Primerica Exam Preview | QUESTIONS THAT NEED REVIEW BEFORE EXAM.

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QUESTIONS THAT NEED REVIEW BEFORE EXAM. Primerica Exam Preview Questions with answers. 100% verified predictor quizzes. If the insurer provides a ten-day free-look period for a life insurance p ... olicy it sells, when may it give the Buyer's Guide and policy summary to the policyowner? - ✔✔when the policy is delivered If an insurer provides for a free-look period of at least ten days, it may deliver the Buyer's Guide. Otherwise, the insurer must deliver the Buyer's Guide and policy summary before it accepts the initial premium. In which of the following cases did the Supreme Court uphold the right of states to regulate insurance by ruling that the sale of insurance is not considered interstate commerce? - ✔✔Paul v. Virginia In 1868, the U.S. Supreme Court decided the case of Paul v. Virginia, in which it held that the sale and issuance of insurance is not considered interstate commerce, thereby upholding the right of states to regulate insurance. The review process between the time an insurance producer takes the application of a proposed insured and the time the policy is delivered to the new policyowner is known as which of the following? - ✔✔underwriting During the underwriting process, the insurer determines whether to insure the risk as applied for and the appropriate premium to charge the applicant for the coverage. Christina has a group term policy, but she is leaving her employer for another position in a different industry. Can she convert to an individual policy? - ✔✔Yes, she can, without evidence of insurability, with 31 days' notice. An individual whose coverage in a group term policy is terminated may convert coverage to an individual policy, and is entitled to have an individual term policy issued without evidence of insurability, if the individual applies for the policy no more than 31 days after termination from the group plan. Leo, age 60, decides to take early retirement. Because he does not currently need the funds in his 401(k), he rolls them over into an IRA at his local bank. How much penalty will Leo be assessed as a result of this transaction? - ✔✔He will not be assessed a penalty. This change is a direct transfer and no penalty applies. Wally annuitized his fixed annuity and now receives $1,800 each month. Of this amount, $1,500 represents his investment in the annuity, and $300 represents interest earnings. Which statement regarding the taxation of Wally's annuity payments is correct? - ✔✔$300 is taxed as ordinary income. Annuitized income is taxed by applying the exclusion ratio, which calculates the proportion of income that is attributable to principal and is not taxed. In this case, $1,500 of Wally's monthly payment is a return of principal and is not taxable; the remaining $300 in interest earnings is taxed as ordinary income. Why might Mr. and Mrs. Mays choose the joint and survivor life income settlement option under their life insurance policy? - ✔✔Both payees will receive payments and when one dies, payments will continue for the remaining life of the survivor. Under the joint and survivor settlement option with a period certain, payments are made to two payees until the second payee dies. A disability waiver under a universal life policy can take the form of a waiver of stipulated premium or a waiver of which of the following? - ✔✔cost of insurance For universal life policies, a disability waiver can take one of two forms: a waiver of stipulated premium or a waiver of the cost of insurance. All of the following are permitted as tax-free transactions under a Section 1035 exchange EXCEPT: - ✔✔the exchange of an annuity contract for a life insurance contract IRS Section 1035 exchange rules do not allow the exchange of an annuity contract for a life insurance contract. Increasing term insurance is characterized by which of the following? - ✔✔The premium stays level while the death benefit increases. Under increasing term insurance, the death benefit increases while the premium remains level. Increasing term insurance is usually included as a rider on another policy and cannot stand on its own. Which of the following best describes the role of the annuitant under an annuity contract? - ✔✔The annuitant is always the person upon whose life the annuity payout will be based. The annuitant is the person whose life governs the duration of annuity payments. The annuitant may be, but is not necessarily, the contract owner. Annuities are often called the mirror image of life insurance. Why is this? - ✔✔Life insurance creates an estate, while annuities liquidate an estate. The purpose of life insurance is to create an estate over a certain period. Annuities liquidate a principal sum over a certain period by converting that lump sum into a series of income payments. Nell is insured under a variable life insurance policy with a $500,000 face amount. After being diagnosed with cancer, she has incurred significant medical expenses. Nell can access part or all of her policy's face value to pay these bills if her insurance