MD EXAM-LIFE
General Insurance - Review Questions
1. Risk in insurance terminology refers to the
A. Uncertainty of Financial Loss
B. Cause of a Peril
C. Certainty of Financial Loss
D. Hazard that Causes a Claim
2. The reduction or decrease of value of a person or property insured in a policy is called
A. Reduction
B. Loss
C. Transfer
D. Risks
3. Mutual companies are owned by the
A. Stockholders
B. Insurers
C. Board of Directors
D. Policyowners
4. What type of risk allows both gains and losses?
A. Pure
B. Exposure
C. Speculative
D. Hazardous
5. Purchasing a life insurance policy would be considered which method of handling risk?
A. Avoidance
B. Transfer
C. Reduction
D. Sharing
6. A fraternal benefit society usually provides
A. Life or Health insurance to its members
B. Insurance Benefits to the public at large
C. Workers’ Compensation policies
D. Medicaid Policies to all society members
7. ABC Insurance Company is incorporated in Georgia but is doing business in Connecticut; it is
a(n)
A. Domestic insurer
B. Foreign insurer
C. Alien insurer
D. Export insurer
8. An agent’s actions or deeds show what kind of authority?
A. Expressed
B. Agent
C. Implied
D. Apparent
9. The tendency for less favorable risks to seek or continue insurance is called
A. Adverse Selection
B. Substandard Risk
C. Underwriting
D. Rating
10. When an insurance company transfers its loss exposure to another insurer it is known as
A. Assignment
B. Indemnity
C. Reinsurance
D. Reciprocity
11. The insurance company transferring a portion of a risk to another insurer is called the
A. Principal Insurer
B. Ceding Company
C. Reciprocal Insurer
D. Reinsurer
12. What is the primary reason for relying on the Law of Large Numbers?
A. Collecting premiums on many risks reduces average claim expenses
B. Large numbers of exposure units are needed to avoid risks
C. A large number of similar risks is needed to accurately predict losses
D. Speculative risks are reduced when the exposure base is broad
13. Sara’s life insurance policy pays her a dividend each year. She has a policy with what type
of company?
A. Stock Insurance Company
B. Reinsurance Company
C. Foreign Insurance Company
D. Mutual Insurance Company
14. Producers that sell the insurance products of several companies are known as
A. Independent producers
B. Captive producers
C. Exclusive producers
D. Direct Responses producers
15. Which statement describes the purpose of the guaranty association?
A. Protect consumers against the circulation of inaccurate financial information
B. Protect policyowners and others against the insolvency of insurers
C. Help legislators make informed decisions about insurance law
D. Define the relationship between the principal and the agent
16. An agent tells a client that the insurer he represents is authorized to do business in the
state and is backed by the Life and Health Insurance Guaranty Association. The agent is
guilty of
A. Impersonation
B. Intimidation
C. Advertising of the Guaranty Association
D. False Advertising
Contracts - Review Questions
1. To prevent people from taking advantage of minors or the insane, a contract must have the
element of
A. Offer and Acceptance
B. Competent Parties
C. Advice and Consent
D. Legal Purpose
2. Any areas of ambiguity in an insurance contract are decided in favor of the insured because
the contract is a(n)
A. Aleatory Contract
B. Waiver and Estoppel
C. Unilateral Contract
D. Contract of Adhesion
3. Statements in the application for insurance that must be true to the best of the applicant’s
knowledge are called
A. Warranties
B. Waivers
C. Representations
D. Ambiguities
4. The element of an insurance policy that establishes that each party to the contract is giving
something of value is known as
A. Consideration
B. Adhesion.
C. Indemnity
D. Agreement
5. A legal contract in which only one party makes a legally enforceable promise is said to be
A. Adhesion
B. Agreement
C. Unilateral
D. Aleatory
6. The intent to misrepresent or intentionally conceal a material fact is called
A. Coercion
B. Fraud
C. Misrepresentation
D. Concealment
7. To restore an insured to the same financial position after a loss as existed before without
profiting from the loss is known as
A. Indemnity
B. Reasonable Expectations
C. Estoppel
D. Adhesion
8. The term that refers to unequal values given between two parties in a contract is
A. Aleatory
B. Conditional
C. Adhesion
D. Unilateral
9. If the insurer is notified in writing, a policyowner can transfer (or assign) policy ownership to
another person. This unique characteristic makes the policy a(n)
A. Conditional Contract
B. Personal Contract
C. Unilateral Contract
D. Indemnity Contract
10. The characteristic of all insurance contracts which states that both parties must comply with
certain specified circumstances in order to make the contract enforceable is known as
