuation plan.

The purpose for a long-term care rider with a deferred annuity contract is to:

allow withdrawals from the deferred annuity without a surrender charge if the annuitant is confined to a nursing home
allow the deferred annuity to be annuitized earlier than age 65 if the annuitant requires long-term care
allow the annuity owner to assign the deferred annuity to a nursing home
allow tax-free withdrawals from the deferred annuity if the annuitant requires long-term care
allow withdrawals from the deferred annuity without a surrender charge if the annuitant is confined to a nursing home

What is the name of the period during which premium funds are paid into an annuity contract?

the accumulation period
the annuity payout
the benefit period
the annuity period
the accumulation period

All of the following statements about annuities are correct, EXCEPT:

The primary purpose of an annuity is to guarantee the accumulation of money over time.
An annuity converts a sum of money into a series of income payments.
Annuities are not life insurance.
Annuities are sold by life insurance agents and are issued by life insurance companies.
The primary purpose of an annuity is to guarantee the accumulation of money over time.

Which of the following would be most appropriate for Haley, 55, if her primary objective is to ensure having an income she cannot outlive?

life insurance
CDs
an annuity
mutual funds
an annuity

A deferred annuity rider that lets the annuity owner commit only part of the annuity’s funds to providing guaranteed lifetime income, leaving the remainder available for withdrawal at the owner’s discretion, is called a:

return of premium rider
guaranteed income rider
guaranteed insurability rider
death benefit rider
guaranteed income rider

The charge-free withdrawals provision of a deferred annuity contract does which of the following?

It exempts deferred annuity withdrawals from surrender charges and all taxes as long as the withdrawal does not exceed a specified percentage of the accumulated value.
It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge.
It permits annuity contract owners to withdraw a specified percentage of the accumulated value on a one-time basis without imposing a surrender charge.
It exempts deferred annuity withdrawals from surrender charges and penalty taxes as long as the withdrawal does not exceed a specified percentage of the accumulated value.
It permits annuity contract owners to withdraw a specified percentage of the accumulated value annually without imposing a surrender charge.

Which of the following statements best describes the purposes that annuities serve?

Annuities are income distribution instruments that are not able to accumulate money.
Annuities collect premiums to pay them back to the annuitant in a lump sum sometime in the future.
An annuity is a form of insurance that ensures a guaranteed death benefit.
While their basic purpose is to distribute a sum of money, annuities can also be used to accumulate money.
While their basic purpose is to distribute a sum of money, annuities can also be used to accumulate money.

Which one of the following most correctly describes the process that occurs when a group annuity member retires?

The retiree converts his or her accumulated share of the group contract into an individual annuity.
The employer buys a variable annuity, which pays the benefits promised retirees in the group contract.
The group annuity begins paying the monthly income amount directly from the group contract.
An individual annuity contract is issued to the retiring member using funds from the group contract.
An individual annuity contract is issued to the retiring member using funds from the group contract.

Ann is the beneficiary of an annuity owned by Jim (who is also the annuitant). Jim intended to annuitize the contract at retirement but died shortly before retiring. What benefits will Ann receive from the annuity?

Ann’s right to any funds will be based on the income payout option that Jim selected.
Ann will receive the annuity’s accumulated value and may select a payout option.
Ann will receive income for life.
Ann will receive the contract’s funds in a lump sum.
Ann will receive the annuity’s accumulated value and may select a payout option.

All the following are parties to an annuity contract EXCEPT:

the agent
the annuitant
the beneficiary
the owner
the agent

Sue, an annuity owner, names her 15-year-old son and 10-year-old daughter as joint annuitants of her contract. Upon whose life (or lives) are income payments determined?

the joint life expectancy of Sue’s son and daughter
Sue’s life
Sue’s son’s life
Sue’s daughter’s life
the joint life expectancy of Sue’s son and daughter

George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called?

the owner
the beneficiary
the annuitant
the agent
the annuitant

George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called?

the owner
the beneficiary
the annuitant
the agent
the owner

Ann is beneficiary of an annuity owned by Jim, who is also the annuitant. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?

Ann will receive lifetime income.
Ann’s right to any funds will be based on the income payout option Jim selected.
Ann will receive the annuity proceeds.
Ann’s will receive income for 20 years.
Ann’s right to any funds will be based on the income payout option Jim selected.

What is the only restriction on naming an annuitant?

The annuitant must be related to the owner.
The annuitant can be a natural or non-natural person.
The annuitant must be a natural person.
The annuitant must not be related to the owner.
The annuitant must be a natural person.

All the following statements regarding deferred annuity beneficiaries are correct EXCEPT:

With annuitant-driven contracts, the annuitant’s death before annuitization triggers payment of the contract value to the beneficiary even if the owner is still alive.
The distinction between annuitant-driven and owner-driven deferred annuities disappears if the owner and annuitant are the same person.
With owner-driven contracts, the owner’s death before annuitization triggers payment of the death benefit to the beneficiary, even if the designated annuitant is still alive.
With an annuitant-driven contract, the beneficiary must annuitize the contract immediately if the annuitant dies before annuitization.
With an annuitant-driven contract, the beneficiary must annuitize the contract immediately if the annuitant dies before annuitization.

Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments?

deferred annuities
immediate annuities
single-premium immediate annuities
retirement annuities
deferred annuities

Which statement about deferred annuity surrender charges is correct?

The surrender charge is usually applied to all withdrawals prior to annuitization.
The insurer may extend the surrender charge period if the annuity owner makes excessive numbers of withdrawals.
The surrender charge percentage typically decreases over the surrender charge period.
The surrender charge usually remains level.
The surrender charge percentage typically decreases over the surrender charge period.

Deferred annuities accumulate funds for future distribution. Under what circumstances are these funds forfeitable to the insurer?

only if the owner stops paying premiums
only if the contract is surrendered during the surrender charge period
only at the annuitant’s death, if it occurs before the annuity starting date
under no circumstances
under no circumstances

When do funds in a deferred annuity become the owner’s property?