policy contains which of the following riders? - ✔✔accelerated benefit rider An accelerated benefits rider pays out part or all of the policy's face value while the insured is still living. The insured can then use these funds for a range of needs, from standard living expenses to medical care, or for anything else he or she wants. Tom is a career agent of ABC Insurance Company. He is licensed to sell a variety of products only for this company. Which of the following best describes Tom as an agent? - ✔✔He is a captive agent. Under the captive or career agency system, the agent is employed by a single insurance company. Emily is married, has two children, and is the primary breadwinner in the family. She knows that her family would suffer serious financial consequences if she were to die prematurely. However, she continues to put off purchasing a life insurance policy, saying that her family would use its savings to take care of final expenses should she die prematurely. Which method is Emily using to deal with risk? - ✔✔retention Rather than taking measures to reduce the risk to her family, such as purchasing life insurance, Emily has chosen to do nothing and live with the exposure to the risk. This method of handling risk is known as risk retention. Which of the following statements is true regarding types of insurance sales systems? - ✔✔Direct response companies sell insurance directly to consumers through the mail or television advertising, without the use of a licensed producer. By their very nature, brokers represent multiple companies and are not affiliated with a "primary company." Which of these is not an independent agency that rates insurance companies? - ✔✔Lloyd's of London A-M Best, Duff and Phelps, and Standard and Poor's are all rating agencies. Lloyd's of London is an association of individuals and companies that underwrite insurance on their own accounts. Which of the following entities regulates variable insurance products? - ✔✔state insurance departments and the SEC Variable products contain both insurance and securities elements. As such, they are regulated by both insurance and securities authorities. One month after paying the initial premium for a disability income policy, Suri was hit by a car and was seriously injured. She then received disability income payments for the next 12 months. The fact that Suri ultimately received more in value under the policy than what she paid demonstrates which characteristic of insurance contracts? - ✔✔aleatory An insurance policy is an aleatory contract, which means that one party may receive a benefit that is entirely out of proportion to the consideration he or she is giving. In this case, Suri only made one premium payment but received a much larger benefit in return. In classifying insurance risks, which method is used most often by insurance underwriters? - ✔✔numerical rating system Under the numerical rating system, credits are added for favorable risk factors. Debits are subtracted for adverse or unfavorable factors. This system has largely replaced the judgment method. Insurance companies may call a consumer on the Do Not Call list under which of the following circumstances? - ✔✔The insurer has an existing relationship with the consumer If the consumer has an existing relationship with a business, the business can call for up to 18 months after the consumer's last purchase or payment.. The federal Risk Retention Act of 1986 contains guidelines for which of the following entities? - ✔✔self-insuring businesses A risk retention group (RRG) is an insurance company that provides self-insurance services to owner-members. These members all have a business, occupation, or professional relationship with one another. Under an insurance contract, which of the following best describes the difference between a representation and a warranty? - ✔✔A representation is not part of a contract, while a warranty becomes part of a contract. A representation is not guaranteed by its maker to be true; it is only believed to be true. A warranty is a statement guaranteed to be true, and it becomes a party of a policy contract. All of the following are basic elements of a legally enforceable contract EXCEPT: - ✔✔a named beneficiary For a contract to be legally enforceable, its basic elements must include offer and acceptance and exchange of consideration. A named beneficiary is not essential. All of the following are means of regulation for the insurance business EXCEPT: - ✔✔agency regulation Agencies are not permitted to regulate themselves. Regulation of insurance is now principally in the hands of the individual states, though the federal government and the industry itself have roles in this regulation. Roger presents a prospective insured, Diane, with an application. Diane completes the application, writes a check for the first premium, and gives these to Roger. The insurance company approves Diane's application and issues her policy. Which of the following best describes this process? - ✔✔Diane made an offer to buy the policy, and the insurance company accepted. In an insurance transaction, typically the