A. Adhesion
B. Aleatory
C. Conditional
D. Reasonable Expectations
Life Insurance Basics - Review Questions
1. All the following would have an insurable interest EXCEPT a
A. Spouse
B. Child
C. Mother
D. Close Friend
2. What factors are used to determine gross premium?
A. Mortality - Interest
B. Mortality + Expense - Interest
C. Mortality + Interest
D. Mortality – Interest – Expense
3. All of the following are personal uses of life insurance EXCEPT
A. Liquidity
B. Estate Conservation
C. Estate Liquidation
D. Cash Accumulation
4. Under a single owner group life policy who receives the master contract?
A. Employer
B. Employee
C. Insurer
D. Agent
5. All of the following are true regarding key person life insurance EXCEPT
A. The employer must have an insurable interest in the employee’s life and his or her
written consent to purchase the policy
B. Any form of life insurance may be used for key employee coverage
C. The premiums paid by the employer are tax deductible
D. The death benefit is not usually considered as taxable income
6. Which of the following is true in regard to a participating policy?
A. Dividends are paid to stockholders
B. Dividends are paid to policyowners
C. The policy is issued by a stock company
D. The policy is issued by a fraternal benefit society
7. To be fully insured by Social Security, a worker must have how many quarters of coverage?
A. 25
B. 30
C. 35
D. 40
8. Life insurance purchased as an executive bonus for a corporate employee belongs to the
A. Employee
B. Employer
C. Corporate General Account
D. Beneficiary
9. When debt, income, mortgage, and expenses are taken into account to determine the amount
of insurance an insured should purchase it is known as the
A. Debt to Income Approach
B. Human Life Value Approach
C. Ordinary Life Approach
D. Needs Approach
10. When the business is the owner, pays the premium, and is the beneficiary of a life insurance
policy, this is an example of what kind of business insurance?
A. Key Person
B. Buy-Sell Agreement
C. Group Life
D. Executive Bonus Plan
11. Insurable interest must exist
A. When the death proceeds become payable
B. When policy ownership is transferred
C. At the time of application
D. When cash values are borrowed
12. The document that highlights critical elements of the policy and is usually given at policy
delivery is the
A. Buyer’s Guide
B. Policy Summary
C. Policy Affidavit
D. Policy Statement
13. The cost comparison method that considers the “time value” of money is called
A. Comparative Method
B. Commissioners’ Standard and Ordinary Method
C. Actuarial Method
D. Interest-adjusted Net Cost Method
14. All of the following are true about viatical settlements EXCEPT
A. The viator usually receives a percentage of the face amount of the policy
B. Viatical settlement brokers negotiate contracts for viators for a fee or compensation
C. Viatical settlements are not usually allowed in the first 5 years after policy issue
D. The new owner continues to pay the premiums and later collects the death benefit
15. The primary purpose of an individual life insurance policy is to
A. Create an immediate estate
B. Liquidate an estate
C. Create a retirement account
D. Avoid taxes when the insured dies
16. The main source of information used by the insurer’s underwriting department is the
A. MIB Report
B. Medical Exam
C. Application
D. Consumer Report
17. Which of the following factors is NOT considered by an underwriter when determining the
premium rates for an individual seeking insurance?
A. Age
B. Medical History
C. Sex
D. IQ
18. A statement of good health is required when the initial premium is not paid with the application
at the time of
A. Application
B. Policy Delivery
C. The Paramedic’s Exam
D. Policy Renewal
19. Investigative consumer reports are used to investigate an applicant in all the following areas
EXCEPT
A. Hobbies
B. Habits
C. Place of Residency
D. Employment
20. The Medical Information Bureau (MIB) is a(n)
A. Source of medical information to alert insurers to adverse medical history
B. Government entity that reviews medical information
C. Association of physicians who write insurance rules
D. Directory of paramedical services and providers
21. If a proposed insured dies before the policy is issued but while in possession of a conditional
receipt, the company will
A. Not pay the policy proceeds under any circumstances
B. Always pay the policy proceeds
C. Pay the policy proceeds only if it would have issued the policy to the proposed insured had
he/she been living
D. Pay the policy proceeds up to an established limit
22. If an insurer requests medical information about an applicant, who’s written consent is
needed?
A. The Physician
B. The Applicant
C. The Insurer
D. The Policyowner
23. Which of the following is the least expensive method of paying life insurance premiums?
A. Monthly
B. Quarterly
C. Semi-Annual
D. Annual
24. All of the following factors could affect an insured’s premium EXCEPT
A. Risk Classification
B. Insurable Interest
C. Premium Payment Mode
D. Insurance Company Expenses
25. A substandard risk compared to a standard risk would pay
A. A higher premium
B. A lower premium
C. The same premium
D. Premium is not based on risk
26. As the field underwriter, the producer has all of the following responsibilities EXCEPT
A. Completing the application with the client
B. Obtaining the required signatures
C. Obtaining the MIB report
D. Delivering the policy
27. Statements on an application for life insurance are considered to be
A. Warranties
B. Representations
C. Always factual
D. Concealments
28. As an insurance producer, you must provide a Buyer's Guide
A. Prior to accepting the applicant's initial premium payment
B. After delivery of the policy
C. Prior to policy date
D. Before commencing the sales presentation
29. Under what circumstances, if any, may a medical test for HIV antibodies be performed on an
applicant for life insurance?