They belong to the owner only after they have accumulated for the period stated in the contract.
They belong to the owner only after the end of the surrender charge period.
They are nonforfeitable and always belong to the contract owner.
They belong to the owner only at annuitization.
They are nonforfeitable and always belong to the contract owner.

Which of the following best describes income payments under the period certain-only annuity settlement option?

the longer the payout period, the larger the amount of each monthly payment
The monthly payment will be the same regardless of the length of the payout period
the longer the payout period, the smaller the amount of each monthly payment
the shorter the payout period, the smaller the amount of each monthly payment
the longer the payout period, the smaller the amount of each monthly payment

Mark and Mary are annuitants in a single contract that is currently paying them $1000 per month but would drop to $500 per month upon either person’s death. Which annuity settlement option have they selected?

joint and two-thirds survivor option
joint and one-half survivor option
joint life option
joint and 100 percent survivor option
joint and one-half survivor option

Under which settlement option is an income paid until the second of two annuitants dies, at which point no further payments are made to anyone?

joint life option
joint and survivor with period certain option
life income with period certain option
joint and survivor option
joint and survivor option

Which of the following annuity settlement options will pay the annuitant’s beneficiary a death benefit equal to the difference between the amount annuitized and the sum of payments distributed if the annuitant dies prematurely?

joint and survivor life income
life income with period certain
straight, or pure, life income
life income with refund guarantee
life income with refund guarantee

Insurers let indexed annuity contract owners participate in some of the growth in the stock market while avoiding possible losses of principal by:

carefully selecting underlying stocks that are certain to increase in value by a minimum percentage
estimating the future investment returns of a selected stock index, and guaranteeing an interest rate based on that estimate
basing changes in the annuity’s current interest rate to changes in a selected stock index while guaranteeing a minimum interest rate
guaranteeing a current interest rate that matches the historical average of a selected stock index
basing changes in the annuity’s current interest rate to changes in a selected stock index while guaranteeing a minimum interest rate

An indexed annuity with a participation rate of 75 percent is currently valued at $10,000. If the S&P 500 increases 10 percent during the contract’s term, how much interest will be credited to the annuity?

$350
$750
$500
$1,400
$750

(.10 x .75 = .075)
($10,000 × .075 = $750)

Both indexed annuities and market-value adjusted annuities are generally considered a form of:

fixed annuity
equity product
securities-based product
variable annuity
fixed annuity

In a fixed deferred annuity that has a current declared interest rate, a change in the current rate results in a new:

general account rate
guaranteed rate
initial interest rate
renewal rate
renewal rate

Premiums that are paid into a variable annuity acquire:

sub-account units
accumulation units
cash value units
annuity units
accumulation units

Frank’s first income payment under a variable annuity is $1,950. The value of each accumulation unit in each of the sub-accounts in Frank’s contract is $10 at the time of annuitization. How many annuity units does Frank have?

1950
195
225
19
195
($1950 / $10 = 195 annuity units)

All of the following statements regarding a variable annuity’s assumed interest rate (AIR) are correct, EXCEPT:

If the value of the annuity units grows at the same rate as the AIR, payments to the annuitant will stay the same.
The value of each annuity payment is directly affected by changes in the AIR.
Annuitized payments under a variable annuity are based on the AIR and the value of the contract’s annuity units.
If the actual return is greater than the AIR, payments will decrease.
If the actual return is greater than the AIR, payments will decrease.

Which of the following statements regarding variable annuity annuitization is correct?

Annuitization under a variable annuity contract provides income payments that are guaranteed to increase at a specified rate.
Annuitization under a variable annuity contract provides income payments that remain fixed.
Annuitization under a variable annuity contract provides income payments that can increase but not decrease.
Annuitization under a variable annuity contract provides income payments that can fluctuate up or down.
Annuitization under a variable annuity contract provides income payments that can fluctuate up or down.

For which of the following people would an annuity probably NOT be suitable?

Barbara, age 64, who recently inherited a large sum of money and wants to use some of it to provide retirement income she can’t outlive.
Deanna, age 24, who was recently awarded a large monetary settlement in a lawsuit and who wants to make sure the money lasts her entire life.
Alan, age 42, who wants to save money outside of his 401k plan for extra retirement income,
Charlie, age 79, who is looking for a place to save the proceeds from the recent sale of his vacation home.
Charlie, age 79, who is looking for a place to save the proceeds from the recent sale of his vacation home.

Structured settlements most commonly use:

immediate variable annuities
immediate fixed annuities
deferred variable annuities
deferred fixed annuities
immediate fixed annuities

All the following statements about annuity death benefits are correct EXCEPT:

If the owner or annuitant dies during the accumulation period, a beneficiary receives a death benefit at least equal to the amount invested in the contract.
All annuities provide a death benefit if the owner or annuitant dies during the accumulation period.
All annuities provide a death benefit if the owner or annuitant dies after the contract has been annuitized.
Variable annuities guarantee a death benefit equal to at least the premium invested minus previous withdrawals.
All annuities provide a death benefit if the owner or annuitant dies after the contract has been annuitized.

