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PRIMERICA LIFE INSURANCE EXAM
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? A. Mutual B. Reciprocal C. Nonprofit service organization D. Stock The answer is: A. Mutual Funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. If all funds are paid out, no dividends are paid Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? A. Retention B. Reduction C. Transfer D. Avoidance The answer is: B. Reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems In insurance, an offer is usually made when A. An applicant submits an application to the insurer B. The insurer approves the application and receives the initial premium C. The agent hands the policy to the policyholder D. An agent explains a policy to a potential applicant The answer is: A. An applicant submits an application to the insurer In insurance, the offer is usually made by the applicant in the form of an application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy The causes of loss insured against in an insurance policy are known as A. Perils B. Losses C. Risks D. Hazards The answer is: A. Perils
Perils are the causes of loss insured against in an insurance policy What documentation grants express authority to an agent? A. Agents contract with the principal B. Agents insurance license C. Fiduciary contract D. State provisions The answer is: A. Agents contract with the principal The principal grants authority to an agent through the agent's contract Which of the following best describes an insurance company that has been formed under the laws of this state? A. Domestic B. Sovereign C. Alien D. Foreign The answer is: A. Domestic A company is domestic when doing business within the state in which it is incorporated Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? A. Medical history B. Sex C. Age D. Race The answer is: D. Race Age, medical history, and sex provide sound statistical date for determining the probability of loss. Race, religion, sexual orientation, etc. Are the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory In insurance transactions, fiduciary responsibility means A. Handling insurer funds in a trust capacity B. Maintaining good credit record C. Being liable with respect to payment of claims D. Commingling premiums with agents personal funds The answer is: A. Handling insurer funds in a trust capacity An agents fiduciary responsibility includes handling insurer funds in a trust capacity The authority granted to an agent through the agent's contract is referred to as
A. Legal purpose B. Contract of adhesion C. Acceptance D. Consideration The answer is: D. Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application Which of the following would qualify as a competent party in an insurance contract? A. The applicant is intoxicated at the time of application B. The applicant is 12 year old student C. The applicant is under the influence of a mind-impairing medication at the time of application D. The applicant has a prior felony conviction The answer is: D. The applicant has a prior felony conviction When an insurer and insured enter into a contract, both parties must be legal of age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12 year old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? A. Representation B. Adhesion C. Consideration D. Good health The answer is: C. Consideration The binding force in any contract is consideration. Consideration on the part of the insureds the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the even of loss Which of the following is a primary source of information used for insurance underwriting? A. Application B. Applicant interviews C. Medical records. D. Private investigations The answer is: A. Application The application contains most of the information used for underwriting purposes. This is why its completeness and accurarcy are so critical
Which of the following is the best reason to purchase life insurance rather than annuities? A. To liquidate a sum of money over a period of year B. To create regular income payments C. To liquidate a sum money over a lifetime D. To create an estate The answer is: D. To create an estate With insurance, the death creates an immediate estate should the insured die A producer is helping a married couple determine the financial needs of their children in the event of one or both should die prematurely. This is a personal use of life insurance known as A. Survivorship insurance B. Juvenile protection provision C. Survivorship protection D. Life planning The answer is: C. Survivorship protection Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Disclose commissions earned from the sale of the policy B. Explain the policy provisions, riders, and exclusions C. Collect any premium due D. Explain the rating procedures if the policy is rated differently than applied for The answer is: A. Disclose commissions earned fro the sale of the policy A producer must explain policy provisions, exclusions, and riders at the time of the delivery, as well as the rating procedures especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement go continued good health If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about A. Which individual will pay the premium B. Whether an insurable interest exists between the individuals C. The gender of applicant D. The type of policy requested The answer is: B. Whether an insurable interest exists between the individuals An insurable interest must exist at the time of the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest. Ex: spouses, parents, children, and certain business relationships
