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ACTUAL EXAM QUESTIONS
What is the purpose of the agent's report during the application process? - SOLUTIONThe agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process. At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy? - SOLUTIONEither on the date of the application or the date of the medical exam (whichever occurs last) What is insurance underwriting? - SOLUTIONThe process of risk selection and classification In health insurance contracts, the insured is not legally bound to any particular action; however, the insurer is obligated to pay for losses covered by the policy. What contract element does this describe? - SOLUTIONUnilateral If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do? - SOLUTIONSend the application back to the applicant for signature If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern? - SOLUTIONThe existence of insurable interest between the applicant and the insured When would a misrepresentation on an insurance application be considered fraud? - SOLUTIONWhen it is intentional and material What document describes the specific information about a policy? - SOLUTIONPolicy summary What entities make up the Medical Information Bureau? - SOLUTIONInsurers Health contracts are prepared by insurers and must be accepted by the insured on an 'as is' basis. This describes what aspect of a health insurance contract? - SOLUTIONContact of adhesion What is a warranty in an insurance contract? - SOLUTIONAn absolutely true statement upon which the validity of the insurance contract is based During which stage in the insurance process do insurers evaluate information that identifies adverse selection risks? - SOLUTIONUnderwriting What risk classification would typically qualify for lower premiums? - SOLUTIONPreferred risk
ACTUAL EXAM QUESTIONS
Insurance is a contract that protects the insured from what? - SOLUTIONLoss What is policy replacement? - SOLUTIONA new policy is issued while an existing policy is terminated or reissued with a reduction in cash value What is the main responsibility of a company's underwriting unit? - SOLUTIONRisk selection What is the name of the process that insurance companies use to determine whether or not an applicant is insurable? - SOLUTIONUnderwriting If an applicant does not receive a copy of the new insurance policy, who would be help responsible? - SOLUTIONThe agent Whose responsibility is it to determine that all the questions on a insurance application are answered? - SOLUTIONThe agent's When a change needs to be made on the application for insurance, which is the best method for correcting the information? - SOLUTIONComplete a new application or ask the applicant to initial the correction on the original application In forming an insurance contract, when does an acceptance usually occur? - SOLUTIONWhen the insurer approves a prepaid application If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do? - SOLUTIONProvide the applicant a Disclosure Authorization Notice What is adverse selection? - SOLUTIONPeople who are more likely to submit insurance claims are seeking insurance more often than preferred risks. Who is a field underwriter? - SOLUTIONAgent/Producer Who must have insurable interest in the insured? - SOLUTIONPolicyowner When would a misrepresentation be considered material? - SOLUTIONWhen it may alter the underwriting decision What is the best way to handle incomplete insurance applications? - SOLUTIONReturn the application to the applicant for completion Health insurance contracts are unilateral. What does that mean? - SOLUTIONOnly one party makes a legally enforceable promise
ACTUAL EXAM QUESTIONS
When must insurable interest exist in a life insurance policy? - SOLUTIONAt the time of application What does the term "level" refer to in level term insurance? - SOLUTIONFace amount With a single premium deferred annuity, when will the annuity payments become available? - SOLUTIONNo sooner than 1 year after the annuity purchase Who is entitled to the cash values in a life insurance policy? - SOLUTIONThe policyowner Under Option B in a universal life policy, what happens to the death benefit? - SOLUTIONUnder Option B, the death benefit increases each year by the amount of the cash value increases What types of license(s) is/are required to sell variable annuities? - SOLUTIONA life insurance license and a securities license What universal life option has a gradually increasing cash value and a level death benefit? - SOLUTIONOption A What happens to the premium in a annually renewable term life policy? - SOLUTIONThe premium increases with each renewal What type of life insurance policy provides a permanent protection? - SOLUTIONWhole life Who bears the investment risk in a fixed annuity? - SOLUTIONThe insurer In variable universal life insurance, to what policy component does the term "variable" refer? - SOLUTIONCash value and death benefit What elements of an adjustable life policy can be changed by the policyowners? - SOLUTIONThe amount and payment period of the premium, the face amount, and the period for protection What type of annuity requires an agent to have a securities license? - SOLUTIONVariable annuity When does an adjustable life policy accumulate cash value? - SOLUTIONWhen premiums paid are more than the cost of the policy
ACTUAL EXAM QUESTIONS