For which of the following purposes are annuities most often used?

short-term savings
estate planning
retirement planning
income protection in the event of death
retirement planning

In choosing a qualified retirement plan funding instrument (e.g., a mutual fund, certificate of deposit, or deferred annuity), which of the following benefits or features is available only through an annuity?

the ability to convert accumulated savings into a guaranteed stream of income that cannot be outlived
tax-deductible premiums
tax-deferred accumulation
the ability to make monthly premium contributions
the ability to convert accumulated savings into a guaranteed stream of income that cannot be outlived

Lottery winners who want to receive their winnings in installment payments over a 20-year period will most likely be set up with:

a deferred annuity from an insurance company that will annuitize in 20 years
a stream of income paid by the lottery commission from a fund consisting of the announced lottery prize
an immediate variable annuity that offers the potential for the lottery winner to receive even more than the announced prize winnings
a structured settlement, using an immediate fixed annuity, that guarantees the distribution of payments over the specified period
a structured settlement, using an immediate fixed annuity, that guarantees the distribution of payments over the specified period

Annuities offer all the following benefits EXCEPT

tax-deferred growth during a deferred annuity’s accumulation period
a death benefit
tax-free distributions upon the annuity owner’s death or retirement
retirement income the annuitant cannot outlive
tax-free distributions upon the annuity owner’s death or retirement

Using a deferred annuity for short-term accumulation goals may result in all the following consequences EXCEPT:

a possible penalty tax upon distribution
loss of accrued interest earnings upon distribution
possible surrender charges upon distribution
income taxation of the interest earnings upon distribution
loss of accrued interest earnings upon distribution

According to the Health Insurance Portability and Accountability Act (HIPAA), which of the following most correctly describes how accelerated life insurance benefits are taxed?

Accelerated benefits are not taxable as long as the insurance company certifies the insured as being terminally ill.
Accelerated benefits are not taxable if the insured meets the definition of being terminally ill or chronically ill.
Accelerated benefits are taxable unless the accelerated benefits are paid out through a viatical settlement.
Accelerated benefits paid to the insured are taxable unless the insured can prove financial hardship.
Accelerated benefits are not taxable if the insured meets the definition of being terminally ill or chronically ill.

In which one of the following situations would the premiums paid for individual life insurance be tax-deductible?

the premium is for a policy the insured purchased to assure his family’s financial security
the premium is for a policy the premium payer donated to a charitable organization
the premium is for a policy a business owner purchased on a key employee
the premium is for a policy the policyowner has assigned to a bank as collateral for a loan
the premium is for a policy the premium payer donated to a charitable organization

With respect to the transfer-for-value rule, which of the following situations would result in the new owner being subject to tax on the policy’s gain upon the insured’s death?

policy is sold by the insured to a neighbor in exchange for cash
the premium is for a policy the insured purchased to assure his family’s financial security
policy is sold to a business partner (or the partnership) of the current owner
policy is sold by the current owner to the insured person
policy is sold by the insured to a neighbor in exchange for cash

The premiums that a company pays for corporate-owned life insurance (COLI) on the lives of its employees are generally:

not tax deductible
taxable to the corporation
tax deductible up to a corporate limit set by the IRS annually
tax deductible up to an IRS limit per employee that is changed annually
not tax deductible

Any after-tax contributions Tom makes toward the cost of his group life insurance coverage are treated in which of the following ways?

They are added to his taxable income.
They are subtracted from the imputed income of the employer’s contributions on a dollar-for-dollar basis.
They are subtracted from his taxable income.
They are added to the imputed income of the employer’s contributions on a dollar-for-dollar basis.
They are subtracted from the imputed income of the employer’s contributions on a dollar-for-dollar basis.

Which of the following statements best describes how employer-paid premiums for a nondiscriminatory group life insurance plan are treated for tax purposes?

Group life insurance premiums are not tax deductible to the employer.
Employers may only deduct premiums paid for rank-and-file participants in a group life insurance plan.
Employers may only deduct premiums paid for key employees and officers in a group life insurance plan.
Employers can deduct premiums paid on a group life insurance plan.
Employers can deduct premiums paid on a group life insurance plan.

Tom is a 45-year-old senior accountant employed by ABC, Inc. Under ABC’s employer-pay-all group life plan, Tom’s coverage is $120,000. What amount of that coverage is taxable to Tom?

$120,000
$50,000
$0
$70,000
$70,000

What does the employer own under a group insurance plan?

the value of the group insurance and the insurance contracts
the master policy
the employees’ right to negotiate on their own behalf
the right to charge what it wants for participating employees
the master policy

Which of the following statements regarding the taxation of death benefits paid from a group life insurance plan is correct?

Both the death benefit and interest earned on funds left with the insurer under a settlement option are income tax free.
The death benefit is taxable in the year distributed, but interest earned on funds left with the insurer under a settlement option is tax free.
Both the death benefit and interest earned on funds left with the insurer under a settlement option are taxable as ordinary income.
The death benefit is income tax free, but interest earned on funds left with the insurer under a settlement option is taxable in the year earned.
The death benefit is income tax free, but interest earned on funds left with the insurer under a settlement option is taxable in the year earned.

Which statement correctly describes the income tax treatment of employer-funded group life insurance coverage on a covered employee?

The value of the first $50,000 in coverage is taxable to the employee; above that, it is tax free.
The value of coverage exceeding the employee’s adjusted gross income is taxable to the employee; below that, it is tax free.
The value of coverage exceeding $50,000 is taxable to the employee; below that, it is tax free.
As long as the plan is nondiscriminatory, 100 percent of employer-paid group life coverage is tax free to the employees.
The value of coverage exceeding $50,000 is taxable to the employee; below that, it is tax free.

What part of employer-funded group life insurance coverage-if any-is tax exempt for employees?

the value of the first $50,000 of coverage
$0
the value of the first $25,000 of coverage
the full amount of coverage
the value of the first $50,000 of coverage

Sally has $60,000 coverage under her employer’s noncontributory group life insurance plan. What portion of that coverage is taxable to Sally?

$60,000
$10,000
$0
$50,000
$10,000

Annuity contracts include a provision to pay a death benefit if the owner or annuitant dies before the contract annuitizes. What does this death benefit typically equal?

either the contract’s accumulated value or the amount of any outstanding loans, whichever is greater
either the contract’s accumulated value or the amount of premium the owner invested, whichever is less
the contract annuity amount or the owner’s imputed value amount, whichever is greater
either the contract’s accumulated value or the amount of premium the owner invested, whichever is greater
either the contract’s accumulated value or the amount of premium the owner invested, whichever is greater

If Harry, age 58, withdraws funds from his annuity, the taxable portion of the withdrawal may also be assessed which of the following?

