Primerica-Life Insurance, All Testable Questions with accurate answers. 100% verified. Graded A. Test Bank (All Primerica Examinable Questions)

Document Content and Description Below

Primerica-Life Insurance, All Testable Questions with accurate answers. 100% verified. Graded A. Test Bank (All Primerica Examinable Questions) Stranger-oriented life insurance policies are ... in direct opposition to the principle of a. law of large numbers b. good faith c. indemnity d. insurable interest - ✔✔d. insurable interest-STOLI purchaser doesn't know the insured, or have any interest in the insured's longevity, so it violates the principle of insurable interest Which is generally true regarding insureds who have earned preferred status? a. they keep a higher percentage of any interest earned on their policies b. their premiums are lower c. they can barrow higher amounts off of their policies d. they can decide when to pay their monthly premiums - ✔✔b. their premiums are lower- the insured is in excellent physical condition and employs healthy lifestyles and habits All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: a. the employer pays a bonus to a selected employee to fund to policy b. it is considered a non qualified employee benefit. c. the policy is owned by the company d. any type of insurance policy may be used. - ✔✔c. the policy is owned by the company. An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have? a. variable b. term c. securities d. stock - ✔✔a. variable- life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy. When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called a. aleatory contract b. executive bonus c. key person d. a fraternal association - ✔✔b. executive bonus In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse may receive retirement benefits? - ✔✔Blackout period- begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. No benefits are paid during this time. Life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called a. estate conservation b. estate creation c. survivor protection d. survivorship insurnce - ✔✔a. estate conservation- life insurance may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay these costs. This is called estate conservation. Which of the following applicants could the insurer charge a higher rate and not be charge with unfair discrimination? a. an applicant that was born in another country b. an applicant who is legally blind c. an applicant who has been a victim of domestic abuse d. an applicant that smokes cigarettes as opposed to one that does not - ✔✔d. an applicant that smokes cigarettes as opposed to one that does not Partner A in a business buys a life insurance policy on Partner B to protect herself against a financial loss if he should die. Two years after the partnership is dissolved Partner B dies. Who will receive the death benefit? - ✔✔Partner A Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach? a. mortgages b. expenses c. estimated longevity d. outstanding debt - ✔✔c. estimated longevity An employee will be taxed on the cost of group life insurance paid by the employer if the amount of coverage exceeds a. $10,000 b. $15,000 c. $25,000 d. $50,000 - ✔✔d. $50,000 Which of the following would NOT fall into the category of costs associated with death? a. final medical expenses of the insured b. day to day expenses of maintaining the family c. the expense of a vacation for surviving family members d. funeral expenses - ✔✔c. the expense of a vacation for surviving family members Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? a. effect of inflation on income over time b. predicted needs of the family after the insured's death c. insured's current and future income d. insured's annual expenses. - ✔✔b. predicted needs of the family after the insured's death- are used in the needs approach. The Human Life Value Approach requires the calculation of probable future earnings of the insured, which involves wages, expenses, inflation, amount of time until retirement, and the time value of money. Who makes up the Medical Information Bureau? - ✔✔Insurers Upon policy delivery, the agent may be required to obtain any of the following EXCEPT a. payment of premium b. corrected and resigned application c. signed waiver of premium d. statement of good health - ✔✔c. signed waiver of premium Amy's insurance premium has decreased slightly, despite the fact that her level of health has remained the same. Which of the following most likely caused the premium decrease? a. she has a Steadily Decreasing Premium policy b. the insurer's customer base is expanding, which allows for lower premiums c. her insurer used interest earned on premiums to lower premium amounts d. her increased age allows for lower premiums - ✔✔c. her insurer used interest earned on premiums to lower premium amounts Who is the owner of the policy and who pays the premium in and Executive Bonus plan? a. company is the owner, but the executive pays the premium b. board of directors is the owner, and the board of directors pays the premium c. company is the owner, and the company pays the premium d. executive is the owner, and the executive pays the premium - ✔✔d. executive is the owner, and the executive pays the premium- the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income. What is the major difference between a Stock Redemption Plan and a Cross Purchase Plan? - ✔✔In