applicant makes the offer by submitting a completed application and paying the first premium. Upon approval of the application, the insurance company formally accepts the offer by issuing the insurance policy. All of the following are examples of hazards EXCEPT: - ✔✔John is taking medications to control his high blood pressure. A hazard is a condition that increases the number of losses or the severity of losses. All of the following are elements of all legal contracts EXCEPT - ✔✔counteroffer The offer, consideration, and acceptance are all parts of a contract. Cliff is meeting with a client to discuss variable annuities. Before making a recommendation, Cliff must attempt to obtain information about all of the following EXCEPT: - ✔✔the client's marital and family status Agents must make a reasonable effort to obtain information about a prospect's financial, tax, and investment objectives before recommending an annuity. Agents must therefore gather information about the prospect's income, investment horizon, tax status, and current assets. Michael owns a whole life policy that requires him to pay premiums up to age 65. This type of policy would be which of the following? - ✔✔a limited payment whole life policy Limited payment life insurance premiums can be paid for 10, 15, or 20 years or, as is common, to a specified age, such as age 65. Pamela invested $120,000 in a fixed deferred annuity over the past ten years and will annuitize the contract next year when she retires. Which of the following must Pamela know to calculate the amount of her annuity income that will be subject to tax? - ✔✔expected return To determine the amount of the annuity income that will be taxable, Pamela must know the amount of her investment in the contract as well as the expected return, which is the total amount that she can expect to receive as income payments under the contract. Zeta Company plans to form a Multiple Employer Welfare Arrangement (MEWA) to offer group insurance to its employees. All of the following conditions apply in this case EXCEPT - ✔✔A certificate of authority is necessary if the MEWA is to be fully insured. The requirement for a state-issued certificate of authority applies to self-insured MEWAs, not to those that will be fully insured. The definition of a SIMPLE plan is which of the following? - ✔✔a plan reserved for small companies with no existing qualified employee retirement plan SIMPLE plans, or Savings Incentive Match Plans for Employees, are designed for businesses with no more than 100 employees. They are easier to set up and have less burdensome compliance requirements than traditional qualified plans. Which of the following does the waiver of premium rider define as the inability to perform the duties of any occupation for which the individual is suited by experience, education, or training? - ✔✔total disability Most waiver of premium riders require that the insured be totally disabled for six months before the waiver begins. Chester and his wife, Nellie, established a 529 plan for their daughter and contributed $5,000 to her account this year. Six months later, they withdrew $20,000 to pay for their daughter's college tuition. Which statement is correct? - ✔✔Chester and Nellie do not have to pay tax on the distribution. Funds withdrawn from a Section 529 plan (and the interest earned on those funds) are not taxable. To escape taxes, these funds must be used for qualifying college expenses, such as tuition, fees, room and board, and books. Although contributions are not federally tax deductible, some states may allow contributions to be deducted for state tax purposes. Tim is applying for life insurance, and Agent Angeles issues him a receipt conditioned on Tim's passing a physical exam to meet underwriting standards. Tim passes the physical exam but dies before the policy is issued. Which of the following is a correct statement? - ✔✔The policy will pay the death benefit. If the insured dies after the date of the application (or medical exam) and the insurer would have issued the policy, then the coverage takes effect as of the date of the application. A death benefit would then be paid. An insurance policy provides financial protection against which of the following? - ✔✔losses caused by perils Hazards are dangers, such as slippery floors or unhealthy habits. Hazards lead to or cause perils, which in turn cause loss. Exposure refers to the state of being subject to a possible loss. Stacey is a captive agent for Best Rates Insurance Company. According to her agency contract, she can use business cards containing Best Rates' company logo and can also submit applications for their policies. Which type of authority does Stacey have to take these actions? - ✔✔express authority The agency contract between Stacey and Best Rates Insurance Company sets forth certain acts and duties that she is specifically authorized to perform, such as submitting applications and using the company's logo. This authority is called express authority. Adam is an independent agent and solicits policies for several different insurers. Which best describes the type of