10 percent penalty
nothing
15 percent surcharge
50 percent penalty
10 percent penalty

What is another name for the annuitization phase of an annuity contract?

the payout stage
the conservation stage
the ownership stage
the accumulation stage
the payout stage

What is the only part of a nonqualified annuity’s death benefit that is taxable?

the amount that exceeds the annuitant’s cost basis
the amount that exceeds the contract’s gain.
the full death benefit
the amount that exceeds the amount the owner paid into the contract
the amount that exceeds the amount the owner paid into the contract

In which of the following situations would a withdrawal from a deferred annuity before age 59½ be subject to a 10 percent penalty tax?

The distribution is paid so that the contract owner can retire a mortgage.
The distribution is paid as a death benefit upon the contract owner’s death.
The distribution is spread out over the owner’s life in substantially equal periodic payments.
The distribution is paid because the contract owner has become disabled.
The distribution is paid so that the contract owner can retire a mortgage.

The exclusion ratio applies until all principal in the annuity contract has been paid out. After that, what happens?

The annuity will be paid up, and no further taxes will apply.
The full amount of future annuity payments is income tax free.
The annuity contract is canceled.
The full amount of future annuity payments is treated as taxable income.
The full amount of future annuity payments is treated as taxable income.

If Sam makes a full or partial withdrawal from his deferred annuity before the contract annuitizes, which of the following statements applies?

Withdrawals are fully tax free.
Withdrawals are tax free up to Sam’s investment in the contract (i.e., his basis), after which all subsequent withdrawals are fully taxable as a distribution of gain.
Withdrawals are fully taxable until they equal the contract’s gain (i.e., interest earnings), after which all subsequent withdrawals are tax free.
The taxable portion of the withdrawal is determined after calculating the exclusion ratio.
Withdrawals are fully taxable until they equal the contract’s gain (i.e., interest earnings), after which all subsequent withdrawals are tax free

All of the following statements about the taxation of annuities are correct EXCEPT:

Interest that accumulates in a deferred annuity is not taxed while the funds remain in the annuity.
Qualified annuities are taxed no differently than nonqualified annuities.
An annuity’s basis-essentially the sum or premiums paid-is not subject to taxation however it is withdrawn.
If an annuity owner withdraws funds as full or partial surrenders before the contract annuitizes, then any withdrawn annuity interest earnings are taxable.
Qualified annuities are taxed no differently than nonqualified annuities.

Which of the following sections of the Tax Code deals with the exchange of life insurance policies and annuities?

Section 501(c)(3)
Section 403(b)
Section 1035
Section 401(k)
Section 1035

Grace owns a fixed annuity and wants to exchange it for a variable annuity. What must she use to be sure no taxes are imposed?

Section 1035 exchange
a free exchange
an annuity exchange
a qualified conversion
Section 1035 exchange

In accordance with Section 1035 of the Tax Code, all the following exchanges are permitted on a tax-free basis EXCEPT:

A universal life insurance policy exchanged for a whole life insurance policy.
A deferred variable annuity exchanged for an immediate fixed annuity.
A variable life insurance policy exchanged for a deferred fixed annuity.
A deferred annuity exchanged for a whole life insurance policy.
A deferred annuity exchanged for a whole life insurance policy.

In accordance with Section 1035 of the Tax Code, which of the following exchanges is permitted on a tax-free basis?

an equity-indexed annuity for an equity-indexed life insurance policy
a deferred market-value adjusted annuity for an immediate variable annuity
a variable annuity for a variable life insurance policy
a market-value adjusted annuity for a whole life insurance policy
a deferred market-value adjusted annuity for an immediate variable annuity

The FICA tax is split between an employee and employer, with the employee paying how much?

three-quarters (75 percent) of the total tax
one-third (33 percent) of the total tax
one-half (50 percent) of the total tax
one-quarter (25 percent) of the total tax
one-half (50 percent) of the total tax

For Social Security purposes, Brian is considered currently insured while Samantha is fully insured. Which of the following statements is correct?

Brian’s family will not be entitled to survivor benefits if he dies.
Samantha’s family will not be entitled to survivor benefits if she dies.
Samantha is eligible for more Social Security benefits than Brian.
Brian is eligible for more Social Security benefits than Samantha.
Samantha is eligible for more Social Security benefits than Brian.

Jenny is considered fully insured under Social Security, which qualifies her for which of the following benefits?

disability benefits, survivor benefits, and retirement benefits
disability benefits and retirement benefits only
survivor benefits only
survivor benefits and retirement benefits only
disability benefits, survivor benefits, and retirement benefits

To be considered currently insured, a worker must have earned how many quarters of coverage in the 13-quarter period before he or she dies?

one for each year since turning age 21
40
six
13
six

Social Security benefits are a function of a worker’s average indexed monthly earnings and primary insurance amount (PIA). What is a worker’s PIA?

the amount payable to a surviving spouse at the worker’s death
the total amount of money that a worker earned from employment during his or her lifetime
the amount of the retirement benefit the worker will receive at normal retirement age
the amount of retirement and disability benefits payable to the worker and his or her spouse
the amount of the retirement benefit the worker will receive at normal retirement age

Eligibility for OASDI benefits is determined on the basis of:

the number of dependents a worker has
a worker’s economic need
the worker’s age
the number of quarters of coverage the worker has earned
the number of quarters of coverage the worker has earned

Social Security benefits are funded through payroll taxes split between the employee and employer. Which of the following best explains the amount of tax paid by self-employed individuals?

Self-employed individuals pay the same rate as employees.
Self-employed individuals pay the same rate as employers.
Self-employed individuals pay a tax rate equal to the combined employer and employee rate.
Self-employed individuals pay a rate that is more than the employee rate but less than the employer rate.
Self-employed individuals pay a tax rate equal to the combined employer and employee rate.

