question

Which of the following describes a participating life insurance policy?

answer

Policyowners are entitled to receive dividends

question

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

answer

Treaty reinsurance

question

Dividends from a mutual insurance company are paid to whom?

answer

Policyholders

question

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

answer

reserves

question

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

answer

risk retention group

question

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

answer

Lloyd's organization

question

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

answer

agent's contract and the insurance company's appointment

question

How can an insurance company minimize exposure to loss?

answer

Reinsuring risks

question

An insurable risk requires

answer

that the chance of loss be calculable

question

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

answer

Pure risk

question

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

answer

Reinsurance contract

question

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

answer

Speculative risk

question

Which of these statements regarding insurance is false?

answer

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

question

Which term describes the elimination of a hazard?

answer

Risk avoidance

question

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

answer

Peril

question

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

answer

Speculative

question

Purchasing insurance is an example of risk

answer

transference

question

All of these statements correctly describe an aleatory contract EXCEPT

answer

Only one party makes any kind of legally enforceable offer

question

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

answer

Lifelong friendship

question

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?

answer

Implied authority

question

An insurance company's failure to enforce a contract's provision is called a(n)

answer

waiver

question

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

answer

Initial offer is void

question

An insurance company can be liable for a producer's unauthorized acts

answer

when the agency contract is unclear concerning the authority given

question

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?

answer

Can be unequal

question

Which situation would not require the insured's consent when a life insurance policy is issued?

answer

A policy is purchased by a parent for a minor child

question

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)

answer

contract of adhesion

question

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n)

answer

conditional contract

question

When would evidence of insurability be required for a person already covered with a variable universal life policy?

answer

The death benefit is increased

question

A survivorship life insurance policy usually covers how many lives?

answer

2

question

How does a continuous premium whole life policy differ from a limited pay whole life policy?

answer

The time period in which premiums will be paid

question

Who normally pays the premiums for group credit life insurance?

answer

Borrower

question

All of these statements concerning group credit life insurance are false EXCEPT

answer

The face amount is determined by the outstanding loan balance

question

Which statement concerning adjustable life insurance is accurate?

answer

The face amount and premiums can be changed simultaneously by the policyowner

question

What is a juvenile life insurance policy?

answer

A life policy that covers the life of a minor

question

John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?

answer

100%

question

Which is an accurate description of the premium in a graded premium life insurance policy?

answer

Annual increases in premium for a stated number of years then levels off for the remainder of the contract

question

Which of these policies is considered a whole life policy?

answer

Single premium life

question

Which statement regarding the cash value of a whole life insurance policy is correct?

answer

Available to the policyowner when policy has been surrendered

question

Assets that back the non-guaranteed values of variable life insurance products are held in which account?

answer

Separate account set up by the insurer

question

When a ten year renewable term life insurance policy issued at age 45 is renewed, the premium rate will be the current rate for

answer

Ten year term insurance for a person aged 55

question

An individual who purchases a modified life insurance policy expects

answer

an improvement in future income

question

A material change in a modified endowment contract (MEC) results in

answer

the seven pay test, adjusted for cash value, being applied again

question

How is a collateral assignment used in a life insurance contract?

answer

Transfers specific ownership rights to a creditor

question

What is payable to a policyowner if a whole life policy is surrendered prior to its maturity date?

answer

The cash value

question

Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed?

answer

Incontestable clause

question

Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?

answer

Allows a policyowner to take out a policy loan to cover premium payments in the event of total disability

question

What could be the potential result of taking out a cash value loan on a life insurance policy?

answer

Cash surrender value will be reduced if policy is forfeited

question

After the extended term life nonforfeiture option is chosen, the available insurance will be

answer

level term for a stated period of time

question

What happens when a policyowner borrows against the cash value of his life insurance policy?

answer

The death benefit would be reduced by the outstanding loan balance

question

A policyowner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age. If she dies and the insurer discovers the misstatement of age, how much will the insurance company pay?

answer

Less than the face amount

question

What happens to the death benefit of a life insurance policy if the insured elects a partial payment from the accelerated (living) benefit provision?

answer

Reduced

question

Which of the following is NOT guaranteed in a whole life policy?

answer

Dividend scale

question

Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?

answer

Loan amount is increased to reflect the amount of interest due

question

A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?

answer

Reduction of premium payment

question

Which of the following is NOT a condition that must be met for an accidental death benefit to be paid?

answer

Cause of death must be from a job-related injury

question

An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured?

answer

$25,000

question

Which of the following is true regarding a person receiving a waiver of premium benefit?

answer

The insured must be disabled for a period of time

question

What is the reason that insurance companies require a minimum number of employees participating in a group insurance plan?

answer

Adverse selection is minimized

question

Which statement regarding the certificate of insurance is accurate?

answer

Indicates evidence of an employee's insurance coverage

question

Which statement about group life insurance is INCORRECT?

answer

Each participant requires evidence of insurability

question

What minimum percentage of all eligible employees must participate in a group life insurance plan if the premiums are completely paid for by the employer?

answer

100%

question

What is the term used for an insurance contract that identifies individuals by relationship to a specific organization?

answer

Group insurance

question

What type of policy can group term life insurance normally be converted to?

