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ARKANSAS LIFE INSURANCE EXAM
J is a producer who has induced an insured through misrepresentation to surrender an existing insurance policy. What is J guilty of? - answer Twisting What is implied authority defined as? - answer Authority that is not specifically given to an agent contract, but that an agent can reasonably assume to carry out his/her duties A person who is a nonsmoker, average weight, excellent health would fall into what risk classification? - answerReferred Which of the following is considered to be the period when the accumulated value in an annuity is paid out? - answer Annuitization phase An insurers claim settlement practices are regulated by the: - answer State insurance departments An insurers ability to make unpredictable payouts to policy owners is called: - answer Liquidity Which of the following pertains to the analysis of an applicant’s personal information and determining whether insurance should be issued or declined? - answer Underwriting What does the Group Life underwriting risk selection process help protect insurance companies from? - answer Adverse Selection The Arkansas Life & Disability Insurance Guaranty Association assures payment of benefits from insurance policies for insolvent insurers, and covers all of the following insured policies, EXCEPT: - answer Liability Insurance What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day? - answer Claim will be paid if application is approved A life insurance policy owner does NOT have the right to: - answer Revoke an absolute assignment An employee under a group insurance policy has the right to name a beneficiary and the right to: - answerConvert to an individual policy in the event of employment termination
The two major actions required for a policyholder to comply with the Reinstatement Clause are - answerProvide evidence of insurability, past due premiums Pat owns a 20-pay life policy with a paid-up dividend option. Which of the following statements is true? - answerThe policy may be paid up early by using policy dividends Ron has a life insurance policy with a face value of $100,000 and a cost of living rider. If the consumer price index has gone up 4%, how much may Ron increase the face value of the policy? - answer$4, ($100,000 X .04 = $4,000) Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? - answerThe face amount and premium will remain constant over the 10-year period What is Arkansas' REQUIRED grace period for a life insurance contract? - answer days A domestic insurance company in Arkansas MUST - answerBe organized under Arkansas Insurance laws Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's - answerIncome period What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? - answerParticipating life insurance policy No one is allowed to act as a producer for any insurance company in Arkansas that - answerIs unauthorized to do business in Arkansas What MUST the company do prior to conducting an HIV related test? - answerObtain a written consent from the proposed insured Which approach predicts a person's earning potential and determines how much of that amount would be devoted to dependents? - answerHuman life value approach If the annuitant dies before the annuity start date, - answerThe premiums paid plus interest earned will be given to the beneficiary If dividends are illustrated, the advertisement MUST state that the dividends are: - answerNot guaranteed Intentional withholding of material facts that would affect an insurance policy's validity is called a(n) - answerConcealment
The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement? - answerInsurable interest can be based on the love and affection of individuals related by blood or law Andy the annuitant dies before the annuity start date. Which of the following is a TRUE statement? - answerPremiums paid plus interest earned is returned to the beneficiary All of these are considered key factors in underwriting life insurance EXCEPT - answerMarital status The promise of a discount in premium as an inducement to purchase insurance is an Unfair Trade Practice known as: - answerRebating Jonas is a whole life insurance policyowner and would like to add coverage for his two children. Which of the following products would allow him to accomplish this? - answerChild term rider Which of the following basics is a producer's fiduciary responsibility? - answerCollecting premiums and paying them to the insurance company Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? - answerCan be converted to permanent coverage without evidence of insurability In Arkansas, replacement forms are required to be obtained for the replacement of which of the following - answerAnnual Renewable Term (ART) insurance What is involved when a life insurance policy has been backdated? - answerMaking the policy effective on an earlier date than the present Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in payments of $10,000 per month until the principal and interest has been paid out. Which option was chosen? - answerFixed amount In Arkansas, which of the following is considered an Unfair Trade Practice? - answerCoercion Shirley has a $500,000 10-year non-renewable level term life policy. If she dies 15 years after the policy's inception date, how much will her beneficiary receive? - answerNothing Level premium term life insurance policies - answerHave premiums that are averaged over the policy period An insured may continue coverage under a group plan during their total disability if the premiums are paid for how long? - answer6 months from the date the disability started