a Stock Redemption Plan, the policies are owned by an entity, and in a Cross Purchase Plan, the policies are owned by individuals- If the business owns the policies, pays the premiums, and is the beneficiary, the agreement is called Stock Redemption Plan. If the policies are owned by individual business partners who pay the premiums and are the beneficiaries, the plan is called a Cross Purchase Plan What is the purpose of the buyer's guide? - ✔✔To allow the consumer to compare the costs of different policies An insured has been diagnosed with a life-threatening disease, and is given approximately six months to live. The insured is in a hard financial situation which will worsen with the upcoming medical expenses. Which of the following options could he utilize right now? a. liquidity b. surrender c. change of beneficiary d. viatical settlement - ✔✔d. viatical settlement An applicant is seeking an insurance policy. In the underwriting process, it was determined that the applicant has some dangerous habits, a risky occupation, and poor health. Which of the following is TRUE concerning the policy premium? a. it will likely be higher because the applicant is a substandard risk b. it will likely be the average premium issued to standard risks c. the applicant's habits, occupation and health do not affect the premiums d. it will likely be lower because the applicant is preferred risk - ✔✔a. it will likely be higher because the applicant is a substandard risk Which is the primary source of information used for insurance underwriting? a. applicant interview b. medical records c. private investigations d. application - ✔✔d. application Two equal partners in a business worth $150,000 are using a Cross Purchase plan to protect against the death of each other. Which of the following statements would be correct? a. partner B buys a policy on partner A in the amount of $75,000 naming Partner A as beneficiary. b. partner A buys a policy on partner B in the amount of $150,000 naming Partner A as beneficiary. c. partner B buys a policy on partner A in the amount of $150,000 naming Partner A as beneficiary. d. partner A buys a policy on partner B in the amount of $75,000 naming Partner A as beneficiary. - ✔✔d. partner A buys a policy on partner B in the amount of $75,000 naming Partner A as beneficiary. What is the name of the insured who enters into a viatical settlement? a. contingent b. viatical broker c. viator d. third party - ✔✔c. viator- the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract Which government program allows a blackout period? - ✔✔Social Security If an applicant for a lief 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 the applicant d. the type of policy requested - ✔✔b. whether an insurable interest exists between the individuals Which of the following best describes the MIB? a. it's a member organization that protects insured against insolvent insurers. b. it's a rating organization for health insurance c. it's a non profit organization that maintains underwriting information on applicants for life and health insurance d. it's a government agency that collects medical information on the insured from the insurance companies - ✔✔c. it's a non profit organization that maintains underwriting information on applicants for life and health insurance-Medical Information Bureau (MIB) also maintains confidential medical impairment information on individuals Which of the following is NOT an example of insurable interest? a. child in parent b. debtor in creditor c. business partners in each other d. employer in employee - ✔✔b. debtor in creditor- the three recognized areas in insurable interest are as follows: a policy owner insuring his/her own life, the life of a family member, ore the life of a business partner, key employee, ore someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor. An applicant wants to buy a policy that has cash value element. Which type should she buy? a. term b. permanent c. stock d. investment - ✔✔b. permanent- death protection and savings/cash value option What are the personal uses of life insurance? a. insured protection, estate creation and cash accumulation b. cash accumulation, estate depletion and liquidity c. beneficiary protection, liquidity, estate creation and cash accumulation d. survivor protection, estate creation and conservation, cash accumulation and liquidity - ✔✔d. survivor protection, estate creation and conservation, cash accumulation and liquidity Which of the following best details the underwriting process for life insurance? a. reporting and rejection of risks b. selection, classification, and rating of risks c. solicitation, negotiation and sale of policies d. issuance of policies - ✔✔b. selection, classification, and rating of risks-the underwriting process is accomplished by reviewing and evaluation information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for instability and premium rates. Which of the following types of risk will result in the highest premium? a. substandard risk b. standard risk c. preferred risk d. all risks pay equal premiums - ✔✔a. substandard risk-under average insurance risk due to physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium if policy is issued. A key person insurance policy can pay for which of the following? a. workers compensation b. hospital bills of the key employee c. costs of training a replacement