Texas Life and Health Insurance Exam

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

Upon completion of the application

Who elects the governing body of a mutual insurance company?

policyholders

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

Fair Credit Reporting Act

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

Treaty

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

reserves

Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated

1970 - Fair Credit Reporting Act

What is the consideration given by an insurer in the Consideration clause of a life policy?

Promise to pay a death benefit

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have

insurable interest in the proposed insured

Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called

representations

The part of a life insurance policy guaranteed to be true is called a(n)

warranty

Which of these is NOT a type of agent authority?

Express

Implied

Principal

Apparent

Principal

The Consideration clause of an insurance contract includes

the schedule and amount of premium payments

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?

In this situation, the proceeds from E's life insurance policy will go to F.

Which of the following terms defines the legally enforceable promise in an insurance contract by the insurer?

Unilateral

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

Inception of the contract

Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid.

conditional

Which of these require an offer, acceptance, and consideration?

Contract

Which of these arrangements allows one to bypass insurable interest laws?

Investor-Originated Life Insurance

Investor-originated life insurance (or IOLI), sometimes called stranger-originated life insurance (or STOLI) is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.

Which of these is NOT considered to be an element of an insurance contract?

the offer

acceptance

negotiating

consideration

negotiating

An agent is an individual that represents whom?

Insurer

Insurable interest must exist at what time?

at the time of application

Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?

Variable Life

Which of the following actions require a policy owner to provide proof of insurability in an Adjustable Life policy?

increase face amount

When a policy owner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?

Conversion provision

What type of life insurance are credit policies issued as?

Term

How long does the coverage normally remain on a limited-pay life policy?

age 100

All of these statements about Equity Indexed Life Insurance are correct EXCEPT

Cash value has a minimum rate of accumulation

If the gain on the index goes beyond the policy's minimum rate of return, the cash value will mirror that of the index

The premiums can be lowered or raised, based on investment performance

Tied to an equity index such as the S&P 500

The premiums can be lowered or raised, based on investment performance

Which of these is an element of a Variable Life policy?

A fixed, level premium

What type of life insurance incorporates flexible premiums and an adjustable death benefit?

Universal Life

T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?

Ten-Year Endowment

What type of life policy covers 2 lives and pays the face amount after the first one dies?

Joint Life Policy

Life insurance that covers an insured's whole life with level premiums paid over a limited time is called

Limited-Pay Life

What kind of life insurance product covers children under their parent's policy?

Term rider

Which is true concerning a Variable Universal Life policy?

Policyowner controls where the investment will go and selects the amount of the premium payment

Policyowner has no say where the investment will go but can choose the premium mode

The investment vehicle for this type of policy is held in the insurer's general portfolio

The death benefit can vary but the policyowner has no say in the premium amount paid

Policyowner controls where the investment will go and selects the amount of the premium payment

P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase?

Family Maintenance policy

Which of the following statements about a Variable Whole Life policy is CORRECT?

It provides a minimum guaranteed Death benefit

It is a combination of a Limited Period Endowment and a Decreasing Term policy

Its premiums and benefits are variable

It has a guaranteed rate of return

It provides a minimum guaranteed Death benefit

Credit Life insurance is

issued in an amount not to exceed the amount of the loan

The amount of coverage on a group credit life policy is limited to

the insured's total loan value

Term insurance has which of the following characteristics?

Expires at the end of the policy period

What does a Face Amount Plus Cash Value Policy supposed to pay at the insured's death?

Face amount plus the policy's cash value

A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as

Variable Life

K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?

Modified Whole Life

Which of these life products is NOT considered interest-sensitive?

Modified Whole Life

What type of life policy covers two people and pays upon the death of the last insured?

Survivorship

Which is true concerning a Variable Universal Life policy?

Policyowner controls where the investment will go and selects the amount of the premium payment

T has a term policy that allows him to continue the coverage after expiration of the initial policy period. What type of term coverage is this?

Renewable

F needs life insurance that provides coverage for only a limited amount of time with a death benefit that changes regularly according to a schedule. What kind of policy is needed?

Decreasing term policy

G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income?

10 years

The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is

the cost

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT

beneficiary's age

When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)

exclusions

Which statement regarding the Misstatement of Age provision is considered to be true?

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

Requires that a new policy must be applied for if a misstatement of age is found on the current policy

Misstatement of Age provision is valid only during the contestable period

Insurer may void the policy if a misstatement of age is discovered

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

Which of these is NOT considered to be a right given to a policyowner?