Which of the following statements concerning buy-sell agreements is true? A. Premium paid are deductible as a business expense B. Benefits received are considered income taxable C. Buy-sell agreements pay in the event of a medical emergency D. Buy-sell agreements are normally funded with a life insurance expectancy The answer is: D. Buy-sell agreements are normally funded with life insurance expectancy A buy-sell agreements is simply a contract that establishes what willl be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy Who may complete a paramedical report? A. An underwriter B. A nursing assistant C. A registered nurse D. A spouse The answer is: C. A registered nurse Paramedical reports are completed by paramedics or registered nurses. Full medical expectations are reserved for those wanting higher coverage or for those who have more complex medical history The term "illustrations" in a life insurance policy refers to A. A presentation of non guaranteed elements of a policy B. A depiction of policy benefits and guarantees C. Pictures accompanying a policy D. Charts and graphs The answer is: A. A presentation of non guaranteed elements of a policy The term "illustrations" means presentation of depiction that includes non guaranteed elements of a policy of individual of group life insurance over a period of years Which is generally true regarding insureds who have been classified as preferred risks? A. They can borrow higher amounts off of their policies B. They can decide when to pay their monthly premiums C. They keep a higher percentage of any interest earned on their policies D. Their premiums are lower The answer is: D. Their premiums are lower The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify to lower premiums than those in other categories All of the following are requirements for life insurance illustrations EXCEPT? A. They may only be used as approved
B. They must identify non guaranteed values C. They must differentiate between guaranteed and projected amounts D. They must be part of the contract The answer is: D. They must be part of the contract An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list non guaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? A. Term insurance only B. Permanent insurance only C. Universal life insurance only D. Any form of life insurance The answer is: D.any form of life insurance Any form of life insurance may be used to fund a buy-sell agreement An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured and matures at the insured's age 100 is called? A. Modified Endowment Contract (MEG) B. Level term life C. Graded premium whole life D. Single premium whole life The answer is: D. Single premium whole life Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? A. Ordinary life B. Joint life C. Decreasing term D. Whole life The answer is: B. Joint life A joint life policy covering 2 lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid A. For 20 years or until death, whichever occurs first B. Until the policyowner reaches age 65 C. For 20 years D. Until the policyowner's age 100, when policy matures The answer is: A. For 20 years or until death, whichever occurs first Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. He discovered that his policy A. Required a premium increase each renewal B. Built cash value C. Required proof of insurability ever year D. Decreased death benefit each renewal The answer is: A. Required a premium increase each renewal Annually renewable term policies premiums are adjusted each year to the insured's attained age, however, the policy may be guaranteed renewable. Death benefits remain level, and switch any term policy, there are no cash values Both Universal Life and Variable Universal Life have a A. Flexible premium B. Level fixed premium C. Decreasing premium D. Increasing premium The answer is: A. Flexible premium Variable universal life, like universal life itself, has a flexible premium that can be increased or decrease as the policyowner chooses, so long as there is enough value in the policy to fund the death benefit All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy? A. Half the amount B. Lower C. Higher D. As high The answer is: B. Lower
Survivorship life is much the same as joint life in that it insures 2 or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, residing in a lower premium thant that which is typically charged for a joint life What policy would be classified as a traditional level premium contract? The answer is: straight whole life The ownership provision entitles the policyowner to do all of the following EXCEPT? A.set premium rates B. Receive a policy loan C. Assign the policy D. Designate a beneficiary The answer is: A. Set premium rates The insurer sets premium rates based upon underwriting considerations A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called A. Accelerated benefit rider B. Living need rider C. Payor rider D. Cost of living rider The answer is: D. Cost of living rider A "cost of living rider" adjusts the face amount of a policy to maintain the relationship of the face amount and increase in the cost of living Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? A. Cash surrender B. Reduced paid-up C. Paid-up options D. Extended term The answer is: a. Cash surrender Once the cash surrender value is paid, the contract is over Which of the following is true about the premium on the children's rider in a life insurance policy? A. It decreases when an adopted child is added to the policy B. It remains the same no matter how many children are added to the policy C. It decreases when the oldest child remains the age of 21 D. It increases when a newborn baby is added to the policy