d. loss of personal income - ✔✔c. costs of training a replacement- the policy will pay for costs of running the business and replacing the employee What qualifications must an agent hold in order to sell variable life insurance policies? a. National Association of Insurance Commissioners (NAIC) registration b. state licensing to sell life insurance and variable products c. both state and federal licensing d. same certification as fixed life policies - ✔✔c. both state and federal licensing-agents selling variable life products must be registered with the Financial Industry Regulatory Authority (FINRA) and must be licensed within the state to sell life insurance and variable products Which of the following may NOT be included in an insurance company's advertisement? a. their policies' limitation or exclusions b. the name of the specific agent c. an identification of a limited policy as a limited policy d. that its policies are covered by a state Guaranty Association - ✔✔d. that its policies are covered by a state Guaranty Association-that is illegal for insurers to state that their policies are guaranteed by the existence of a Guaranty Association A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy? a. level b. variable c. solid d. fixed - ✔✔d. fixed- life insurance policies offer minimum guaranteed or fixed benefits stated in the contract. the other type of policy, variable life, varies in its cash value because its value is based on the stocks that support it Which of the following is NOT true? a. the Life and Health Guaranty Association is comprised of representatives from the DOIs of every state b. the Association's liability is generally limited to that of the impaired instance company c. the Life and Health Guaranty Association's maximum coverage is $500,000 d. the Life and Health Guaranty Association was created to protect policy owners financially if their insurers become insolvent - ✔✔a. the Life and Health Guaranty Association is comprised of representatives from the DOIs of every state-any company selling life and/or health insurance must belong to the Guaranty Association, not the DOI representatives An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin? - ✔✔When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable Statement of Good Health Replacing insurers are permitted to use electronically completed notice of replacement. However, when this method is used a printed copy of the notice must be sent to the applicant within a. 10 days b. 30 days c. 60 days d. 5 days - ✔✔d. 5 days An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require? a. statement of continued good health b. attending physician statement c. a complete medical record d. sworn health affidavit from the applicant - ✔✔b. Attending Physician statement- APS is used to obtain medical details about a specific condition which has shown up in the application; the insurance company orders the information directly form the physician, using a signed authorization which was part of the application Attempting to determine how much insurance an individual would require base upon their financial objectives is known as: a. viatical approach b. needs approach c. human life value approach d. estate planning - ✔✔b. needs approach-determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely. Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds? a. vacation travel expenses b. travel expenses for family to come to the funeral c. debt cancellation d. day care - ✔✔a. vacation travel expenses Which of the following is NOT true of life settlements? a. the seller must be terminally ill b. they could be used for a key person coverage c. they could be sold for an amount grater than the current cash value d. they involve insurance policies with large face amounts - ✔✔a. the seller must be terminally ill-With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, "key-person" coverage, corporated owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value. Key person life insurance does NOT reimburse a company for which of the following? a. for a loss of previous business resulting from a key person's death b. for a reduction of profits resulting from a key person's death c. for increased pension liability resulting from a key person's death d. for a loss of leadership resulting from a key person's death - ✔✔c. for increased pension liability resulting from a key person's death Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a. standard risk pays a higher premium than a substandard risk b. standard risk requires extra rating c. standard risk is also known as high exposure risk d. standard risk is representative of the majority of people - ✔✔d. standard risk is representative of the majority of people-average risk What are the three ratings of classification that denotes the risk level of insureds? - ✔✔Standard, substandard, and preferred Which of the following individuals must have insurable interest in the insured? a. producer b. policy owner c. beneficiary d. actuary - ✔✔b. policy owner-the policy owner must have an insurable interest in the insured, i.e. his/her own life if the policy owner and the insured is the same person, or in the life of a family member or a business partner. The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports? a. attending physician b. insurance company who provided the prior coverage c. Medical Information Bureau d. agent's report - ✔✔d. agent's report- the agent communicates his/her observations concerning an applicant in the agent's report The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called: a. legal reserve b. dividend accumulation c. premium tax d. expenses - ✔✔d. expenses- loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy? a. the employer is the owner and the Key Person is the beneficiary b. The Key Person is the owner and beneficiary c. The Key Person is the owner and the employer is the beneficiary d. the employer is the owner and beneficiary - ✔✔d. the employer is the owner and beneficiary- with key-person coverage, the business (the employer) is the applicant, owner, premium payer, and beneficiary. Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process? a. insurance index b. policy summary c. illustrations d. buyer's guide - ✔✔d. buyer's guide- a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. Which of the following entities regulates variable life policies? a. the Federal Government only b. Securities and Exchange Commission (SEC) and the Insurance Department c. Financial Industry Regulatory Authority and the State Guarantee Association d. the Insurance Department only - ✔✔b. b. Securities and Exchange Commission (SEC) and the Insurance Department -Variable life insurance is regualted by bothe the state and federal governments SEC and the Financial Industry Regulatory Authority (FINRA) and the Insurance Department What is the purpose of key person insurance? a. to provide health insurance to the families of key employees b. to insure retirement benefits are available to all key employees c. to maintain an account that insures the owner of a company remains solvent d. to lessen the risk of financial loss because of the death of a key employee - ✔✔d. to lessen the risk of financial loss because of the death of a key employee-A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills or business contract. Rod wants to pay his initial life insurance premium in advance. Which of the following best describes his situation? a. Rod cannot pay his policy is advance; it is payable either when the agent delivers the policy or anytime during the first initial month b. Rod can pay his premium as early as he wants, even with his application c. Rod can pay his premium only after the policy has been issued, regardless of its delivery status d. Rod cannot pay his policy in advance; it is payable only when the agent delivers the policy - ✔✔b. Rod can pay his premium as early as he wants, even with his application-which is stipulated by the Payment of Premium Clause What are the members of the Medical Information Bureau required to report? a. any claims an individual has made b. information about unpaid hospital bills c. information about an individual's intentional injuries d. adverse medical information about individuals - ✔✔d. adverse medical information about individuals-The MIB receives this info from insurance companies so that all the member companies can compare the information they have collected on a potential insured with information other insurers may have discovered. Which of the following is correct concerning the taxation of a Key Person Life Insurance Policy premiums and death benefit? a. Premiums are tax deductible as a business expense and the death benefit is taxable to the company b. Premiums are tax deductible as a business expense and the death benefit is not taxable to the company c. Premiums are not deductible as a business expense and the death benefit is taxable to the company d. Premiums are not deductible as a business expense and the death benefit is not taxable to the company - ✔✔d. Premiums are not deductible as a business expense and the death benefit is not taxable to the company-The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free. An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? a. the policy will be reduced to an extended term option. b. the policy will terminate when the loan amount with interest equals or exceeds the cash value c. the insurer will increase the interest rate on the loan and charge a penalty d. the insurer will not permit the policyowner to take out any more loans - ✔✔b. the policy will terminate when the loan amount with interest equals or exceeds the cash value Which of the following determines the length of time that benefits will be received under the Fixed Amount settlement option? a. size of each installment b. predetermined length of time stipulated in the contract c. length of income period d. amount of interest - ✔✔a. size of each installment-the size determines the length of time that benefits are received under the Fixed Amount settlement option. It logically follows that larger installments translate into shorter benefit periods. Earl borrowed money at the bank to send his daughter to college. Instead of purchasing Credit Life insurance, he used an existing life insurance policy to secure the debt. This would be called a a. assignment of ownership b. collateral assignment c. temporary assignment d. change of beneficiary - ✔✔b. collateral assignment-transferring all or a part of the death benefit to another What is the term that most accurately describes the provision designed to relieve life insurance premium payment for minors whose parents have died or become disabled? a. Waiver of Premium b. Payor Benefit