Which is considered to be misrepresentation? - answerA producer guaranteeing a policy's dividends A type of insurer that is owned by its policyowners is called - answerMutual Which is true regarding the annuitant? - answerThe annuitants life expectancy determines the annuity payments An insurer may pay a commission in which of the following scenarios? - answerTo a licensed producer who is appointed with the insurer An underwriter's primary responsibility to an insurer is to protect against - answerAdverse Selection Which is NOT considered to be a risk factor in life insurance underwriting? - answerNumber of children A(n) _____ license is issued by the Commissioner of Insurance to allow the personal representative of a deceased producer to provide service to existing policyowners - answerTemporary Which is NOT a characteristic of the Accelerated Death Benefit option? - answerThe benefit can be offered as a rider at a specific extra cost or may be at no cost The coverage, conditions, and limitations in the master policy of a group contract can be found in which document? - answerCertificate of coverage and benefits _____ is NOT a source of information that can assist an underwriter in determining whether or not to accept a risk - answerNational Association of Insurance Underwriters Signatures for an insurance application MUST be obtained by the producer from all of the following sources EXCEPT - answerThe beneficiary The standard grace period for a life insurance policy sold in Arkansas is - answer days Craig purchased a life insurance policy for enabling his heirs to pay estate taxes. What is this called? - answerEstate conservation An insured's status under Social Security can be described as - answerFully insured Which of the following employers is required to follow ERISA regulations? - answerA local electrical supply company with 12 employees
Which situation accurately describes a reduced paid-up nonforfeiture option? - answerPolicy has a decreased face amount How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability? - answer months To qualify, the disability must be expected to last, or have lasted, at least 12 months, or it must be expected to result in death An applicant's character and personal habits can be obtained for underwriting purposes from which source? - answerInvestigative consumer report *detailed report that contains information on a consumer's character, general reputation, personal characteristics, or mode of living and is obtained through personal interviews with neighbors, friends, or associates of the consumer A foreign insurance company is defined as one that is - answerFormed under the laws of a state other than Arkansas A policy owner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due? - answerReduction of premium dividend option Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy? - answerInterest only Which is NOT an example of a Business Continuation Plan - answerDeferred Compensation A limited payment whole life policy provides - answerLifetime protection A whole life insurance policy accumulates cash value that becomes - answerThe policy loan value which the insured may borrow against The Do Not Call Registry offers exemptions for everything EXCEPT - answerInsurance sales calls Which is true about an insurer's right to screen applicants for HIV? - answerAn insurer can require a blood test for HIV Which is NOT considered to be a nonforfeiture option available to a policy owner? - answerReduction of Premium How does life insurance create an immediate estate? - answerAfter first premium is paid, the face amount may be available to the beneficiary
Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue? - answerAccumulation at Interest Option *invests the policyowner's money and adds interest earnings to the initial amount of the dividends In an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered - answerUnilateral Which type of life insurance is normally associated with a Payor Benefit rider? - answerJuvenile insurance *a Payor Benefit rider waives the premium ONLY in connection with juvenile insurance A beneficiary charge can occur - answerNormally at any time during the policy term An insurance producer must notify the Commissioner within how many days of conviction of a crime? - answerwithin 30 days of any administrative action taken against him/her A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n) - answerCollateral assignment *allows a person to temporarily give up a portion of their ownership to secure a loan Which is NOT a legitimate insurance company in the same state? - answerDomestic and foreign The Commissioner MUST give a MINIMUM of how many days' notice of a disciplinary hearing? - answer10 days *notice of hearing must be given to the person cited at least 10 days prior to the designated date A life policy loan in Arkansas cannot charge a fixed rate of interest higher than - answer8% All of these are settlement options for life insurance policies EXCEPT - answerExtended term What is the purpose of the Medical Information Bureau (MIB)? - answerTo help underwriters evaluate risk A producer's license CANNOT be revoked without - answerA hearing given to the producer