A. Every time a person applies for life insurance coverage
B. Whenever an underwriter suspects the applicant may fall into a high risk lifestyle category
C. Only when the individual has given written consent
D. HIV tests on applicants are not permitted under any circumstances
30. The document that provides the producer’s personal observations concerning the proposed
insured is the
A. Application
B. Policy Summary
C. Conditional Receipt
D. Agent’s Report
Life Insurance Policies - Review Questions
1. Which statement about term life insurance is INCORRECT?
A. Term insurance is temporary insurance
B. Term insurance is one of the most expensive forms of protection
C. There is no cash value when a term policy expires
D. Term insurance policies are written for a specified number of years
2. Decreasing term insurance is most often used for
A. Credit or Mortgage Insurance
B. Retirement Insurance
C. Guaranteed Inflation riders
D. Increasing coverage on Term policies
3. When does cash value normally start accruing in whole life policies?
A. 1 Year
B. 3 Years
C. 5 Years
D. 7 Years
4. How long does coverage continue on a limited–pay whole life policy?
A. 20 years on a 20-pay policy
B. 65 years on a life paid at 65
C. Death or age 100
D. 10 years on a 10-pay policy
5. An indexed whole life policy’s interest rate is usually linked to an equity index such as the
A. Moody’s Corporate Bond Yield
B. Consumer Price Index (CPI)
C. Inflation rate
D. Standard and Poor’s 500
6. An annual renewable term policy
A. Increases in premium based on the insured’s health
B. Maintains a level premium each year
C. Renews each year with an increased premium
D. Increases in coverage each year
7. Universal life insurance is a combination of
A. Equity Indexed Life and a Cash Account
B. Annual Renewable Term and a Cash Account
C. Level Term and Equity Indexed Life
D. Whole Life and a Cash Account
8. Which statement regarding whole life insurance is INCORRECT?
A. The face amount of the policy stays the same as long as the policy remains in force
B. The shorter a premium period is, the faster the cash value will grow
C. The policy’s cash value decreases each year the policy is in force
D. Whole life insurance is designed to mature at age 100
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9. If a single premium (lump sum) is paid on a whole life policy, cash value will
A. Be available immediately
B. Be available in 5 years
C. Be available at age 59 1/2
D. Never be available
10. Premiums at renewal of a term policy are based on
A. Original age
B. Attained age
C. Average age
D. Renewal age
11. When are benefits paid from a joint life policy?
A. When the second insured dies
B. When both insureds attain age 100
C. When the first insured dies
D. When the last member in the group dies
12. In comparison with straight life insurance, premiums for survivorship life are usually
A. Lower
B. The Same
C. Higher
D. Flexible
13. Bob bought an adjustable life policy with the intention of increasing the death benefit at
some point in the future. Which of the following statements is CORRECT regarding
this change?