A currently insured worker is eligible for which of the following Social Security benefits?

retirement benefits only
survivor death benefits only
survivor death benefits, disability benefits, and retirement benefits
survivor death benefits and disability benefits
survivor death benefits only

The period after the youngest child turns age 16, during which no Social Security benefits are payable to a surviving spouse until he or she reaches age 60, is called the:

blackout period
early retirement period
dependency period
survivor period
blackout period

When a person retires before full retirement age, what happens to the monthly income amount of his or her Social Security retirement benefits?

It is permanently increased.
It is permanently reduced.
It is forfeited.
It is delayed until the person reaches full retirement age.
It is permanently reduced.

A worker can choose to collect permanently reduced Social Security retirement benefits as early as what age?
60
66
62
64
62

Ben, a single working father, dies at age 50. How much will his only dependent child, Tom (age 15), receive from Social Security in a lump-sum death benefit?
$0
$255
$750
an amount equal to one month’s worth of the deceased worker’s primary insurance amount
$255

Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to:

10 percent of the difference between the amount that was taken and the RMD amount that should have been taken
50 percent of the difference between the amount that was taken and the RMD amount that should have been taken
50 percent of the RMD amount
10 percent of the RMD amount
50 percent of the difference between the amount that was taken and the RMD amount that should have been taken

Which statement regarding defined contribution qualified plans is correct?

Participants may choose to keep account values undistributed, to be passed on tax free to heirs.
The retirement benefit is tax free if distributed at the participant’s full retirement age.
They are required to distribute benefits in the form of lifetime annuitized payments.
Participants are always fully vested in their contributions, but employer contributions may not fully vest for several years.
Participants are always fully vested in their contributions, but employer contributions may not fully vest for several years.

Hannah participates in her company’s retirement plan, which provides for 100 percent vesting after five years with no vesting prior to that. What is this type of vesting schedule called?

graduated vesting
cliff vesting
accelerated vesting
qualified vesting
cliff vesting

As tax incentives to set up a qualified employer retirement plan, all the following statements are correct EXCEPT:

Employer contributions are not taxable to the employee when made.
The employee does not have to pay current income tax on earnings building within a qualified plan account.
Employee contributions are made with pre-tax dollars.
Benefit distributions are taxed only if withdrawn prior to retirement and are tax free if distributed at retirement.
Benefit distributions are taxed only if withdrawn prior to retirement and are tax free if distributed at retirement.

Jan and David both work for Acme Motors and earn $50,000 of taxable income annually. If Jan contributes to Acme’s 401(k) plan this year and David does not, which of the following statements is true?

David’s taxable income will be lower than Jan’s.
Jan’s and David’s taxable income will be the same.
Jan’s taxable income will increase above $50,000.
Jan’s taxable income will be lower than David’s.
Jan’s taxable income will be lower than David’s.

Which statement regarding qualified employer plans is correct?

They must be structured as some form of a defined contribution plan.
Employee contributions are permitted in all types of employer plans.
All types of qualified employer plans involve the setting up of individual accounts on each plan participant’s behalf.
All types of employer plans are subject to IRS contribution limits.
All types of employer plans are subject to IRS contribution limits.

Section 457 plans are qualified retirement plans that are reserved for employees of which type of organization?
charitable organizations
religious organizations
educational organizations
state and local government units
state and local government units

Which of the following entities would be eligible to set up a Keogh plan?

a three-person law partnership
a corporation with 15 employees
a state government agency
a nonprofit charitable organization
a three-person law partnership

To avoid immediate taxation of IRA funds paid to the IRA owner in a rollover IRA transaction, the owner must deposit the funds into the new IRA within how many days of receiving them?

60 days
10 days
30 days
120 days
60 days

Which of the following will happen if a traditional IRA owner dies before all of the funds in his or her account have been paid out?

The balance will be paid to the deceased owner’s estate, which then is responsible for paying estate taxes on it.
The balance will be paid to the beneficiary tax free but taxed to the owner’s estate.
The balance will be paid to the beneficiary and taxed as ordinary income
The balance is forfeited to the financial institution providing the IRA.
The balance will be paid to the beneficiary and taxed as ordinary income

People can start making catch-up contributions to a traditional IRA only if they are:

age 62 and older
age 50 and older
not covered by a qualified employer plan
not eligible to contribute to a Roth IRA
age 50 and older

Which statement about Roth IRAs is correct?

Contributions to a Roth IRA cannot be deducted.
Contributions, but not earnings, are received tax free when withdrawn.
Contributions to a Roth IRA are deductible if the IRA owner meets the adjusted gross income limits.
Earnings on contributions are taxed at capital gains tax rates when withdrawn.
Contributions to a Roth IRA cannot be deducted.

Which of the following statements is true if a traditional IRA owner is covered by an employer-sponsored defined benefit retirement plan?

Contributions to the IRA are fully deductible.
Contributions to the IRA may or may not be deductible, depending on his or her income level.
Contributions to the IRA are not deductible.
Contributions to the IRA will be made on a pre-tax basis.
Contributions to the IRA may or may not be deductible, depending on his or her income level.

U.S. tax law requires IRA owners and other qualified plan participants to start taking required minimum distributions from their plans by April 1 of the year following the year the individual turns:

age 59½
age 62
age 66
age 72
age 72

Jessica, age 48, owns a traditional IRA that she funded with tax-deducted contributions and which is now worth $300,000. Which of the following correctly describes the tax consequences of converting her IRA to a Roth IRA?

She would have to pay income taxes only on the portion of the $300,000 representing interest growth.
She would have to pay income taxes and a 10 percent early withdrawal penalty on the entire $300,000.
She would have to pay income taxes only on the portion of the $300,000 representing the tax-deducted contributions.
She would have to pay income taxes on the entire $300,000.
She would have to pay income taxes on the entire $300,000.

Which statement regarding the conversion of a traditional IRA to a Roth IRA is correct?

Distributions from the Roth IRA will be taxable as they would be from the traditional IRA.
Income taxes must be paid on the traditional IRA when the account is converted.
The right to convert to a Roth IRA is dependent on the IRA owner’s modified adjusted gross income in the year of conversion.
To convert to a Roth IRA, a person must currently be eligible to contribute to a Roth IRA.
Income taxes must be paid on the traditional IRA when the account is converted.

