ExamFX: Life Insurance Practice Exam.

An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?

$50,000

Which of the following documents must be provided to the policyowner or applicant during policy replacement?

Notice Regarding Replacement.

The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is

A nonqualified annuity plan.

During replacement of life insurance, a replacing insurer must do which of the following?

Obtain a list of all life insurance policies that will be replaced

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term.

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called

Single premium whole life.

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount.

Which of the following statements concerning a Simplified Employee Pension plan (SEP) is INCORRECT?

SEPs are suitable for large companies.

In insurance, an offer is usually made when

An applicant submits an application to the insurer.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection.

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

Which of the following is a key distinction between variable whole life and variable universal life products?

Variable whole life has a guaranteed death benefit.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level term

A Return of Premium term life policy is written as what type of term coverage?

Increasing

All of the following are duties and responsibilities of producers at the time of application EXCEPT

Change any incorrect statement on the application by personally initialing next to the corrected statement.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional

What does "level" refer to in level term insurance?

Face amount

What is the purpose of a free-look period in insurance policies?

It allows the insured to reject the policy with a full refund.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring clause

Which of the following best describes annually renewable term insurance?

It is level term insurance.

All of the following are examples of third-party ownership of a life insurance policy EXCEPT

An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan.

All of the following are true regarding the guaranteed insurability rider EXCEPT

This rider is available to all insureds with no additional premium.

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000

Which of the following statements is TRUE about a policy assignment?

It transfers rights of ownership from the owner to another person.

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured

An insurer's employee is investigating a claim and documents each action that is taken in the investigation. The insured believes that the employee's methods violated his constitutional rights. Which of the following entities should be consulted?

Director

Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices?

Making comparisons between different policies

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Mutual

How does an individual become the Insurance Director in this state?

Appointed by the Commissioner

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer.

Which of the following statements is true regarding requirements for applicants for an insurance license?

They must provide information about their personal history and experience.

An insurer publishes intimidating brochures that portray the insurer's competition as financially and professionally unstable. Which of the following best describes this act?

Illegal under any circumstances

Who might receive dividends from a mutual insurer?

Policyholders

After being placed on a noncompliance list, an obligor may be eligible for a temporary license, lasting no longer than

150 days.

To legally transact insurance in this state, an insurer must obtain which of the following?

Certificate of Authority

Which of the following terms is used to describe a person, other than a viator, that enters into or effectuates a viatical settlement contract?

Viatical settlement provider

The document that indicates that an insurer has been approved and is authorized to transact insurance in a particular state is known as a

Certificate of Authority.

If a Director receives a written statement requesting a hearing, within what period of time must a trial be held?

30 days

What is the minimum age for insurance license applicants in this state?

18

An insurance license cannot be issued to a person who would, during the first year, earn an aggregate amount in commissions that would exceed what percentage of the aggregate amount represented by all other insurance business that would be procured through the applicant?

50%

An initial temporary license in this state may be issued for up to

90 days.

Which of the following is another term for an authorized insurer?

Admitted

Individual licenses must be renewed every

2 years.

Chris, who is unlicensed, works part-time in her father's insurance agency. She may perform all of the following activities EXCEPT

Collect premium for in-force policies and explain coverages to existing clients.

When does a license renewal period begin?

90 days before expiration

Which of the following insurers are owned by stockholders?

Stock

Which of the following is an example of an agent's fiduciary responsibilities?

Forwarding premiums to the insurer

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time.

The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as

The policy contains sufficient cash value to cover the cost of insurance.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

Adhesion

During replacement of life insurance, a replacing insurer must do which of the following?

Obtain a list of all life insurance policies that will be replaced

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement provision

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy.

Which of the following is NOT the consideration in a policy?

The application given to a prospective insured

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy.

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal.

All of the following are true regarding a decreasing term policy EXCEPT

The payable premium amount steadily declines throughout the duration of the contract.

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

What is another name for interest-sensitive whole life insurance?

Current assumption life

The Director is asked to examine documentation regarding the investigation of a life insurance claim. The Director can expect to find all of the following in the records EXCEPT

An expert's conclusions regarding the initial investigation.

How long must a standard insurance transaction remain on file?

5 years

Which of the following entities issues Certificates of Authority?

Director

Life insurance policies that have been in force for three years must provide for maximum policy loan interest rate of not more than

8% per year.

If the Director receives written notice demanding a hearing regarding an order, and if the order is scheduled to go into effect during the trial, then the order will be delayed. This is called

Stay of Action.

Which of the following best describes a misrepresentation?

Issuing sales material with exaggerated statements about policy benefits

How many continuing education credits must be completed every 2 years?

24

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer.

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

Conditions

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will

Issue the policy anyway and pay the face value to the beneficiary.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

Other-insured rider.

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment

The president of a company is starting an annuity and decides that his corporation will be the annuitant. Which of the following statements is true?

The annuitant must be a natural person.

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must

Respond to the consumer's complaint.

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?

The employer is the owner and beneficiary.

Which of the following is another term for the accumulation period of an annuity?

Pay-in period

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

The policyowner is entitled to policy loans.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain

All of the following would be different between qualified and nonqualified retirement plans EXCEPT

Taxation on accumulation

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required.

Which of the following is NOT true regarding the accumulation period of an annuity?

It would not occur in a deferred annuity.

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?

If the primary beneficiary predeceased the insured

When would a 20-pay whole life policy endow?

When the insured reaches age 100

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die.

Which of the following is NOT an essential element of an insurance contract?

Counteroffer

Which of the following is TRUE about nonforfeiture values?

They are required by state law to be included in the policy.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit

A paid-up nonforfeiture benefit will become effective as specified in the policy unless the person entitled elects another available option within how many days after the due date of the premium in default?

60

All group life insurance policies must be incontestable after how many years?

2

Who assumes control over an insurance company's funds and management if it becomes insolvent?

The Guaranty Association