Maryland Life Pre-Licensing Exam

Before soliciting insurance applications for an insurer, a producer must secure a(n)

1. anointment

2. surety bond

3. appointment

4. designation

appointment

Mutual insurers pay dividends to participating policyowners if the insurer has which of the following?

1. Divisible surplus

2. Reciprocal Dividend Agreement

3. Certificate of Authority

4. Participating clause

Divisible surplus

A(n) ________ insurer assumes risk from another insurance company.

1. Reciprocal

2. Reinsurance

3. Assumption

4. Captive

Reinsurance

An agent's authority to bind an insurer to an insurance contract may be granted in the

1. buyer's guide and policy summary

2. agent's contract and the insurance company's appointment

3. agent's license and insurance company's certificate of authority

4. state guaranty association

agent's contract and the insurance company's appointment

Insurance is NOT characterized as which of the following?

1. Transference of risk

2. Method of risk management

3. As the number of insureds increase the number of losses decrease

4. Pooling of premium dollars

As the number of insureds increase the number of losses decrease

When a ceding insurer transfers a portion of its risk to an assuming insurer on a case by case basis, this process is referred to as

1. Treaty reinsurance

2. Quotative pooling

3. Reciprocity

4. Facultative reinsurance

Facultative reinsurance

Dividends from a mutual insurance company are paid to whom?

1. Preferred stockholders

2. Stockholders

3. Beneficiaries

4. Policyholders

Policyholders

Which group is the Do Not Call Registry designed to protect against?

1. Telemarketers

2. Charities

3. Political organizations

4. Relatives

Telemarketers

Which of the following outlines the authority given to the producer on behalf of the insurer?

1. Controlled business clause

2. Commingling contract

3. Rebating arrangement

4. Producer contract

Producer contract

Which of the following accurately describes a participating insurance policy?

1. Policyowners are not entitled to vote for members of the board of directors

2. Policyowners may be entitled to receive dividends

3. Policyowners pay assessments for company losses

4. Stock companies allow their policyowners to share in any company earnings

Policyowners may be entitled to receive dividends

Which of these describe a participating life insurance policy?

1. Policyowners are not entitled to vote for members of the board of directors

2. Stock companies allow their policyowners to share in any company earnings

3. Policyowners pay assessments for company losses

4. Policyowners are entitled to receive dividends

Policyowners are entitled to receive dividends

Which of the following types of insurers limits the exposures it writes to those of its owners?

1. Restricted insurer

2. Confined insurer

3. Limited insurer

4. Captive insurer

Captive insurer

Which reinsurance contract between two insurers involves an automatic sharing of the risks assumed?

1. Excess reinsurance

2. Treaty reinsurance

3. Arbitrage reinsurance

4. Facultative reinsurance

Treaty reinsurance

At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act?

1. Upon completion of the application

2. Before the appointment is scheduled

3. When the insurer receives the MIB report

4. At the policy's delivery

Upon completion of the application

Who regulates an insurer's claim settlement practices?

1. National Association of Claim Adjusters

2. State attorney general

3. National Association of Insurance Commissioners

4. State insurance departments

State insurance departments

The main role of accident and health and disability insurance is to

1. protect against on-the-job injuries and illnesses

2. protect against the premature death of the insured

3. protect against medical care costs and the loss of earning power

4. protect against accidents

protect against medical care costs and the loss of earning power

The State Guaranty Association guarantees

1. that a claim will be paid if an admitted insurer becomes insolvent

2. the rate of return on a policy

3. that a policy will be issued

4. that dividends will be paid

that a claim will be paid if an admitted insurer becomes insolvent

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a

1. risk assumption group

2. treaty insurer

3. captive insurer

4. risk retention group

risk retention group

A(n) ________ agent is an insurance agent who represents only ONE insurance company.

1. captive

2. exclusive

3. domestic

4. inclusive

captive

Dividends from a stock insurance company are normally sent to

1. shareholders

2. beneficiaries

3. policyowners

4. insureds

shareholders

The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called

1. surplus

2. credits

3. reserves

4. retention

reserves

What is the accounting measurement of an insurance company's future obligations to its policyowners?

1. Credits

2. Surplus account

3. Reserves

4. Retention fund

Reserves

Which of the following financial products creates an instant estate, no matter when the date of death?

1. Deferred annuity

2. Mutual Funds

3. Certificate of deposit

4. Life insurance

Life insurance

Which of the following is a syndicate established by a group of insurers to share underwriting duties?

1. NAIC

2. Lloyd's organization

3. Reinsurer

4. Multi-line insurers

Lloyd's organization

Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are

1. paid to both the policyowners and shareholders

2. reinvested as capital gains, used to reduce rates for policyowners

3. paid quarterly to corporate officers in the form of a bonus

4. paid to the policyowners

paid to the policyowners

A reciprocal insurer typically has an administrator who manages the premiums collected from the group's members. This administrator is called a(n)

1. attorney general

2. reciprocal commissioner

3. attorney-in-fact

4. reciprocal director

attorney-in-fact

A(n) _________ agent may represent several insurers.