In which one of the following ways are Section 529 prepaid tuition plans and education savings plans similar?

types of education-related expenses covered
tax treatment of distributions
account funding requirements
types of educational institutions where the plan’s funds can be used
tax treatment of distributions

Which of the following correctly identifies qualified educational expenses that can be covered under a Section 529 prepaid tuition plan?

tuition only
tuition, mandatory fees, and room and board only
tuition and mandatory fees only
tuition, mandatory fees, room and board, and books
tuition and mandatory fees only

Jim plans to withdraw $3,000 from his Section 529 education savings plan this year to pay for some of his college expenses. He can withdraw the money tax free to pay for all of the following, EXCEPT:

clothes
tuition
room and board
books
clothes

Which of the following is a type of Section 529 plan that lets parents “prepay” a child’s tuition at participating in-state public colleges and universities?

prepaid tuition plan
deferred annuity plan
college savings plan
education savings plan
prepaid tuition plan

In Texas, all of the following must be included in an advertisement that is considered an invitation to contract EXCEPT:

disclosure of any surrender charges or termination fees on withdrawals made during early policy years
disclosure of any limitations on the benefit paying period
a statement that the Texas Department of Insurance has approved the advertisement
the form number of the policy being advertised
a statement that the Texas Department of Insurance has approved the advertisement

When using illustrations to sell a life insurance policy, an agent must:

represent the policy as an investment and savings plan.
show the policy’s guaranteed death benefits before non-guaranteed values.
state that the payment of non-guaranteed elements is guaranteed.
give an applicant part of an illustration, as long as he or she gives the entire illustration to the applicant when the policy is issued.
show the policy’s guaranteed death benefits before non-guaranteed values.

On September 1, Cheryl applied for a life insurance policy when her nearest birthday age is 50. To take advantage of a younger age, the insurer can backdate the policy no earlier than:

June 1.
March 1.
January 1.
August 1.
March 1.

When a life insurance policy is being replaced, the replacing insurer must notify the current policy’s insurer of that fact

before the replacing insurer can accept the application
within 24 hours of receiving a completed application
within five business days of receiving a completed application
within 10 business days after issuing the replacement policy
within five business days of receiving a completed application

If an employee who was covered under a group life insurance policy dies within 31 days of termination without having exercised his right to convert coverage to an individual policy,

the deceased employee’s beneficiary must sue the insurer for a death benefit payment
the deceased employee’s beneficiary receives nothing
the employer must pay the deceased employee’s family a sum specified in the group policy
the insurer must pay a death benefit as if the deceased employee had converted to an individual policy
the insurer must pay a death benefit as if the deceased employee had converted to an individual policy

John, a Texas resident, is covered under a credit life insurance policy while he pays off a car loan. Coverage is paid through December, when his loan is scheduled to be paid off. If John pays off the car loan in September (3 months early), which of the following describes what the credit life insurance company must do with respect to a premium refund?

It is not required to refund any portion of the premium.
It must refund the premium for the full policy year.
It must refund the premium for the three-month period following the date John paid off the loan, minus a service fee.
It must refund the premium for the three-month period following the date John paid off the loan
It must refund the premium for the three-month period following the date John paid off the loan

Martha was covered by a $50,000 group life insurance policy through her employer. After losing her job and deciding to take an early retirement, she talked to her agent about converting the group policy to individual coverage. Her agent informs her that:

Martha can be issued a conversion policy with no more than $50,000 in coverage.
To convert to an individual policy, Martha must first provide evidence of insurability.
She can convert the policy to a term policy.
The premium for the individual policy will be the same as the premium paid for group coverage.
Martha can be issued a conversion policy with no more than $50,000 in coverage.

Ed had worked at ABC Computers for 15 years when he was laid off unexpectedly. To convert his group life insurance policy to an individual policy, Ed must apply for a conversion policy within how many days after being laid off?

90
31
15
30
31

On June 1, Sandra submitted proof of her uncle’s death and her right as beneficiary to receive the proceeds of his life insurance policy. A life insurance policy settlement must take place by:

December 31
July 1
August 1
June 15
August 1

Which of the following is NOT a mandatory provision for an individual life insurance policy issued in Texas?

entire contract
ten-day grace period
legal action
time for settlement of claim provision
ten-day grace period

Andrew’s life insurance policy pays an accelerated benefit that is a separate benefit with a separately identifiable additional premium. Andrew’s policy uses the:

additional premium or cost of insurance charge method
actuarial discount method
separate premium method
lien method
additional premium or cost of insurance charge method

In Texas, an insurer may contest a life insurance beneficiary’s claim for benefits within how many years after the policy is issued?

there is no time limit
five years
two years
10 years
two years

Why would a business self-insure instead of buying an insurance policy?

to avoid having to comply with state insurance laws
to cover against an occasional high-severity loss
to insure against frequent low-severity losses
to reduce its tax liabilities
to insure against frequent low-severity losses

A large company that is willing and financially able to assume certain risks can self-insure by creating a reserve fund and using that money to pay claims. This type of system is used for frequently occurring claims such as workers’ compensation or pension plans.

What happens if an insured stops paying premiums for an insurance policy?

The insurance company will compel the insured to continue paying the premiums.
The insured breaches the contract.
The insurance company must return all premiums that have been paid if no claims have been made under the policy.
The insurance company is released from its promise to pay benefits and the contract expires.
The insurance company is released from its promise to pay benefits and the contract expires.

Which characteristic about an insurance policy prevents the policyowner from transferring it to a third party without the insurer’s consent?

unilateral
personal
aleatory
conditional
personal

The death benefit amount under a children’s term rider may be limited to a specified amount and/or:

the face amount of the base policy
a small percentage of the base policy’s face amount
up to five times the base policy’s face amount
any amount selected by the base policy’s owner
a small percentage of the base policy’s face amount

Fred’s wife was the primary beneficiary of his $750,000 life insurance policy. She received payments of approximately $900 a month during her life, and at her death, their son received a lump-sum payment equal to $750,000. Which of the following death benefit settlement options does this best describe?

lump-sum payment
fixed amount option
interest-only option
fixed period option
interest-only option

Damien just bought a variable annuity from Delta Insurance Company. Which party bears the investment risk with respect to the assets in the separate account?