A. The death benefit cannot be increased
B. The death benefit can only be increased when the policy has developed a cash value
C. The death benefit can only be increased by exchanging the existing policy for a new one
D. The death benefit can be increased by providing evidence of insurability
14. Which of the following statements is TRUE regarding a universal life policy?
A. The insurer sets the cash value and premium payment period
B. The death benefit can be increased without evidence of insurability
C. The premiums can be decreased by the insured
D. It is issued without a guaranteed interest rate
15. When the cash value accumulation of a whole life policy equals the face amount, the policy
A. Expires
B. Endows
C. Lapses
D. Renews
16. All of the following are TRUE concerning group life policies EXCEPT
A. A master policy is issued to the sponsor
B. Individual insureds receive a certificate of insurance
C. The group must be formed for insurance purposes
D. The group must contain a specified number of members
17. In a group policy, the document that determines the benefits for all insureds is called the
A. Master Contract
B. Employer Policy
C. Certificate of Insurance
D. Explanation of Benefits
18. Which of the following types of policies allows partial surrenders?
A. Indexed Whole Life
B. Universal Life
C. Whole Life
D. Adjustable Life
19. When converting a group life policy to an individual life policy, all of the following would be
true EXCEPT
A. The right to convert is typically 31 days
B. No proof of insurability is required
C. The individual policy will have the same face amount as the group policy
D. The individual policy will always be the same type of insurance as the group policy
20. Which element increases in an increasing term policy?
A. Premium Amount
B. Cash Value
C. Death Benefit
D. Policy Expenses
21. Which of the following policies require the producer to have a license issued by FINRA?
A. Variable Life
B. Equity Indexed Life
C. Universal Life
D. Adjustable Life
22. Which statement is not true of a variable life insurance policy?
A. The cash value is not guaranteed since it fluctuates with the values of the investments
B. The cash value is held in a separate account which is invested in stocks, bonds, and other
securities
C. Variable life has fixed premiums and a guaranteed minimum death benefit
D. Variable life can be converted from term to whole life, or vice versa
23. With a graded premium whole life policy, premium payments increase
A. Each year until the insured turns 65
B. All at once in the first 3 to 5 years of the policy
C. For a specified period and then become level
D. By a certain percentage each policy year
24. Which of the following statements is CORRECT about a Convertible Term policy?
A. Since the term is convertible, the premium will not increase upon conversion
B. An insured does not have to provide evidence of insurability when making the conversion
C. It is the only form of Term insurance that has a death benefit and builds cash value
D. It is the most appropriate form of protection for a loan or debt obligation
Policy Provisions - Review Questions
1. Which provision of a life insurance policy states that the application is part of the contract?
A. Insuring clause
B. Ownership clause
C. Entire Contract clause
D. Assignment clause
2. An insured will be allowed to reactivate her lapsed life insurance policy if action is taken
within a certain period and proof of insurability is provided. This is accomplished under the
A. Reinstatement provision
B. Waiver of Premium provision
C. Incontestable clause
D. Grace Period provision
3. The life insurance policy clause that prevents an insurance company from denying payment
of a death claim after a specified period of time due to statements in the application is
known as the
A. Misstatement of Age clause
B. Incontestable clause
C. Reinstatement clause
D. Insuring clause
4. An insured intentionally understates her age on her application for a life policy. At death
the insurer will take which of the following actions?
A. Refuse to pay the claim based on material misrepresentation on the application
B. Pay the face amount of the policy if the death occurred after the end of the
incontestable period
C. Pay a reduced death benefit based on the insured’s actual age
D. Pay the stated death benefit less the unpaid premium owed to the company as a result
of the understated age
5. Which of the following terms refers to the transfer of some or all of the ownership rights of a
life insurance policy from one individual to another?
A. Nonforfeiture
B. Endorsement
C. Transfer of Value
D. Assignment
6. Which of the following is true about the mandatory 10-day free look in a life insurance policy?
A. It commences when the policy is delivered
B. It commences when the application is signed
C. It applies only to term life insurance policies
D. It is optional on all life insurance policies
7. Which of the following features allows an insurance policy to remain in force for a
specific number of days beyond the premium due date?
A. Reinstatement provision
B. Nonforfeiture option
C. Grace Period provision
D. Consideration clause
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8. A policy that must be changed after it has been issued must be signed by
A. The producer
B. The applicant
C. The producer and the insurer
D. An executive officer of the insurer
9. What is the purpose of the grace period?
A. To protect the policyowner against an unintentional lapse of policy
B. To allow a free month of premiums
C. To allow the policy owner to examine the policy
D. To extend coverage past the end of the policy’s term
10. A policyowner that has an irrevocable beneficiary cannot request policy changes unless the
A. Policyowner signs the change request
B. Irrevocable beneficiary signs the change request
C. Insured signs the change request
D. Insurer and insured sign the change request
11. The grace period for most life insurance policies is
A. 7 Days
B. 90 Days
C. 10 Days
D. 31 Days
12. The owner of a life insurance policy has all the following rights EXCEPT
A. Designate or change a beneficiary
B. Change the person who is insured
C. Select the settlement options
D. Assign or transfer the policy to a new owner
13. A contingent beneficiary will only receive the death benefit if
A. The insured dies because of a contingency in the policy language
B. The primary beneficiary dies at the same time as the insured
C. The insured dies and there is no surviving beneficiary
D. The only primary beneficiary is a minor
14. Which of the following will receive the death benefit if the insured and the sole beneficiary die
in a common disaster?
A. Insured’s Estate
B. Beneficiary’s Estate
C. Insurer
D. Next of kin of the insured
15. Which of the following is not typically an exclusion in life policies?
A. Death due to war or military service
B. Death due to plane crash for a fare-paying passenger
C. Self-inflicted death
D. Death that occurs as a result of a dangerous hobby
Policy Options - Review Questions
1. The term nonforfeiture in life insurance is associated with a policy’s
A. Cash Values
B. Dividend Accumulations
C. Paid-Up Additions
D. Grace Period
2. A policyowner surrenders a whole life policy for a reduced paid-up policy. What will happen
to the cash value?
A. It is forfeited
B. It decreases
C. It remains the same
D. It continues to increase
3. Which of the following options in a life policy specifies the manner in which proceeds will be
paid to a beneficiary on the death of the insured?
A. Nonforfeiture Options
B. Settlement Options
C. Conditions
D. Dividend Options
4. The insured pays $1200 annually for her life insurance premium. This year, she has
accumulated $175 worth of dividends which she applies to her next premium payment
which will then be $1025. Which dividend option has she chosen?