An individual has just borrowed $10,000 on a 5-year note from his bank. The note is due in installments. What type of life insurance policy would be best suited to this situation? - SOLUTIONDecreasing term Can a business or a corporation be an annuitant? - SOLUTIONNo, an annuitant must always be a natural person What is the purpose of establishing the target premium for a universal life policy? - SOLUTIONTo prevent the policy from lapsing Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity? - SOLUTIONThe annuitant receives payments from the annuity during the annuitization period; the beneficiary receives benefits after the annuitant's death A policy states that it will pay a specified face amount if the insured dies during the 20- year premium-paying period and nothing id death occurs after the 20-year period. What type of policy is this? - SOLUTION20-year level term What is the main reason for purchasing an annuity? - SOLUTIONTo provide income that the annuitant cannot outlive How is the premium determined in a joint life insurance policy? - SOLUTIONThe premium is based on the average age of the insureds An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity? - SOLUTIONFlexible premium deferred annuity 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 - SOLUTIONFor 20 years or until the insured's death, whichever occurs first What type of whole life insurance policy generates immediate cash value? - SOLUTIONSingle premium whole life What type of annuity can be purchased with a single premium? - SOLUTIONImmediate annuity In a joint life policy, when is the death benefit paid? - SOLUTIONUpon the first death What type of life insurance offers an applicant a cash value element? - SOLUTIONPermanent insurance (usually, whole life)
ACTUAL EXAM QUESTIONS
If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that? - SOLUTIONJoint life annuity What type of annuity credits its interest based upon a index such as S&P 500? - SOLUTIONEquity indexed annuity Whole life policies provide protection until the insured reaches what age? - SOLUTIONAge 100 The death protection component of a universal life policy is expressed as what type of coverage? - SOLUTIONAnnually renewable term What are the death benefit options in universal life policies? - SOLUTIONOption A- level death benefit, and Option B - increasing death benefit Who receives income payments from an annuity? - SOLUTIONAnnuitant What are the two phases of an annuity? - SOLUTIONAccumulation and annuitization (or pay-in and pay-out) Why are policy loans not available on term insurance? - SOLUTIONThere is no cash value to borrow against What type of whole life insurance policies only requires a payment of premium at its inception, and in addition to providing insurance protection for the life of the insured, endows at the insured's age 100? - SOLUTIONSingle premium whole life If the annuitant dies during the accumulation period, who will receive the annuity benefits? - SOLUTIONBeneficiary In annually renewable term policies, what is the annual premium based upon? - SOLUTIONThe insured's attained age What type of life insurance is best suited to cover a mortgage? - SOLUTIONDecreasing term What type of life insurance policy offers pure death protection? - SOLUTIONTerm In what type of life insurance policies can the policy owner skip premium payments without the policy lapsing? - SOLUTIONUniversal life Whose life expectancy is taken into consideration in an annuity contract? - SOLUTIONAnnuitant
ACTUAL EXAM QUESTIONS
What type of life insurance policy is Life Paid-up at Age 65? - SOLUTIONLimited-pay Whole Life What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives - SOLUTIONStraight life If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid? - SOLUTIONAnnuitant's estate Whole life insurance policies mature when the insured reaches the age of 100. If the owner of a whole life policy (the insured) dies at the age 80, and there are no outstanding loans on the policy, what portion of the death benefits will be paid to the beneficiary? - SOLUTIONThe full death benefit What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years? - SOLUTIONLife income with period certain How long will a life annuity with a 15-year period certain pay? - SOLUTIONFor the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years. What is the difference between a single premium and a flexible premium payment options in a deferred annuity? - SOLUTIONThe number of payments that purchase the annuity What is the purpose of a free-look period? - SOLUTIONTo allow the insured to return the policy with a full refund What provision in a life insurance policy extends coverage beyond the premium due date? - SOLUTIONGrace period What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer? - SOLUTIONEntire contract What nonforfeiture option provides coverage for the longest period of time? - SOLUTIONReduced paid-up In the fixed-period settlement option, how will the number of installments for the death period proceeds determine the amount of the installments? - SOLUTIONThe longer the period selected, the smaller each installment will be
ACTUAL EXAM QUESTIONS
What settlement options are available in life insurance policies? - SOLUTIONLump- sum/cash, fixed period, fixed amount, life income, interest only What happens to a policy's cash value under an extended term nonforfeiture option? - SOLUTIONThe cash value is converted to the same face amount as in the whole life policy What are the dividend options in life insurance policies? - SOLUTIONCash, reduced premium, accumulation at interest, paid-up additions. one-year term, and acceleration of endowment What beneficiary designation has first claim to the death proceeds of a life insurance policy? - SOLUTIONPrimary beneficiary What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time? - SOLUTIONIncontestability When will a contingent beneficiary receive death benefit from a life insurance policy? - SOLUTIONWhen the primary beneficiary dies before the insured Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner? - SOLUTIONCash surrender To meet the requirement of the entire contract policy provision, an insurance policy must contain what? - SOLUTIONA copy of the original insurance application What dividend option can increase the death benefit of the existing life policy? - SOLUTIONPaid-up additions What happens to the proceeds of a life insurance policy if there is no named beneficiary? - SOLUTIONThe proceeds are paid to the insured's estate What required provision protects against unintentional policy lapse? - SOLUTIONGrace period An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit? - SOLUTIONPay a reduced death benefit What is the purpose of the Automatic Premium Loan provision? - SOLUTIONTo prevent the unintentional lapse of a policy because of nonpayment of the premium
ACTUAL EXAM QUESTIONS