Damien
Delta Insurance Company
both Damien and Delta
neither Damien nor Delta
Damien

Under a traditional split-dollar arrangement, what does the employer typically receive when the insured employee dies?

an amount equal to the policy’s cash value
one-half of the policy’s death benefit
all of the death benefits
none of the death benefits
an amount equal to the policy’s cash value

What does a viatical settlement allow?

It allows a chronically or terminally ill insured to leave an inheritance to heirs.
It allows an insured to sell a life insurance policy when he or she no longer needs insurance coverage.
It allows a chronically or terminally ill insured to gain a sum of money that is needed to pay medical expenses or to enhance the quality of life.
It allows an insured to assign a life insurance policy to a third party, who will use the proceeds to pay the insured’s estate taxes.
It allows a chronically or terminally ill insured to gain a sum of money that is needed to pay medical expenses or to enhance the quality of life.

Which of the following arrangements best suits a life insurance applicant’s goal of keeping the policy out of his or her estate?

designate the insured’s estate to be the owner of the policy
designate the insured to be the owner of the policy
designate the insurance company to be the owner of the policy
designate an irrevocable trust to be the owner of the policy
designate an irrevocable trust to be the owner of the policy

Which annuity settlement option guarantees that income is paid for the length of the annuitant’s life, but no less than a specified number of years?

straight, or pure, life income
life income with guaranteed minimum (refund guarantee or life annuity certain)
life income with period certain
joint and survivor life income
life income with period certain

If the insured under a whole life policy is diagnosed with terminal cancer and wishes to use his life insurance to take a final vacation with his family, which of the following statements is most correct?

The insured could enter into a viatical settlement, which would provide him up to 25 percent of the policy’s death benefit.
The insured could enter into a viatical settlement, which would provide him up to 50 to 80 percent of the policy’s death benefit.
The insured’s only option is to borrow from the cash value through a policy loan.
The insured’s only option is to exchange the life insurance policy for an immediate annuity.
The insured could enter into a viatical settlement, which would provide him up to 50 to 80 percent of the policy’s death benefit.

Diane invested $6,000 two years ago in a Section 529 college savings plan for her daughter, Cathleen, age 5. The account earned $400 the first year and $450 the second year. Which of the following statements is correct?

Income tax on the earnings must be paid this year at Diane’s tax rate.
Income tax on the earnings must be paid this year at Cathleen’s tax rate.
Income tax on the earnings must be paid this year at the combined rate of Diane and Cathleen.
No income tax must be paid on the earnings this year.
No income tax must be paid on the earnings this year.

Social Security benefits are funded through a payroll tax called the:

federal income tax
SSA withholding tax
government insurance tax
FICA tax
FICA tax

Social Security benefits are funded through a payroll tax called the FICA tax, which is allocated between OASDI (Social Security) and Medicare. Workers and their employers split the FICA tax 50/50, while self-employed individuals pay the full tax.

How can a life insurance policyowner use his policy’s cash value to help fund his retirement without incurring any taxes on the transaction even if the cash value exceeds his basis in the policy?

He can use the cash value to buy mutual funds.
He can use the cash value to buy CDs.
He can use the cash value to buy tax-free municipal bonds.
He can use the cash value to buy an annuity through a 1035 exchange.
He can use the cash value to buy an annuity through a 1035 exchange.

Which of the following life insurance settlement options distributes a policy’s death benefit in the form of monthly payments, of an amount chosen by the beneficiary, that terminate when the death benefit (plus interest) is fully paid out?

fixed amount settlement option
fixed period settlement option
interest-only settlement option
straight life settlement option
fixed amount settlement option

If an employee who was covered under a group life insurance policy dies within 31 days of termination without having exercised his right to convert coverage to an individual policy,

the deceased employee’s beneficiary receives nothing
the employer must pay the deceased employee’s family a sum specified in the group policy
the insurer must pay a death benefit as if the deceased employee had converted to an individual policy
the deceased employee’s beneficiary must sue the insurer for a death benefit payment
the insurer must pay a death benefit as if the deceased employee had converted to an individual policy

Sandra, a single mom, takes out a ‘jumping juvenile’ life insurance policy insuring her newborn daughter Karen. Which of the following riders would pay the policy’s premiums if Sandra dies or becomes totally disabled?

payor benefit rider
disability income rider
newborn rider
waiver of premium
payor benefit rider

A policy owner of a lapsed policy can take the reduced paid-up nonforfeiture option unless the lapsed policy was which of the following?

universal life policy
participating whole life policy
non-participating whole life policy
issued on a standard or substandard (rated) basis
universal life policy

When a deferred annuity is annuitized, which one of the following most correctly describes the tax treatment of the contract’s “gain” (i.e., accrued interest) portion of each payment?

It is tax exempt.
It is taxable as ordinary income.
It is taxable as capital gains.
A 10 percent tax is applied.
It is taxable as ordinary income.

Phil just began participating in his company’s 401(k) plan. During the first four years of his employment, he will not be vested at all in the employer’s contributions to the plan. In the fifth year, he will be 100 percent vested. Which vesting schedule is the employer using?

percentage vesting
increment vesting
cliff vesting
graded vesting
cliff vesting

Which of the following statements regarding adjustable life insurance policy cash value withdrawals is correct?

An adjustable life partial surrender works exactly the same as a universal life insurance (UL) partial surrender.
An adjustable life partial surrender is the same thing as a policy loan.
Under an adjustable life partial surrender, the death benefit is not affected by the amount of the surrender.
Adjustable life insurance cash values are accessible either through a traditional policy loan or through a partial surrender.
Adjustable life insurance cash values are accessible either through a traditional policy loan or through a partial surrender.