1. free

2. independent

3. captive

4. career

independent

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the

1. Fair Labor Standards Board

2. Fair Credit Reporting Act

3. State Guaranty Association

4. National Association of Insurance Commissioners

Fair Credit Reporting Act

Which of the following is an unincorporated association whose members provide coverage for one another?

1. Surplus lines

2. Reciprocal

3. Self-insurer

4. Lloyds

Reciprocal

Which of the following is NOT an objective of the National Association of Insurance Commissioners?

1. Regulate state insurance commissioners

2. Protect the interest of policyowners and consumers

3. Promote efficiency in the administration of state insurance laws

4. Encourage uniformity in state insurance laws

Regulate state insurance commissioners

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

1. Facultative

2. Arbitrage

3. Excess

4. Treaty

Treaty

Who elects the governing body of a mutual insurance company?

1. chairman of the board

2. bondholders

3. policyholders

4. stockholders

policyholders

A stock insurance company is owned by its

1. officers

2. shareholders

3. board of directors

4. policyowners

shareholders

What qualifies as acceptance of an insurance contract offer?

1. An issued policy

2. A declined policy

3. The application and initial premium

4. The initial premium only

An issued policy

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?

1. Mutuality agreement

2. Reinsurance contract

3. Coinsurance contract

4. Reciprocity arrangement

Reinsurance contract

An agent whose actions exceed the authority granted by contract is

1. acting under apparent authority

2. acting under Implied authority

3. backed by the insurer

4. not backed by the insurer

not backed by the insurer

For insurance purposes, similar objects which are exposed to the same group of perils are referred to as

1. Similar exposure units

2. Homogeneous exposure units

3. Common hazards

4. Homogenous perils

Homogeneous exposure units

A business becoming incorporated is an example of risk ____.

1. reduction

2. retention

3. transfer

4. severance

transfer

What type of risk involves the potential for loss AND the possibility for gain?

1. Homogeneous

2. Adverse

3. Speculative

4. Pure

Speculative

Which of the following can be defined as a cause of a loss?

1. Hazard

2. Risk

3. Adversity

4. Peril

Peril

Which of the following is NOT an example of risk retention?

1. Deciding a business deal is risky but going through with it anyways

2. Becoming aware of a risk and taking no action

3. Self-insuring a given risk

4. Not doing a business deal after deciding it would be too risky

Not doing a business deal after deciding it would be too risky

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

1. Inception of the contract

2. Throughout the entire length of the contract

3. When the insured dies

4. During the contestable period

Inception of the contract

Which of these statements is NOT a characteristic of the law of large numbers?

1. Group losses can be predicted based on past experience

2. Individual losses can be predicted based on past experience

3. Losses can be predicted in large groups with a higher degree of accuracy

4. Rates can be calculated to compensate for losses

Individual losses can be predicted based on past experience

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)

1. warranty contract

2. contract of adhesion

3. unilateral contract

4. aleatory contract

contract of adhesion

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of

1. Implied authority

2. Fiduciary duty

3. Apparent authority

4. Expresses authority

Apparent authority

What happens when an initial offer is answered with a counteroffer?

1. Initial offer is automatically accepted

2. An arbitrator decides on a compromise

3. Initial offer is void

4. The counteroffer is legally enforceable

Initial offer is void

Which of the following relationships demonstrates insurable interest in the absence of economic interest?

1. Marriage partners

2. Business associates

3. Employees

4. Lifelong friends

Marriage partners

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called

1. implied authority

2. apparent authority

3. acknowledged authority

4. express authority

implied authority

Which of these do NOT indicate the presence of insurable interest in a life insurance contract?

1. Lifelong friendship

2. Blood-related

3. Co-owning a business

4. Marriage

Lifelong friendship

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

1. Apparent authority

2. Assumed authority

3. Implied authority

4. Express authority

Implied authority

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?

1. Equity

2. Offer

3. Acceptance

4. Meeting of the minds

Equity

A contract is considered void in all of the following situations EXCEPT

1. When consideration is unequal

2. When one party is a minor

3. When agreement cannot be reached between parties

4. When consideration is incomplete

When consideration is unequal

An appointed producer's implied authority is derived from

1. express authority

2. the insurer's Certificate of Authority

3. the NAIC

4. evident authority

express authority

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?

1. Responsible for acts by the producer that are authority only

2. Responsible for acts that involve misrepresentation only

3. All actions by the producer

4. Not responsible for any acts by the producer

Responsible for acts by the producer that are authority only

Which element of a contract constitutes a definite and unqualified proposal by one party to another?