relationship Adam has with each insurer? - ✔✔fiduciary Adam has a fiduciary relationship with every insurer with whom he does business. This means that he must avoid conflicts of interest and must act in good faith and with integrity in his dealings with various insurance companies. Even brokers have a contractual relationship with the companies they use. Which of the following terms applies to an insurance company that operates in State A but is domiciled in State B, from the perspective of residents in State A? - ✔✔foreign company Any company that does business in a state other than the one in which it is domiciled is classified as a foreign company in the state where it does business. Patty is considering purchasing a life insurance policy, and Agent Brown asks if she has any existing policies. She does, and states that she would not maintain her current policy if she purchased the policy that Agent Brown presented. Therefore, Agent Brown has which of the following duties? - ✔✔He must inform Patty of the consequences of replacing the policy. The producer must inform the applicant of the real and potential consequences of replacing the policy and must act only in the applicant's best interests. The producer and the applicant must sign a form indicating that the required disclosures have been made and that the applicant understands the consequences of the replacement. In filling out an application for a life insurance policy, Ken withholds information about his health history to avoid paying a higher premium. However, Ken has been in excellent health for the past five years. Has he committed fraud? - ✔✔Yes, because he made a misstatement with the intent of material gain. Fraud is the deliberate act to deceive with the intent to gain something of value. By withholding information in order to pay a lower premium, Ken has committed fraud. If the fraud is discovered within two years of policy issue, the insurer can void the contract. Jennifer applied for a $500,000 whole life insurance policy. The insurer issued the policy but classified Jennifer as a substandard risk, resulting in a higher premium. Which type of policy delivery would be preferred in this situation? - ✔✔legal delivery Legal delivery of a policy requires personal delivery to the client and an explanation. The agent should explain any terms of the policy that were imposed during the underwriting process as well as the reason for any additional premium charge that was not known at the time of application. The laws of agency that govern the relationship between insurers and their producers are derived from common law. The common law originated with which of the following? - ✔✔ideas and judicial decisions that existed in England at the time of the American Revolution Common law refers to the unwritten law based on the customs, ideas, and judicial decisions that existed in England at the time of the American Revolution. It became the basis of the American legal system. Insurers and their producers are bound by the common law rules of agency. Who are the two parties to this relationship? - ✔✔principal and agent A principal is the party on whose behalf the agent acts. An agent is the party who acts on behalf of another, the principal. John is a life insurance policyowner. Under the policy, his wife Mary is the insured. What is this situation known as? - ✔✔third-party ownership In cases where the insured and policyowner are different, a third-party ownership situation exists. Which of the following is not true regarding the law of agency? - ✔✔The principal has express authority; the agent does not. Under the law of agency, in an agency relationship several types of authority are automatically given by the principal to the agent. This includes express authority. What are the rights of the insured in a third-party ownership situation? - ✔✔The insured has no rights. In a third-party ownership situation, the insured under the life insurance policy generally has no rights under the policy. It may be said that an insurance policy is a "take-it-or-leave-it" contract. What is this type of contract called? - ✔✔a contract of adhesion An insurance contract is a contract of adhesion. It is offered to prospective policyowners on a take-it-or-leave-it basis, without negotiation of its terms. Your prospective insured has just submitted to you a completed application for life insurance with the first premium payment. As the agent, what do you then provide? - ✔✔a premium receipt Premium receipts are designed to offer interim coverage while the application is being approved and the policy is being formally issued. Carol applied for life insurance in the amount of $250,000. Her agent gives her a document that provides $100,000 of coverage during the underwriting period. What did the agent give her? - ✔✔a conditional receipt During the underwriting period of determining insurability, an insured may be granted coverage through an insurance receipt. A conditional receipt usually limits this coverage to less than the face amount applied for. An agent assures a client that she will have insurance coverage of a certain amount. If