A. Cash
B. Reduced Paid-Up
C. Reduction of Premium
D. Accumulate at Interest
5. All the following are nonforfeiture options EXCEPT
A. One-Year Term
B. Cash Surrender Value
C. Extended Term
D. Reduced Paid-Up Insurance
6. Which settlement option offers an unchanging amount of benefits until all proceeds are paid?
A. Fixed Period
B. Life Income
C. Fixed Amount
D. Life with Period Certain
7. Which of the following is true regarding policy dividends?
A. They are payable only on nonparticipating policies
B. They are taxable if from a mutual company
C. They are calculated by subtracting the net premium from the gross premium
D. They are not guaranteed
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8. If a policyowner borrows funds from the cash value of the policy and does not pay back
the loan amount, how will a claim on the death benefit be affected?
A. The full death benefit will be paid to the beneficiary
B. The death benefit paid to the beneficiary will be less the loan amount plus interest
C. The death benefit will be equal to the loan amount
D. No death benefit will be paid to the beneficiary
9. Which nonforfeiture option allows for insurance with a lower face amount and coverage
that will remain the same as the original policy?
A. Extended Term
B. Cash Surrender Value
C. Reduced Cash Surrender
D. Reduced Paid-Up Insurance
10. Which dividend options could create a taxable income to the policyowner of a whole life
policy issued by a mutual insurance company?
A. Cash
B. Reduction of Premium
C. Accumulate at Interest
D. Paid-Up Additions
11. Which of the following statements is INCORRECT about partial surrenders?
A. Interest earned on the withdrawal may be taxable
B. Partial surrenders are only available from whole life policies
C. There may be a surrender charge for withdrawals
D. The death benefit will be reduced by the amount of the withdrawal
12. Which dividend option allows for the purchase of additional permanent insurance?
A. Paid-Up Additions
B. Reduction of Premium
C. Accumulate at Interest
D. One-Year Term
13. All of the following options will allow a policyowner to receive a partial payment of the policy’s
face amount EXCEPT
A. The insured has a catastrophic illness
B. The insured is terminally ill
C. Confinement to a long term care facility
D. The beneficiary of the insured is terminally ill
14. Which settlement option is considered to be a temporary option?
A. Life Income
B. Interest Only
C. Fixed Amount
D. Refund Life
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15. All of these statements about the automatic premium loan provision of a whole life policy
are true EXCEPT
A. It uses cash values if premiums are not paid by the end of the grace period
B. It prevents the unintentional lapse of the policy due to nonpayment of premium
C. A request for an automatic premium loan payment may be deferred for 6 months
D. If the loan and interest are not repaid upon the insured’s death, it will be deducted from
the death benefit
Policy Riders - Review Questions
1. Jeff suffers a long term disability. Which type of rider would keep his policy in force even
though he is no longer making the premium payments.
A. Continued Coverage
B. Waiver of Premium
C. Long Term Care
D. Guaranteed Insurability
2. Which statement is INCORRECT about the waiver of premium rider?
A. There is a waiting period before the benefits of the rider begin
B. The insured must be totally disabled
C. Cash benefits are paid to the insured
D. Cash values continue to grow under the waiver of premium
3. All of the following are true about the waiver of premium with disability income rider EXCEPT
A. Premiums are waived during periods of disability
B. Payments are based on a percentage of the face amount
C. There is a waiting period before benefits begin
D. The disability benefit is a lump sum payment to the insured
4. In a policy insuring the life of a child, which of the following allows the premiums to be waived
in the event of the death or disability of the person responsible for premium payments?
A. Waiver of Premium
B. Reduction of Premium
C. Payor Benefit
D. Reduced Paid-Up Option
5. What happens to the death benefit if a portion has been paid out under an accelerated
benefit rider?
A. The claim will be denied upon the death of the insured
B. The benefit will be reduced by the amount paid plus interest lost by the insurer
C. The benefit will be reduced by the amount withdrawn from the face value of the policy
D. The original face amount will be paid to the beneficiary
6. Which rider could be added to a whole life insurance policy to cover a spouse and children
with level term insurance?
A. Family Term Rider
B. Payor Benefit Rider
C. Joint and Survivor Rider
D. Juvenile Term Rider
7. An insured has a $100,000 policy with an accidental death benefit rider with double indemnity.
If he dies in a car accident on his way to work due to a heart attack, how much will the insurer
pay to the beneficiary?
A. $0, the insured died from an illness, not the accident
B. $50,000, the insured died from an illness, therefore half the death benefit will be paid
C. $100,000, the insured died from an illness, not the accident
D. $200,000, the insured died in an accident and it does not matter that the heart attack
was the cause of the accident
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8. Which rider would allow the purchase of additional insurance at specified future dates or
events without evidence of insurability?
A. Guaranteed Insurability
B. Return of Premium
C. Waiver of Premium
D. Disability Income
9. If an insured purchases a guaranteed insurability rider on his insurance policy, how is the
cost of additional premiums determined?