1. Consideration

2. Acceptance

3. Adhesion

4. Offer

Offer

Purchasing insurance is an example of risk

1. avoidance

2. retention

3. transference

4. sharing

transference

The law of large numbers enables an insurer to

1. predict losses

2. assure company profits

3. classify rates

4. avoid adverse selection

predict losses

Which of the following involves sharing an uncertain risk with another similar group?

1. Operational

2. Physical

3. Speculative

4. Transfer

Transfer

Which of the following types of risk is insurable?

1. Operational

2. Physical

3. Speculative

4. Pure

Pure

hich one of these is NOT considered to be an element of an insurable risk?

1. Loss cannot be catastrophic

2. Loss must be due to chance

3. Speculative risk

4. Pure risk

Speculative risk

Which term describes the elimination of a hazard?

1. Risk transference

2. Risk avoidance

3. Risk pooling

4. Risk retention

Risk avoidance

How can an insurance company minimize exposure to loss?

1. Risk assumption

2. Reissuance

3. Reinsuring risks

4. Risk concealing

Reinsuring risks

Risk ____ is the process of analyzing exposures that create risk and designing programs to handle them.

1. administration

2. transfer

3. acceptance

4. management

management

What type of risk involves the potential for loss with no possibility for gain?

1. Adverse risk

2. Pure risk

3. Morale risk

4. Speculative risk

Pure risk

Which of the following can be defined as "the potential for loss"?

1. Hazard

2. Risk

3. Transference

4. Peril

Risk

Which of the following describes the act of insuring a risk against possible loss?

1. Risk transfer

2. Risk avoidance

3. Hazard reduction

4. Loss management

Risk transfer

Which of these statements regarding insurance is false?

1. As the number of insured units increases, the number of losses decreases

2. One way insurers deal with catastrophic loss is through reinsurance

3. Pure risk can be insured

4. Speculative risk cannot be insured

As the number of insured units increases, the number of losses decreases

A condition that increases the possibility of financial loss is called a(n)

1. Peril

2. Exposure

3. Risk

4. Hazard

Hazard

A hold-harmless clause is an example of risk

1. sharing

2. retention

3. transfer

4. avoidance

transfer

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk

1. reduction

2. retention

3. avoidance

4. transference

reduction

According to the law of large numbers, how would losses be affected if the number of similar insured units increases?

1. Ability to predict losses decreases

2. Predictability of losses will be improved

3. The higher the exposure, the higher the cost of each loss

4. No effect on predicting losses

Predictability of losses will be improved

An insurable risk requires

1. that the chance for both a loss or gain exists

2. that the chance of loss be calculable

3. that the loss must be incalculable

4. the loss must be catastrophic

that the chance of loss be calculable

When a policy loan is requested by a policyowner and it requires the consent of the beneficiary, what kind of beneficiary designation is this?

1. Collateral beneficiary

2. Revocable beneficiary

3. Per stirpes beneficiary

4. Irrevocable beneficiary

Irrevocable beneficiary

A life insurance company just paid a $100,000 death benefit to a beneficiary. When the insured died, the cash value was $15,000 and the total premiums-paid equaled $10,000. How much of the proceeds will be added to the beneficiary's gross income for federal income tax purposes?

1. $105,000

2. $100,000

3. $5,000

4. Nothing

Nothing

Where will a life insurance policy's proceeds be directed to if all the beneficiaries die before the insured?

1. Insured's creditors

2. Beneficiary's estate

3. Insured's estate

4. Court-ordered beneficiary

Insured's estate

Death benefits from a life insurance policy are normally considered to be

1. subject to the cost recovery rule

2. exempt from federal income tax

3. subject to the value-added tax

4. subject to attachments from the insured's creditors

exempt from federal income tax

Death proceeds from a life insurance policy are typically included in a deceased insured's gross estate

1. only if the insured's estate is listed as beneficiary

2. for federal and state income tax purposes

3. for federal income tax reasons

4. only if the policy is owned by the beneficiary

for federal income tax reasons

Which life insurance settlement option pays lifetime benefits to two or more people?

1. Life income with period certain

2. Joint

3. Life income

4. Joint and survivor

Joint and survivor

Kevin has an existing life insurance policy and assigns it to another insurer for a new contract. How would this transaction be treated for tax purposes?

1. As a Section 1040 exchange

2. As a transfer

3. As a rollover

4. As a Section 1035 exchange

As a Section 1035 exchange

The beneficiary of a life insurance policy is normally selected by whom?

1. Policyowner

2. Contingent beneficiary

3. Estate

4. Insurance company

Policyowner

Which of these occurrences could improve an insurer's ability to reduce premiums?