Modify a provision in the insurance contract

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?

Reinstatement provision

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

50,000

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?

The full face amount

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?

Coverage can be added at specific events such as marriage or having a child

Evidence of insurability is not required when the option is exercised

Evidence of insurability is required when the option is exercised

Coverage can be added at specific ages

Evidence of insurability is required when the option is exercised

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?

Full face amount minus any past due premiums

Which of these are NOT an example of a Nonforfeiture option?

Extended Term

Reduced Paid-up

Cash Surrender

Life Income

life income

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the

Policy Loan provision

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due

What does the insuring agreement in a Life insurance contract establish?

An insurer's basic promise

A young, married teacher has two children and owns a Whole Life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend Options?

Paid-Up Additional Insurance

Which of the following statements is CORRECT about accumulated interest earned on dividends from an insurance policy?

It is taxed as ordinary income

When can a policyowner change a revocable beneficiary?

anytime

K has a life insurance policy where her husband is beneficiary and her daughter is contingent beneficiary. Under the Common Disaster clause, if K and her husband are both killed in an automobile accident, where would the death proceeds be directed?

daughter

M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?

revocable

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

Proceeds will be paid to P's estate

Which statement regarding the Change of Beneficiary provision is true?

The policyowner can change the beneficiary

A policyowner's rights are limited under which beneficiary designation?

Irrevocable

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed

A level premium indicates

the premium is fixed for the entire duration of the contract

On a life insurance policy, who is qualified to change the beneficiary designation?

Policyowner

J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?

The gross premium is higher on a monthly payment mode as compared to being paid annually

The gross premium is lower on a monthly payment mode as compared to being paid annually

The cash value from a life policy paid on a monthly basis builds quicker than one paid on an annual basis

The face amount of a life policy paid on a monthly basis is higher than one paid on an annual basis

The gross premium is higher on a monthly payment mode as compared to being paid annually

An incomplete life insurance application submitted to an insurer will result in which of these actions?

Application will be returned to the writing agent

At what time must a policyowner have insurable interest on the insured in order for the life policy to be valid?

At the time of application

Any changes made on an insurance application requires the initials of whom?

Applicant

An underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n)

exclusion for the medical condition

In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and

the initial premium

Why is an applicant's signature required on a life insurance application?

To attest that the statements on the application are accurate to the best of the applicant's knowledge

Which of these factors do NOT play a role in the underwriting of a life insurance policy?

Avocations

Credit status

Marital status

Occupation

marital status

Before a life insurance policy is issued, which of these components of the contract is required?

Applicant's signature on application

An insurance company may NOT reject a prospective insured's life application on the basis of which of the following factors?

Height

Weight

Gender

Medical history

gender

P completes an application for a $10,000 life policy, but does not give the producer the initial premium. P's coverage becomes effective when

P receives the policy and pays the premium

What type of group plan involves employees sharing the cost?

contributory plan

A noncontributory group term life plan is characterized by

the entire cost of the plan is paid for by the employer

Under a trustee group life policy, who would be eligible for a certificate of coverage?

Employee

Which provision is NOT a requirement in a group life policy?

Accidental

If its employees share in the cost of insurance, what type of group life insurance plan would a corporation have?

Contributory

W is a 39-year old female who just purchased an annuity to provide income for life starting at age 60. All of these would be acceptable annuity choices EXCEPT a(n)

Flexible Premium Deferred annuity

Variable annuity

Immediate annuity

Straight Life annuity

Immediate annuity

T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this?

Life Annuity with Period Certain

Which of these is an element of a Single Premium annuity?

Lump-sum payment

The annuity that represents the largest possible monthly payment to an individual annuitant is a(n)

Straight Life annuity

Which of these statements concerning an Individual Straight Life annuity is accurate?

Payments are made to an annuitant for life

What is considered to be a characteristic of an immediate annuity?

Benefit payments start within one payment period of purchase

Which type of contract liquidates an estate through recurrent payments?

Annuity

P, age 50, purchased an annuity that P will fund with $500/ month for 15 years. The annuity will then pay P retirement payments after the 15 years. Which type of annuity did P purchase?

Deferred

Which of the following annuities pays benefits based on units rather than specific dollar amounts?

A Variable annuity

P is a forty year old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy?

An immediate annuity

One becomes eligible for Social Security disability benefits after having been disabled for

5 months