D. Pay the full death benefit The answer is: C. Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, is does not apply to statements relating to age, sex, and identity After a back injury, an insured is disabled for a year. His insurance policy carries a disability income death benefit rider. Which of the following benefits will he receive? A. Monthly premium waiver and monthly income B. Percentage of medical costs paid by the insurer C. Payments for life D. Yearly premium waiver and income The answer is: A.monthly premium waiver and monthly income The disability income death benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver Premium rider, it also allows the insured to receive a weekly or monthly income during the disability period The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the A. Complete contract B. Entire contract C. Total contract D. Aleatory contract The answer is: D. Entire contract The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence than the contract and the attached application in a test of the contracts validity. This is a mandatory provision in life insurance If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy? A. The death benefit will be larger B. The death benefit will be smaller C. The death benefit will be forfeited D. The death benefit will be the same as the original face amount The answer is: B. The death benefit will be smaller If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earning lost by the insurance company in the interest income
J applied for a life insurance policy on January 10th. The policy was issued January 31. J's agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. J decides that he does not want the policy. When would j need to return to the insurer in order to receive a full refund of premium paid? A. February 28th, or 10 days after the time the policy is delivered B. The time varies from one policy to another C. It was already to late when j received the policy because the 10-day free-look period has expired D. Anytime, because the agent did not deliver the policy promptly The answer is: A. February 28th, or 10 days after the time the policy is delivered The 10 - day free-look period begins when the policy is delivered What limits the amount that a policyowner may borrow from a whole life insurance policy? A. Cash value B. Premiums paid C. Amount stated in the policy D. Face amount The answer is: A. Cash value The amount available to the policyowner for a loan is the policy owner's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest An insured receives an annual life insurance dividend check. What term best describes this arrangement? A. Accumulation at interest B. Cash option C. Reduction of premium D. Annual dividend premium The answer is: B. Cash option The cash option allows, an insurer to send the policyholder an annual, nontaxable dividend check An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an automobile accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as an attachment? A. $ B. $100, C. $200, D. $100,000 plus the total of paid premiums The answer is: C. $200,
A Single Premium Immediate annuity is paid in a single premium. The annuity payments begin within a year of the date of the purchase. A deferred annuity can be punched with either a lump sum or through periodic payments, but the benefit is not paid until after one year or more has lapsed Which of the following would most directly affect the purchasing power of death benefits paid on a fixed annuity? A. Company investment performance B. Guaranteed minimum payout C. Economic inflation D. Interest rations The answer is: C. Economic inflation In times of inflation, benefits have less purchasing power. Since costs increase as a result of inflation, more money is required to purchase something that had previously cost less. Likewise, in the event of deflation, the purchasing power of benefits increase. The other options listed would affect the amount of money available to the annuity owner, but they would not actually affect the purchasing power of benefits paid Which of the following is NOT true regarding the annuitant? A. The annuitant receives the annuity benefits B. The annuitant must be a natural person C. The annuitant cannot be the same person as the annuity owner D. The annuitants life expectancy is taken into consideration for the annuity The answer is: C. The annuitant cannot be the same person as the annuity owner While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written> since the annuitants's life expectancy is taken into consideration, the annuitant must be a natural person When a fixed annuity owner pays his/her insurance company a monthly annuity premium, where is this money placed? A. The insurance company's general account B. Forwarded to an investor C. Each contract's separate account D. The annuity owner's account The answer is: A. The insurance company's general account Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio.The company makes conservative investments to insure a guaranteed rate to the annuity owners An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase?