In converting a term life insurance policy to a permanent policy, the premium for the permanent policy is determined on what basis?

either the attained age basis or original age basis
attained age basis only
original age basis only
modified age basis
either the attained age basis or original age basis

Renewing a term life policy can only be done on the attained age basis, but converting a term policy to a permanent policy can be done on either an attained age or an original age basis depending on the insurer.

Kelly owns a deferred annuity. What options does she have for using the funds accumulating in her contract before the annuitization date?

Those values must be left intact in the contract for future annuitization.
These values can only be partially withdrawn in an emergency before annuitization.
Those values must be fully withdrawn before annuitization.
They can be withdrawn, partially or in full, before the contract annuitizes.
They can be withdrawn, partially or in full, before the contract annuitizes.

Under standard exclusions, most insurers would deny coverage of which of the following?

an insured serving as an aircraft crew member
an insured flying as a passenger in a private airplane
an insured who works as part of an airport’s ground crew
an insured flying as a passenger in a commercial airplane
an insured serving as an aircraft crew member

An insurable interest must exist at all times between the policyowner and the insured person or property for all the following types of insurance EXCEPT:

disability income insurance
homeowner’s insurance
long-term care insurance
life insurance
life insurance

Insurable interest must exist only when applying for a life insurance policy.

If a variable universal life policyowner chooses death benefit option 3, what will the benefit equal?

the policy’s specified amount
the policy’s specified amount plus its cash value
the policy’s specified amount plus the greater of total premiums paid or actual cash value
the policy’s specified amount plus the cash value and total premiums paid
the policy’s specified amount plus the greater of total premiums paid or actual cash value

In addition to ordinary income taxation, what else is a distribution from a modified endowment contract (MEC) before age 59′ subject to?

20 percent premature distribution tax penalty
10 percent premature distribution tax penalty
10 percent excise tax penalty
tax deferral in the year of the distribution
10 percent premature distribution tax penalty

Allen wants to use his life insurance policy as security for a loan, using the policy’s cash value as the pledge. What is this called?

absolute assignment
ownership assignment
loan assignment
collateral assignment
collateral assignment

Under the integrated long-term care rider option, what percentage of the base policy’s face amount can be used for long-term care expenses?

up to 25 percent, depending on the insurer
up to 40 percent, depending on the insurer
up to 50 percent, depending on the insurer
up to 75 percent, depending on the insurer
up to 75 percent, depending on the insurer

Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums?

cash surrender option
extended term option
reduced paid-up option
cash withdrawal provision
reduced paid-up option

Which of the following is NOT a party to an annuity?

the agent
the owner
the annuitant
the beneficiary
the agent

Policyowners can withdraw the interest earnings on their dividends or allow the interest to continue to accumulate. In either case, how is the interest treated for income tax purposes?

The interest earned on the dividend is reported as taxable income in the year credited.
The interest earned is tax deferred.
The interest earned is not taxable.
The interest earned on the dividend is taxable if withdrawn, but if paid out as part of the death benefit it is income tax free.
The interest earned on the dividend is reported as taxable income in the year credited.

All of the following unmarried children of a retired worker receiving Social Security retirement benefits are eligible to receive a child’s benefit EXCEPT:

a 1-year-old daughter
a 21-year-old son
a 19-year-old daughter attending college
a 27-year-old son who has been totally disabled since childhood
a 21-year-old son

Young children of a retired worker are eligible to receive a monthly benefit. Like the spouse’s benefit, the child’s benefit is 50 percent of the worker’s PIA. Children must be unmarried and under age 18 (age 20 if a full-time student). There is no age limit for children who become disabled before age 22.

Which of the following statements correctly describes the 7-pay test and the modified endowment contract (MEC)?

If the amount of the first seven premiums exceeds the amount of premium needed to buy seven years’ worth of term life insurance, the policy is a modified endowment contract (MEC).
The 7-pay test applies specifically to the premiums paid into a contract. If, after seven level annual payments are made, the policy’s cash surrender value is double that of an ordinary life contract, then the policy is a MEC.
The 7-pay test applies specifically to the premiums paid into a contract during its first seven years. If this amount exceeds the net level premiums that would have been required to produce a paid-up policy after seven level annual payments, then the policy is a MEC.
The 7-pay test applies specifically to the premiums paid into a contract during its first seven months. If this amount exceeds the net level premiums that would have been required to produce a seven-year term policy, then the policy is a MEC.
The 7-pay test applies specifically to the premiums paid into a contract during its first seven years. If this amount exceeds the net level premiums that would have been required to produce a paid-up policy after seven level annual payments, then the policy is a MEC.

When would the owner of a two-tiered fixed annuity receive a lower than expected interest crediting rate?

The market is in a downturn.
The plan is not qualified.
Lower than expected premiums are paid.
The contract owner surrenders the annuity and takes its values in a lump sum.
The contract owner surrenders the annuity and takes its values in a lump sum.

Which of the following statements about cash value withdrawals from a universal life insurance (UL) policy is correct?

Total withdrawals cannot reduce the cash value to anything less than 50 percent of its full value.
Withdrawals must be repaid.
Withdrawals incur interest charges.
Withdrawals reduce the death benefit dollar-for-dollar.
Withdrawals reduce the death benefit dollar-for-dollar.

With respect to group life insurance participation requirements, which of the following statements is correct?

If the plan is contributory, there is no minimum participation requirement.
If the plan is contributory, at least 75 percent of eligible employees must enroll in the plan.
If the plan is noncontributory, there is no minimum participation requirement.
If the plan is noncontributory, 75 percent of eligible employees must enroll in the plan.
If the plan is contributory, at least 75 percent of eligible employees must enroll in the plan.

Which of the following is NOT a method used for providing accelerated benefits?

additional premium or cost of insurance charge method
percentage of death benefit method
actuarial discount method
lien method
percentage of death benefit method