What type of assignment is used to secure the payment of a debt with an existing life insurance policy? - SOLUTIONCollateral assignment What is the purpose of settlement options in life insurance policies - SOLUTIONTo determine how the death benefit will be paid to the beneficiary When can an insurance company use suicide as a defense against paying a death claim? - SOLUTIONWhen a suicide is committed within a specified period of time after the policy is purchased (usually two years) Is the beneficiary required to have insurable interest in the insured? - SOLUTIONNo. Beneficiates do not have insurable interest in the insured What does the term double indemnity mean? - SOLUTIONThe insurer will pay a benefit of twice the face amount Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party? - SOLUTIONAbsolute assignment What life insurance policy rider allows the company to forgo collecting the premium if the insured becomes disabled? - SOLUTIONWaiver of premium What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability? - SOLUTIONReinstatement What is the advantage of reinstating a life insurance policy as opposed to applying for a new one? - SOLUTIONPolicy premium in a reinstated policy will be set according to the insured's original age Who controls changes in premium payments, face values, and loans in a life insurance policy? - SOLUTIONPolicyowner With the reduction of premium dividend option, how is the dividend used? - SOLUTIONThe dividend is applied to the next year's premium (it reduces the next year's premium) What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death? - SOLUTIONSettlement options What type of policy is typically issued without proof of insurability from the insured? - SOLUTIONGroup policy If an insured terminates membership in group life insurance, to what type of insurance can the insured convert the coverage? - SOLUTIONWhole life
ACTUAL EXAM QUESTIONS
What are some examples of qualified plans? - SOLUTIONIRA, 401(k), HR10 (Keogh), SEP, SIMPLE If a retirement plan is qualifies, what does that mean? - SOLUTIONThe plan has favorable tax treatment What is the main purpose of the 7-pays Test? - SOLUTIONTo determine if a life insurance policy is a Modified Endowment Contract What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy? - SOLUTIONDeath benefits are generally not subject to income taxes Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called? - SOLUTIONEstate conservation If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed? - SOLUTIONInterest only Who may contribute to an HR-10 plan? - SOLUTIONA self-employed individual What is the main advantage of converting from group life insurance to individual coverage? - SOLUTIONEvidence of insurability is not required In qualified plans, are employer contributions taxed as income to the employees? - SOLUTIONNo, employer contributions are not taxed as income to the employees What is the penalty for excessive contributions to a traditional IRA? - SOLUTION6% What are three types of Social Security benefits? - SOLUTIONRetirement, disability and survivors Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum? - SOLUTIONNo, lump-sum benefits are received tax free What are the consequences of withdrawing funds from a traditional IRA prior to the age of 59 1/2? - SOLUTION10% penalty SIMPLE plans are available to groups of how many employees? - SOLUTIONNo more than 100 Who owns a group life insurance contract? - SOLUTIONThe employer (also known as the sponsor of the group)
ACTUAL EXAM QUESTIONS
Who would be considered a third-party owner? - SOLUTIONAn individual or an entity who is not the insured What type of policy issues certificates of insurance to the insureds? - SOLUTIONGroup policy In what form of payment must the contributions to a traditional IRA be made? - SOLUTIONIn cash (or cash equivalents) In general, who can be excluded from producer licensing and examination requirements? - SOLUTIONInsurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive or clerical) Who must be notified of a producer's change of address? - SOLUTIONThe Department of Insurance (Commissioner /Director/Superintendent) Who is considered a nonresident agent? - SOLUTIONAn agent who resides and is licensed in another state, but who is authorized to transact insurance in this state What type of licensee represents the insurance company? - SOLUTIONThe agent To whom may a certificate of authority be issues? - SOLUTIONTo an insurer authorized to transact business in this state What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is? - SOLUTIONMisrepresentation An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of? - SOLUTIONRebating Who is responsible for the costs associated with the examination of insurers? - SOLUTIONThe insurer who is being examined Who can usually be granted a temporary license? - SOLUTIONProducer's spouse or designee in case the licensed producer dies or becomes disabled On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of? - SOLUTIONMisrepresentation What is the purpose of insurance guaranty associations? - SOLUTIONTo protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers
ACTUAL EXAM QUESTIONS
What is the purpose of a cease and desist order? - SOLUTIONTo prevent a producer or insurer from further violating laws for transacting insurance Who owns stock companies? - SOLUTIONStockholders Who must be a member of insurance guaranty associations? - SOLUTIONAll insurers authorized to write insurance within a state Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called? - SOLUTIONDiscrimination Who may share in the commission from the sale of a life insurance policy? - SOLUTIONOnly producers properly licensed for the type of insurance transaction What document is required for an insurance company to transact insurance? - SOLUTIONCertificate of Authority What type of licensee represents the insured? - SOLUTIONBroker Insurers are classified according to their domicile. What are the three types of insurers?
- SOLUTIONDomestic, foreign, and alien What is a controlled business? - SOLUTIONInsurance on the producer's own life or property, or the lives or property of the producer's family or business associates Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies? - SOLUTIONNo, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insurers is an illegal business practice What two elements are necessary for a life insurance contract to have a legal purpose?
- SOLUTIONInsurable interest and consent