A. Payment for 15 years B. Payments for 20 years C. Payments for life D. Nothing The answer is: A. Payments for 15 years With any period certain, death of the annuitant within the state period will provide payments to the beneficiary only for the remainder of the period certain The form of life annuity which pays benefits throughout the lifetime of the annuitant and also guarantees payment for a minimum number of years is called A. Joint life annuity B. Life income with period certain C. Life income with refund D. Joint and survivorship The answer is: B. Life income with period certain If the annuitant dies before the period certain, the payments continue to a beneficiary or the estate for the remainder of the period certain The annuity purchased with multiple payments, whose benefit is paid more than one year after the purchase is know as which type of annuity? A.flexible premium immediate annuity B. Single premium deferred annuity C. Flexible premium deferred annuity D. Single premium immediate annuity The answer is: C. Flexible premium deferred annuity The flexible premium deferred annuity (FPDA) is purchased with multiple payments, such as a portion of each paycheck. The benefit payment begin sometime after a one year from the date of purchase Which of the following will NOT be an appropriate use of a deferred annuity? A. Creating an estate B. Accumulating retirement funds C. Accumulating funds in an IRA D. Funding a child's college education The answer is: A. Creating an estate Which of the following products requires a securities license? A. Variable annuity B. Fixed annuity C. Equity indexed annuity
C. It does not need to have a vesting schedule D. It may discriminate in favor of highly paid employees The answer is: B. It has a tax benefit for both employer and employee A qualified plan is approved by the IRS, which then gives both the employee and employer benefits deductibility of contributions and tax deferral of growth What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary? A. Capital gains tax on distributions and no penalty B. Capital gains tax on distributions plus 10% penalty C. Income tax on distributions and no penalty D. Income tax on distributions plus 10% penalty The answer is: C. Income tax on distributions and no penalty If the beneficiary chooses to leave the money in the tax-deferred account until the calendar year in which the power would have attained age 70 1/2 the distributions would be subject to income taxation at the rate at the time of withdrawal Death benefits payable to a beneficiary under a life insurance policy are generally A. Subject to income taxation by the federal government B. Exempt from income taxation if under $7, C. Exempt from income taxation if over $7, D. Not subject to income taxation by the federal government The answer is: D. Not subject to income taxation by the federal government When premiums are paid with after tax dollars, the death benefit is generally not subject to federal income taxation What is the main purpose of the Seven-pay test? A. It requires level premium payments for 7 years B. It ensures that the policy benefits are paid out in 7 years C. It guarantees interest minimum D. It determines if the insurance policy is an MEC The answer is: d. It determines if the insurance policy is an MEC The seven pay test determines whether an insurance policy is "over funded" or if its a modified endowment contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed the total amount of the net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest If a company has a simplified employee pension plan, what type of plan is it? A. The same as an IRA, with the same contribution limits
B. An undefined contribution plan for large business C. A qualified plan for a small business D. The same as a 401(k) plan The answer is: C. A qualified plan for a small business A Simplified Employee Pension (SEP) is a type of qualified plan suited for the small employer for self employed. A SEP is an employer sponsored IRA with an expanded contribution rate up to 25% of compensation or a specified maximum contribution amount If taken as a lump sum, life insurance proceeds to beneficiaries are passed A. Part tax-free and part taxable B. Without interest C. Free of federal income taxation D. Tax-deductible The answer is: C. Free of federal income taxation Life insurance proceeds to beneficiaries are passed free of federal income taxation if taken as a lump sum distribution. If the proceeds are taken as other than lump sum, part of the proceeds will be tax free and part will be taxable. When paid in installements, part of the proceeds contains principal and some interest, so the interest portion is subject to federal income taxation When must an IRA be completely distributed when a beneficiary is not named? A. Due date of beneficiary tax return including extensions B. December 31 of the year following the year of the owners death C. Due date of the deceased owners first tax return including extensions D. December 31 of the year that contains the 5th anniversary of the owners death The answer is: D. December 31 of the year that contains he 5th anniversary of the owner's death If the owner dies before distributions have begun, the entire interest must be distributed in full on or before December 31 of the calendar year that contains the 5th anniversary of the owners death, unless the owner named a beneficiary In life insurance policies, cash value increases A. Are only taxed when the owner reaches age 65 B. Grow tax deferred C. Are income taxable immediately D. Are taxed annually The answer is: B. Grow tax deferred Generally life insurance cash values are only income taxed if the policy is surrendered totally or partially and the cash value exceeds the premiums paid According to agency law, the producer always represents the