A. They are based the insured's original age at policy purchase
B. They are based on the insured's attained age when the rider takes effect
C. They are based on the insured's birth date
D. They are based on the actual date the future event takes place
10. The cost of living rider is intended to
A. Reduce premium expense and increase the death benefit
B. Provide reimbursement for medical expenses
C. Increase the mortality rate over the life of the policy
D. Adjust the death benefit by a cost of living factor tied to an inflation index
11. A disability rider sometimes added to a universal life insurance policy is called
A. Guaranteed Insurability
B. Waiver of Cost of Insurance
C. Accidental Death
D. Living Need
12. Nancy’s life insurance policy has a rider that will pay the death benefit and the premium
amount that has been paid to her beneficiary if she dies before she turns 60. What rider
does her policy have?
A. Return of Premium
B. Cost of Living
C. Waiver of Premium
D. Guaranteed Insurability
13. A policyowner may request advance payment of a portion of the death benefit in order to pay
medical expenses incurred as a result of a terminal illness using which rider?
A. Multiple Indemnity
B. Waiver of Premium
C. Accelerated (Living) Benefit
D. Cost of Living
14. All of the following may trigger accelerated benefits EXCEPT
A. Renal failure
B. AIDS
C. Catastrophic illness
D. Cosmetic surgery
15. If the insured elects a partial payment from the accelerated benefit provision, the death
benefit of the life policy will
A. Be reduced
B. Stay the same
C. Increase gradually to the original face amount
D. Be forfeited
Annuities - Review Questions
1. The time when a policyowner contributes to an annuity is called the
A. Annuity Period
B. Accumulation Period
C. Annuitization Period
D. Benefit Period
2. If an insured inherited a large amount of money at age 40 and desired to use it to provide a
guaranteed income after her retirement at age 65, she would probably buy an annuity that is
which of the following?
A. Immediate
B. Flexible Premium
C. Deferred
D. Variable
3. Which of the following statements is incorrect about fixed annuities?
A. Their monthly benefit pay out amount can vary
B. They are characterized by a general account
C. Their interest rates are guaranteed
D. The annuity carrier assumes the interest rate risk
4. An annuity that guarantees a minimum rate of return is called a/an
A. Immediate Annuity
B. Fixed Annuity
C. Variable Annuity
D. Deferred Annuity
5. Annuities may be purchased with all of the following payment methods EXCEPT
A. Single Lump-Sum payment
B. Level payments
C. Flexible payments
D. Variable payments
6. An annuity that begins paying one month after it is purchased would be a
A. Single Premium Immediate Annuity
B. Level Premium Deferred Annuity
C. Single Premium Deferred Annuity
D. Flexible Premium Deferred Annuity
7. If an annuitant has a refund annuity and dies after the annuity income begins, the beneficiary
will receive
A. Nothing, a refund life annuity only pays until death of the annuitant
B. A lump sum death benefit amount equal to the premiums paid
C. A lump sum payment based on the starting fund amount minus what has been paid
D. A lump sum payment equal to the fund amount on the annuitization date
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8. Which type of annuity settlement stops when the annuitant dies?
A. Life Annuity
B. Cash Refund Annuity
C. Installment Refund Annuity
D. Period Certain Annuity
9. An annuity which pays a specified number of years whether the annuitant is alive or dead is
known as a
A. Refund Life Annuity
B. Continuous Annuity
C. Straight Life Annuity
D. Life Annuity with Period Certain
10. The minimum rate of return a fixed annuity earns is determined by the
A. Minimum Interest Rate
B. Guaranteed Interest Rate
C. Current Interest Rate
D. Difference between the current and guaranteed interest rate
11. Which of the following types of annuities would be best suited for a retired couple who are
seeking income for as long as either lives?
A. Joint and Survivor Annuity
B. Joint Life Annuity
C. Life with Period Certain Annuity
D. Refund Life Annuity
12. Which of the following settlement options pays the highest monthly benefit?
A. Fixed Period
B. Fixed Amount
C. Interest Only
D. Life Income
13. In equity indexed annuities, the equity is
A. Invested by the insurance company
B. Invested conservatively
C. Tied to an index such as the S&P 500
D. Invested in bonds
14. What are the tax consequences of surrendering a nonqualified annuity prior to age 59 1/2?
A. 10% penalty and tax on premium paid
B. 10% penalty and tax on interest earned
C. No penalty and tax on interest and premium paid
D. No penalty and tax on interest earned
15. To discourage early termination of an annuity, what is included in an annuity contract?
A. Interest Rates
B. Premium Amounts
C. Cash Value Guarantees
D. Surrender Charges
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16. In a deferred annuity contract, which of the following statements is TRUE about the annuitant?
A. Annuity payments are based on the annuitant’s life expectancy
B. The annuitant is the contract owner
C. The beneficiary is named by the annuitant
D. Premiums are paid by the annuitant
17. Under a life income annuity, all the following factors influence the benefit payment amount on a
single premium deferred annuity EXCEPT
A. The benefit option chosen
B. The amount contributed during the accumulation period
C. Guaranteed mortality and administrative costs
D. The annuitant’s age when the annuity was purchased
18. An immediate annuity contract
A. Has a level death benefit
B. Systematically liquidates both principal and interest
C. Accumulates funds for educational expenses
D. Benefits increase with the cost of living
19. Darla dies while in the accumulation phase of her annuity. What will happen to her annuity
account?