1. Mortality rates increase

2. Rate of earnings on investments increase

3. Requiring monthly premium payments instead of annual

4. Expense factor increase

Rate of earnings on investments increase

After an applicant reads and signs an insurance application, he/she should be conscious of the fact that

1. a false statement could lead to loss of coverage

2. premium refunds are not allowed

3. the policy is guaranteed to be issued

4. the premium quoted by the agent is final

a false statement could lead to loss of coverage

Which of these is NOT an underwriting responsibility of a life insurance agent?

1. Determining the final rate classification

2. Asking relevant questions concerning an applicant's avocations

3. Ordering an inspection report

4. Requesting an attending physician's report (APR)

Determining the final rate classification

Which life insurance settlement option pays a stated monthly benefit until both principal and interest are exhausted?

1. Interest only option

2. Fixed period installment option

3. Life income option

4. Fixed amount installment option

Fixed amount installment option

Which of these is NOT considered the responsibility of a producer during the underwriting process?

1. Selecting the final approval date

2. Forwarding any material personal observations to the insurer

3. Collecting additional medical information if needed

4. Promptly sending the completed application to the insurance company

Selecting the final approval date

Which of the following statements about the installments for a fixed period settlement option in life insurance policies is NOT true?

1. The shorter the period of time, the larger each installment

2. The periodic payment amount is determined by the beneficiary's age

3. The installment payments are composed of both principal and interest

4. The longer the period of time, the smaller each installment

The periodic payment amount is determined by the beneficiary's age

When a producer submits an application that discloses personal information regarding the applicant, who supplies the privacy notice?

1. Insurer

2. Producer

3. Fiduciary

4. Underwriter

Producer

Which statement best describes a single premium whole life policy?

1. Paid-up policy that offers lifetime protection

2. A single premium that is due annually

3. Paid-up policy that offers limited protection

4. Premiums that can only be paid from a single source

Paid-up policy that offers lifetime protection

Mike applied for life insurance and was issued a conditional receipt. He is later found to be insurable and is issued a policy. When does his coverage become effective?

1. Date the insurer received the application

2. Date of policy delivery

3. Date of issuance of the conditional receipt

4. Date the policy was approved

Date of issuance of the conditional receipt

Which of these is an accurate statement regarding the fixed period settlement option on a life insurance policy?

1. A portion of the payments paid to the beneficiary comes from interest generated from policy loans

2. A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy

3. Payments are normally guaranteed for 10 years or more

4. Payment can be adjusted monthly by the beneficiary

A portion of the payments paid to the beneficiary comes from interest calculated on the proceeds of the policy

Which statement regarding a fixed period settlement option is correct?

1. The insurance company dictates each installment payment amount

2. The insurance company dictates the total number of installment payments

3. The installment payment amount is determined by the total number of installments

4. A fixed period settlement option can pay no longer than 20 years

The installment payment amount is determined by the total number of installments

An insurance policy may be issued with a preferred insurance premium in all of these situations EXCEPT

1. being a nonsmoker

2. good credit history

3. living in a rural area

4. good health history

living in a rural area

An insured may be required to sign which document at policy delivery to ensure there has not been any adverse medical conditions since the time of the application?

1. Good health statement

2. MIB disclosure

3. Binding receipt

4. Agent's report

Good health statement

Which tax cost is normally associated with death?

1. Payroll

2. Federal estate tax

3. Sales tax

4. Federal excise tax

Federal estate tax

Which would be described as a beneficiary designation by class?

1. Estate of the insured

2. Children of the insured

3. A specific named beneficiary

4. Tertiary beneficiary

Children of the insured

Which tax is normally associated with an individual's death?

1. Excise tax

2. Federal estate tax

3. Consumption tax

4. Ad valorem tax

Federal estate tax

A life insurance beneficiary died after receiving only six payments under the policy's life income settlement option. What happens with the remaining balance of the death proceeds?

1. Transfers to the insured's estate

2. Kept by the insurance company

3. Transfers to the beneficiary's estate

4. Donated to charity

Kept by the insurance company

Which of the following disability buy-sell agreements is best suited for businesses with a limited number of partners?

1. Cross-purchase agreement

2. Key person plan

3. Entity agreement

4. Split dollar plan

Cross-purchase agreement

In what situation could an insurance policy's coverage be modified?

1. Applicant is uninsurable

2. Applicant is a preferred risk

3. Applicant is a standard risk

4. Applicant is a substandard risk

Applicant is a substandard risk

A life insurance policy's contingent beneficiary is the

1. person who receives the death benefits if there is no named beneficiary

2. primary person who receives the death benefits if the insured dies

3. person whose approval is needed before a beneficiary designation is changed

4. person who receives the death benefits if the primary beneficiary dies before the insured

person who receives the death benefits if the primary beneficiary dies before the insured