The period in which there are no Social Security benefits for the surviving spouse is called the - answerBlackout period A guaranteed issue insurance policy has no - answerMedical underwriting Under a Traditional IRA, interest earned is taxed - answerUpon distribution When a producer is replacing an existing ordinary life insurance policy, the producer must do all EXCEPT: - answerObtain the beneficiary's signature Which is NOT considered to be a common life insurance nonforfeiture option? - answerLife income annuity A producer must complete continuing education every ____ years in order to maintain their license in Arkansas - answer An example of a tax-qualified retirement plan would be a(n) - answerDefined contribution plan Which would NOT be a factor that is taken into account when determining an applicant's life insurance needs? - answerAutomobile Which is NOT a reason for the commissioner to deny or refuse a producer license application? - answerUnintentionally misrepresented a material fact on the application Under a contract of adhesion, - answerThe terms must be accepted or rejected in full *the applicant "adheres" to the terms of the contract on a "take it or leave it" basis when accepted Mike has inherited his father's traditional IRA. As beneficiary, he will pay ____ taxes on any money withdrawn. - answerIncome *when a beneficiary inherits a traditional IRA, an income tax is paid when money is withdrawn Which retirement plan does NOT qualify for a federal income tax deduction? - answerRoth IRA An insurance producer agrees to pay the first monthly premium for an insurance applicant. This is called a(n) - answerRebate, which is illegal When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable? - answerGains
How does one qualify as a fully-insured individual under Social Security disability coverage? - answerIndividual has been credited with the appropriate number of quarters of coverage A policy owner may change two policy features on what type of life insurance? - answerAdjustable life *allows for changes on premium and face amount Making a statement that is false or maliciously critical of the financial condition of an insurer is known as - answerDefamation If an agent has a combined agent/broker license, and recommends a particular insurer to a customer in which he/she is not appointed, in what capacity is the agent acting? - answerAs a broker In order to save on premiums, a life insurance policy can be backdated up to: - answer months Of the following dividend options, which of these is taxable? - answerAccumulation at interest Tim is covered under a group plan and would like to change his group coverage to an individual policy with the same insurer because of employment termination. Which of these describes the change that will take place? - answerConversion *when an insured individual changes his or her group insurance to an individual policy with the same insurer at the termination of employment In regards to a life insurance contract, which is NOT true regarding the concept of insurable interest? - answerInsurable interest can be established sufficiently by sentimental attachment alone Under a group life policy, the insurer will issue an individual _____ to the policyowner for delivery to each person insured. - answerCertificate If the insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies? - answerA prorated death benefit based on the amount of insurance the insure's premiums would have been if purchased at the correct age Which is NOT a characteristic of a Group Life Insurance Plan - answerIndividual underwriting
Which is NOT exempt from a 10% tax penalty for early qualified plan withdrawals? - answerStock purchase With whom may a producer legally share commissions? - answerAnother producer who is licensed in the same line of insurance If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if - answerThe insured outlived the beneficiary *allows the proceeds to go to the contingent beneficiary Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary? - answerInterest only An example of rebating would be - answerReturning a portion of a premium as inducement to purchase insurance These are typically sources of underwriting information for life or health insurance EXCEPT - answerDisclosure authorization response Which Unfair Trade Practice involves a producer telling a prospective client that a policy's dividends are guaranteed? - answerMisrepresentation A stock insurance company - answeris owned exclusively by its shareholders Which of the following correctly describes a certificate of authority? - answerPermits an insurance company to transact business in Arkansas All riders can increase the death benefit amount EXCEPT - answerWaiver of Premium Which will have the highest monthly payout upon annuitization? - answerStraight life Erica is 35 years old and owns an IRA. At what age can she begin to receive distributions without a tax penalty? - answer59 1/ An interest-sensitive life insurance policy owner may be able to withdraw the policy's cash value interest free. The provision that allows this is called - answerPartial surrender A Renewable Term Life insurance policy can be renewed - answerAt a pre-determined date or age, regardless of the insured's health Which does NOT correctly describe the purpose of Social Security? - answerProvides a source of income for a meaningful standard of living during retirement