answer

An individual permanent life insurance policy

question

The policy provision that permits an employee to change from a group plan to an individual plan is called the

answer

conversion provision

question

Any employee insured under a group life insurance plan is normally

answer

protected by term life insurance

question

If an employer pays for accidental death and dismemberment insurance for its employees, the amount paid by the employer is generally

answer

tax deductible to the business

question

The conversion option for group term insurance may be exercised by an employee

answer

within 31 days of terminated employment

question

How long do most states allow an insurance company to delay the payment of a cash surrender under the Delayed Payment provision?

answer

6 months

question

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

answer

Fixed amount installment option

question

A life insurance company's spendthrift clause would have no effect if the beneficiary is paid the proceeds as a

answer

lump-sum payment

question

When premiums are calculated, one factor would be the expenses of the

answer

insurance company

question

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

answer

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

question

Which statement regarding a fixed period settlement option is correct?

answer

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

question

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

answer

Policyowner

question

Al surrenders his life insurance policy for its cash value. The total of the premiums paid into the policy minus total dividends received in cash or used to offset premiums is referred to as the

answer

cost basis

question

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?

answer

As a Section 1035 exchange

question

Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?

answer

Interest on proceeds must be paid by the beneficiary

question

What must be given to a life insurance applicant when the agent receives an application and the initial premium?

answer

Conditional receipt

question

When does the producer give a premium receipt for a life insurance application?

answer

When the initial premium has been collected with the application

question

Which of these is NOT used as selection criteria in the underwriting process of a life insurance application?

answer

National origin

question

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?

answer

Date of issuance of the conditional receipt

question

All of these are duties that a producer may be required to perform when delivering an insurance policy EXCEPT

answer

Leave a conditional receipt with client

question

A policyowner pays the first annual premium for a $50,000 life insurance policy and dies one month after the policy effective date. Which of these statements is normally true?

answer

Beneficiary receives $50,000 income tax-free

question

Where is the difference between a standard risk and a substandard risk reflected?

answer

premium charges

question

Insurable interest in one's own life generally is regarded as

answer

unlimited

question

Field underwriting by a producer

answer

may result in the disclosure of hazardous activities of the applicant

question

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

answer

Applicant is a substandard risk

question

The premiums paid by an employer for his employee's group life insurance are usually considered to be

answer

tax-deductible to the employer

question

Which of these is NOT considered to be a cost connected with an individual's death?

answer

Business expenses

question

When an individual is planning to protect his family with life insurance, one method of doing so is called needs analysis. What exactly does needs analysis involve?

answer

Identifies the needs of the individual and his/her dependents

question

Which of these factors does NOT influence an applicant's need for life insurance?

answer

Self-maintenance expenses

question

Which of these is NOT relevant when determining the amount of personal life insurance needed?

answer

Local unemployment rates

question

According to the needs approach, an emergency reserve fund's primary purpose is to

answer

pay for unexpected expenses

question

What is considered a valid reason for small businesses to insure the lives of its major shareholders?

answer

Fund a buy-sell agreement

question

When using the needs approach for life insurance planning, lump sums may be created for all of the following reasons EXCEPT

answer

Employee benefits

question

Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner?

answer

Unemployment tax expenses

question

XYZ Corp gives money to an employee to purchase a life insurance policy and allows the employee to select the beneficiary. What kind of plan is this?

answer

Split-dollar

question

During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?

answer

Annuitant

question

When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest minus

answer

expenses and withdrawals

question

What determines how much an annuitant is paid for a variable annuity?

answer

The market value fluctuations of the securities backing it

question

A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?

answer

$80,000

question

The back-end charge typically associated with an annuity that has been cancelled during the early contract years is called a

answer

surrender charge

question

When an annuity contract has been surrendered, how will the surrender charges affect the final contract settlement?

answer

Settlement will be reduced

question

The exclusion ratio determines

answer

the amount of an annuity payment subject to income tax

question

Ron recently purchased an immediate, straight life fixed annuity. His benefit payments will

answer

remain a constant dollar amount for the duration of the annuity period

question

A business may purchase an annuity for all of the following reasons EXCEPT

answer

Funding a non-qualified deferred compensation plan

question

What is the tax treatment of benefit payments for a non-qualified annuity?

answer

Benefit payments are always fully taxable

question

Which of the following statements is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

answer

The account can be rolled into the surviving spouse's IRA

question

Traditional individual retirement annuity (IRA) distributions must start by

answer

April 1st of the year following the year the participant attains age 70 1/2

question

In a qualified retirement plan, the yearly contributions to an employee's account

answer

are restricted to maximum limits set by the IRS

question

Which of these statements about traditional individual retirement accounts is accurate?

answer

10% penalty is applied to withdrawals prior to age 59 1/2

question

A qualified profit-sharing plan is designed to

answer

distribute a portion of company earnings to its employees

question

What is the excise tax rate the IRS imposes on individuals aged 70 1/2 or older who do not take the required minimum distributions from their qualified retirement plan?

answer

50%

question

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2?

answer

Income tax and penalty tax

question

Contributions made by an employee to a qualified retirement plan are required to be

answer

subject to a vesting schedule

question

XYZ Corp has implemented a qualified retirement plan. This plan may NOT discriminate

answer

in favor of highly compensated employees

question

A description of a qualified plan's insurance contract may be found in which ERISA reporting form?

answer

Annual return/report (Form 5500)

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