A. The death benefit will be paid to her beneficiary
B. The money will become the property of the insurer
C. Her beneficiary will receive the cash value or the total premium paid, whichever is greater
D. Her beneficiary will receive the face value of the annuity
20. All of the following are true about an annuity surrender charge EXCEPT
A. It is a percentage that increases over time
B. It helps compensate the company for the loss of investment value
C. Surrender charges only apply to deferred annuities
D. The surrender charge is levied against the cash value
21. An annuity can be used for all of the following EXCEPT
A. To save for retirement
B. For periodic payments from an inheritance
C. Tax-deferred savings for secondary education
D. Create an immediate estate for family
22. Which of the following annuities will pay equal benefits until the annuity value is exhausted
whether the annuitant is living or not?
A. Straight Life
B. Fixed Period
C. Fixed Amount
D. Life Income
Qualified Plans - Review Questions
1. Which of the following is NOT a tax advantage of a qualified retirement plan?
A. Employee contributions are tax-deductible
B. Employer contributions are tax-deductible
C. Earnings grow tax-deferred
D. Early withdrawals are not taxed
2. The type of qualified retirement plan that is only available to the employees of nonprofit
organizations and the employees of public school systems is a/an
A. Simplified Employee Pension (SEP)
B. 403(b) Tax Sheltered Annuity (TSA)
C. Individual Retirement Account (IRAE
D. 401(k)
3. Which qualified plan never allows tax-deductible contributions?
A. Roth IRA
B. Tax Sheltered Annuity (TSA)
C. 401(k)
D. Traditional IRA
4. A KEOGH plan may be used to establish a retirement plan for
A. Individuals with Earned Income
B. Corporate Employees
C. Self-Employed Persons
D. Nonprofit Organizations
5. All of the following are exceptions to the early withdrawal rules for qualified plans EXCEPT
A. Disability of the participant
B. Divorce settlement to a spouse
C. Death of the participant
D. Unemployment
Taxes - Review Questions
1. Which of the following insurance benefits could NOT be subject to federal income taxes
in whole or in part?
A. Cash value in excess of premium
B. Lump sum settlement of a death benefit
C. Installment payments of a death benefit
D. Interest only settlement of a death benefit
2. Maria receives monthly payments from her deceased husband’s life insurance policy where
he chose the fixed amount installment option. Each payment consists of principal and
interest. How is this income taxed?
A. The whole payment is taxed
B. The whole payment is received tax free
C. The interest portion of the payment is taxed; the principal is not taxed
D. The principal portion of the payment is taxed; the interest is not taxed
3. Which of the following dividend options would create a taxable income to the policyowner?
A. Reduction of Premium
B. Cash
C. Paid-Up Additions
D. Accumulate at Interest
4. The penalty for early withdrawals from an IRA before age 591
/2 is
A. 10% of the amount withdrawn
B. 50% of the amount withdrawn
C. 25% of the amount withdrawn
D. 6% of the amount withdrawn
5. After paying premiums of $4,000 on a nonparticipating whole life policy, a client surrendered it
for its cash value of $6,500. The client will be taxed on how much
A. $0
B. $2,500
C. $4,000
D. $6,500
6. Benefit payments from a nonqualified annuity consists of principal and interest. How is
the benefit portion that represents a return of principal taxed?
A. Taxed as Earned Income
B. Tax-Deferred
C. Not Taxable
D. Taxed less than interest earned
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7. A Modified Endowment Contract is created when
A. The total premium paid in the policy’s first 7 years exceeds the net premiums of a term life
policy
B. The total premium paid in the policy’s first 7 years exceeds the gross premium to fund a
universal life policy with the same face amount
C. The cash value in the policy exceeds the cash value of a seven-pay whole life policy
D. The loan value at the end of the policy’s seventh year is greater than the total of
the premiums paid on the policy
8. What is used to determine the amount of annual annuity income that is exempt from federal
income tax?