*SS enhances, but does not replace, a sound personal insurance plan Index whole life insurance contains a securities component that acts as a(n) - answerHedge against inflation Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? - answerCommon disaster clause In Arkansas, an insurance company cannot contest a death benefit claim from suicide if it occurred after the policy was in force for a minimum of _____ years(s) - answer *incontestability period An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period? - answerGrace period Which type if rider will waive the premium on a child's life insurance policy if the parent paying the premium dies? - answerPayor benefit Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this? - answerUniversal Life policy How do interest earnings accumulate in a deferred annuity? - answerOn a tax-deferred basis How many months can a life insurance policy normally be backdated from the date of application? - answer6 months Which is correct concerning Traditional IRAs? - answerEarnings are taxable when withdrawn When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? - answerThe family's financial objectives if the income earner were to die or become disabled Which scenario would most life insurance policies exclude coverage for? - answerAn individual who has a hobby racing cars once a month A person must be at least ____________ years of age to enter into an insurance agreement in the state of Arkansas - answer
Tertiary Beneficiary - answerThe third in line to receive the benefits of a life insurance policy. Revocable Beneficiary - answermeans that the policyholder reserves the right to change the beneficiary designation without the beneficiary's consent Irrevocable Beneficiary - answerone that cannot be changed without the beneficiary's consent Dividends - answerPayments of cash from a corporation to its stockholders Reduction of premium Option - answerThe insurer uses the dividend to reduce the next year's premium One-Year Term Dividend Option - answerThis option allows the policyowner to purchase a term insurance plan for a period of one year equal to the cash value of the original insurance. Paid-Up Additions Option - answerAdditional single-premium Life insurance paid for by policy dividends and added to the face amount. For example, your mutual insurer declares a $100 dividend, which you could have taken as cash. Instead, you ask them to use the money to buy you an additional Whole life policy, which is paid up to age 100. Although this additional policy is small, no physical exam is required, so this option is very popular with clients who have health problems. Over a period of time, you can obtain substantial additional coverage. Accumulation at Interest Option - answerA dividend option under which the policy owner allows dividends to accumulate at interest with the company. Only the interest on the dividends is taxable as income (participating policies only). Insurable Interest - answerAny financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially. indemnity - answera payment for damage or loss Annuity - answerpayment received every year Roth IRA/401k - answerA personal savings plan; contributions are not tax-deductible; earnings are tax-free Renewable Term Insurance - answerterm insurance renewable without physical examination
Blackout Period - answerThe period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse. Elimination Period - answeramount of time that lapses after a disabling event before the insurance company begins to pay benefits Ineligible Period - answer Dependency Period - answerThe period until the youngest child reaches age 18 SIMPLE retirement plan - answerCan be either a 401(k) plan or an IRA Traditional IRA - answerIndividual Retirement Account - A personal qualified retirement account through which eligible individuals accumulate tax-deferred income up to a certain amount each year, depending on the person's tax bracket. Tax-deferred income - answerIncome that is taxed at a later date Keogh Plans (HR-10) - answer- Allows unincorporated business owners to participate in the retirement plan - as an employee
- Can be either defined contribution or defined benefit plans Nonforfeiture Options - answercash value, reduced paid-up insurance, extended term insurance Reduced Paid-Up Insurance - answer- the policyowner may request the cash value of the policy to be used to pay for itself.
- It's the same type of insurance as the original policy except all riders, including those for disability and accidental death Insurance Rider - answerwritten form attached to an insurance policy that alters the policy's coverage Guaranteed Insurability Rider - answerOptional rider that enables the policyowner to purchase additional amounts of coverage at predetermined times without proof of insurability. Accidental Death Rider - answerpays some multiple of the face amount if death is the result of an accident as defined in the policy Waiver of Premium Rider - answerOptional rider that requires an insurer to assume payment of premiums should the insured become totally disabled for six months for the duration of the disability.