the coverage is denied and the client relied on the agent's assurance to her detriment, the insurer could be liable to the client on the basis of which of the following? - ✔✔the client's reasonable expectations Because the applicant had a reasonable expectation that he or she had insurance coverage, this or her future claim for a loss may be upheld. Jane asks her insurance agent to stop notifying her when her policy is due for renewal and tells him to notify her attorney instead. What is this an example of? - ✔✔waiver Waiver occurs when a party to a contract voluntarily relinquishes a known right. In this case, Jane is giving up or waiving her right to personal notification of her policy renewal date. During the application process, insurance coverage can be provided under a conditional receipt or which of the following? - ✔✔a temporary insurance receipt An alternative to the conditional receipt that insurers sometimes use in their application process is a temporary insurance receipt. In the case of an insurer that employs agents in the field, which of the following has primary responsibility for delivering a new policy to the policyholder? - ✔✔agent At the end of the underwriting process, the insurer sends the issued policy to the agent, who then delivers the policy to the client. Miranda's medical bills are piling up, and she allows her permanent life insurance policy to lapse. She wants some protection for her two small children, so she uses the cash value in the policy to purchase coverage in a lesser amount that will require no additional premium payments. Which of the following nonforfeiture options has Miranda chosen? - ✔✔reduced paid up Under the reduced paid up insurance option, the lapsed policy's cash value is applied as a net single premium to buy a paid up policy of the same type as the lapsed policy. The paid death benefit is the amount that the cash value buys as a single premium at the insured's age. Ted, Ella, Theresa, and Christian are equal partners in a small publishing company. If they enter into a cross-purchase buy-sell agreement and fund it with life insurance, how many policies will be needed? - ✔✔12 If there are 4 partners to a cross-purchase buy-sell agreement, 12 life insurance policies will be needed. This is determined by using the formula N (N - 1), where "N" equals the number of partners or shareholders. A 10 percent premature distribution penalty tax may be imposed on distributions from a qualified plan before what age? - ✔✔59.5 Distributions from a qualified plan before age 59.5 may be subject to a 10 percent penalty tax, unless the distribution qualifies for an exception (e.g., death, disability, medical expenses). Lisa works for a local college, and her sister, Peg, works for a nonprofit organization. Both participate in the same type of retirement plan through their employers, which means that they are most likely covered by which type of plan? - ✔✔a 403(b) plan Tax-sheltered 403(b) plans are reserved for nonprofit organizations and their employees. Such organizations include charitable, educational, and religious organizations. The employer and/or the employee contribute funds to the plan. Jack's required minimum distribution from his 401(k) plan this year was $8,000. However, he mistakenly withdrew only $6,000. Jack must pay a penalty tax equal to what amount? - ✔✔$1,000 A person who does not take the correct required minimum distribution from a qualified plan must pay a penalty tax equal to 50 percent of the difference between the amount that was taken and the amount that should have been taken. Jack must therefore pay a $1,000 penalty tax (50 percent of $2,000). A prospective client wants to buy a life insurance policy that has a level premium and a level death benefit. What would you recommend? - ✔✔a straight or ordinary whole life policy A straight whole life policy would provide a level premium with an increasing cash value that would contribute to the eventual death benefit. A double indemnity is a rider most commonly found on what type of policy? - ✔✔AD&D policy An accidental death benefit rider provides an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy's face value. The premiums paid for life insurance are tax deductible in all of the following situations EXCEPT: - ✔✔Abby's Restaurant takes out a life insurance policy on its manager, considering him a key executive, and pays the policy premiums. Premiums that a business pays for business life insurance on the lives of a business owner or key executive are not tax deductible. Janet, age 62, plans to quit her job and apply for Social Security retirement benefits this year. Which of the following statements is correct if Janet claims retirement benefits before she reaches her full retirement age? - ✔✔Janet's benefits will be permanently reduced. The earliest age at which a person can begin receiving Social Security retirement benefits is 62. Early retirement benefits are permanently reduced and will not be increased to a higher level when a person reaches his or her full retirement age. [Show More]

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