A. 1035 Exchange
B. Exclusion Ratio
C. First-In, First-Out Method
D. 1033 Waiver
9. Which of the following situations would NOT be appropriate for a 1035 exchange?
A. Life Policy to an Annuity
B. Life Policy to a Life Policy
C. Annuity to a Life Policy
D. Annuity to an Annuity
10. All of the following statements are true about Modified Endowment Contract taxes EXCEPT
A. Distributions are taxed on a Last-In, First-Out basis
B. Distributions before age 59 1⁄2 are subject to a 10% penalty
C. Accumulations grow tax-deferred
D. Death benefits are taxed as ordinary income to the beneficiary
11. Which type of qualified plan does NOT allow pretax contributions?
A. Roth IRA
B. Traditional IRA
C. 401k plans
D. TSA plans
12. The interest income in a corporate-owned annuity is
A. Tax-Deferred
B. Tax-Free
C. Taxed Annually
D. Tax-Deductible
13. Traditional IRA withdrawals are generally subject to a tax penalty if the distribution is made
before age
A. 55
B. 59 1⁄2
C. 65
D. 72
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14. Rollovers from one qualified retirement plan to another qualified plan must be completed within
A. 30 Days
B. 45 Days
C. 60 Days
D. 90 Days
Regulations - Review Questions
1. The person who negotiates a viatical settlement contract is a/an
A. Viatical Settlement Provider
B. Viator Settlement Broker
C. Certified Public Accountant
D. Viator
2. While soliciting insurance or transacting insurance business for insurance companies, agents
represent
A. Clients
B. The Insurance Agency
C. Themselves
D. Insurer
3. Offering to return a portion of the premium to an applicant as an inducement to buy insurance
is an illegal act known as
A. Rebating
B. Coercion
C. Twisting
D. Intimidation
4. A form of misrepresentation in which an agent persuades a policyowner to cancel, lapse or
switch policies, even when it is to the insured’s disadvantage is
A. Defamation
B. Twisting
C. Rebating
D. Coercion
5. Issuing or circulating illustrations or sales materials that are false or misleading concerning
policy benefits or terms in order to secure a sale is an example of
A. Replacement
B. Defamation
C. Misrepresentation
D. Rebating
6. The standard group life provisions in Maryland include all of the following EXCEPT
A. A copy of the master policy for each insured under the group plan
B. A grace period of 31 days for payment of premiums
C. A provision stating that the participants’ statements on the application shall be deemed
representations
D. An incontestable period of 2 years
7. The Commissioner of Insurance can do all of the following EXCEPT
A. Regulate insurance companies, producers, brokers and advisers
B. Examine the qualifications, financial status, and conduct of insurers
C. Change the insurance laws and statutes
D. Conduct hearings and investigations
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8. It is illegal to discriminate against a person for all of the following reasons EXCEPT
A. Race
B. National Origin
C. Gender
D. Poor Risk
9. An individual may obtain a temporary insurance producer’s license without passing the
licensing examination if the individual
A. Is a deceased licensed producer’s next of kin
B. Is taking insurance courses at a university
C. Has met the minimum experience requirement
D. Holds a license in another state
10. The Maryland Life & Health Guaranty Corporation affect life and health insurance companies
A. When producers refer to themselves as financial advisors
B. That become insolvent due to bankruptcy of the insurance company
C. That are members of the Medical Information Bureau
D. That are not authorized to transact insurance business in Maryland
11. How often does the Commissioner examine the insurer’s books and records to ensure that the
companies remain solvent and conduct business in compliance with the state laws?
A. Each year
B. Every 3 years
C. At least once every 5 years
D. At least once every 7 years
12. A licensee or insurer who willfully violates the insurance laws of Maryland may be fined up to
A. $10,000 for each violation
B. $25,000 for each violation
C. $50,000 for each violation
D. $100,000 for each violation
13. The primary purpose of the Maryland life insurance and annuity replacement regulations is to
A. Make sure that the replacement is appropriate and in the best interests of the policyowner
B. Discourage insurers and producers from replacing existing life insurance policies
C. Protect insurance companies from bankruptcy and insolvency
D. Prohibit the replacing of existing life insurance or annuity contracts
14. The Commissioner of Insurance can do all the following EXCEPT
A. Regulate insurance companies, agents, brokers, and advisers
B. Examine the qualifications, financial status and conduct of insurers
C. Change the laws to better ensure that the companies remain solvent and conduct business
in compliance with all state laws
D. Conduct hearings and investigate the affairs of any person engaged in the business of
insurance
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15. Which of the following is NOT a responsibility of an insurance producer when conducting life
insurance business?
A. Delivering the insurance contract to the policyowner in a timely manner
B. Determining the insurability and risk classification of the proposed insured
C. Submitting the application to the insurance company for review
D. Explaining the policy provisions, exclusions, and any ratings to the client
16. What is the continuing education requirement for life insurance producers?
A. 10 Hours every Year
B. 16 Hours every 2 Years
C. 24 Hours every 2 Years
D. 30 Hours every 3 Years
17. All of the following are fiduciary responsibilities EXCEPT
A. Commingling funds
B. Forwarding premiums to the insurer
C. Paying refunds to a policyowner
D. Accounting for all monies received
18. Publishing false statements about an insurer’s financial condition with the intent to injure the
insurer is an act of
A. Coercion
B. Unfair Discrimination
C. Intimidation
D. Defamation
19. Producers must maintain records of continuing education for
A. 1 Year
B. 3 Years
C. 4 Years
D. 5 Years
20. For each violation of this section of the Unfair Claim Settlement Practices Act, the
Commissioner may impose a penalty of up to
A. $1,000
B. $2,500
C. $5,000
D. $10,000