c. Jumping Juvenile d. Juvenile Premium Provision - ✔✔b. Payor Benefit- if the guardian of a child dies or becomes disabled, the child will be exempt from the premium payment until a certain age, usually 21 An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a. term life b. limited access c. universal life d. controlled - ✔✔c. universal life Grace is the primary beneficiary of her grandfather's life insurance policy. Upon his death, she wants some income from the death benefit, but wants the face amount to be conserved. Which settlement option should she choose? a. delayed income option b. fixed amount option c. interest only option d. life income with period certain - ✔✔c. interest only option- she would receive the interest earned by the face amount, but the face amount would remain Which of the following statements best describes the effect the Accelerated benefit provision would have on the benefits paid to the beneficiary? a. it will not affect the benefits paid to the beneficiary b. it will reduce the benefits by 70% c. it will increase the benefits paid to the beneficiary d. it will decrease the benefits paid to the beneficiary - ✔✔d. it will decrease the benefits paid to the beneficiary-The Accelerated Benefit provision allows the early payment of some portion of the death benefit if the insured becomes terminally ill or is confined to a long-term care facility. The face amount of the insurance is therefore reduced, with will decrease the benefits paid to the beneficiary. When a reduced-paid up non-forfeiture option is chosen, what happens to the face amount of the policy? a. it decreases over the term of the policy b. it remains the same as the original policy, regardless of any discrepancies in value c. it is reduced to the amount of what the cash value would buy as a single premium d. it is increased when extra premiums are paid - ✔✔c. it is reduced to the amount of what the cash value would buy as a single premium- In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death Which of the following riders provides for a waiver of premium when the policy owner and the insured are NOT the same person? a. waiver of the cost of insurance b. conditions for payment c. payor benefit d. waiver of premium - ✔✔c. payor benefit- waives the premium of the owner when the owner becomes disable and is a person other than the insured Unlike the dividend itself, the interest earned on dividends is a. 40% taxable, similar to a capital gain b. taxable c. nontaxable d. tax deductible - ✔✔b. taxable- dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? - ✔✔Fixed amount settlement All of the following statements concerning dividends are true EXCEPT: a. lower insurance company costs generate higher dividends b. they stem from favorable underwriting experience c. Favorable investment results generate higher dividends d. dividend amounts are guaranteed in the policy - ✔✔d. dividend amounts are guaranteed in the policy-they cannot be guaranteed If a life insurance policy has an irrevocable beneficiary designation, a. the owner can always change the beneficiary at will b. the beneficiary cannot be changed c. the beneficiary can only be changed with written permission of the beneficiary d. the beneficiary cannot be changed for at least 2 years - ✔✔c. the beneficiary can only be changed with written permission of the beneficiary Which non forfeiture option has the highest amount of insurance protection? a. extended term b. conversion c. decreasing term d. reduced paid-up - ✔✔a. extended term Which option provides a single beneficiary with income for the rest of his/her life? a. joint life option b. single beneficiary option c. single life option d. one beneficiary option - ✔✔c. single life option- provides a single beneficiary with income for the rest of his/her life A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? a. assignment b. automatic premium loans c. waiver of premium d. incontestability period - ✔✔b. automatic premium loans- commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium Bonnie wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of the ownership Bonnie should have her husband named as the - ✔✔Revocable beneficiary-she can make changes to the contract, and she would be the policy owner while her husband would receive the death benefit Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source? a. estate conservation b. life insurance proceeds c. state education waiver d. viatical settlement - ✔✔b. life insurance proceeds- day care is considered a need-based expense that can be paid by life insurance proceeds Which of the following are generally not considered when underwriting group insurance? a. the size of the group b. the group's medical history c. the nature of the group d. the group's past claim experience - ✔✔b. the group's medical history- because it's a group and not written on an individual basis medical questions are not necessary With a Straight Life policy, what happens if the insured lives to age 100? a. the policy matures and the face value is paid to the beneficiary b. the policy matures and the cash value is used to purchase a single premium policy c. the policy will stay in force until the insured's death d. the policy matures and the cash value is paid to the insured. - ✔✔d. the policy endows (matures) and the cash value, equal to the face amount, is paid to the insured The policyowner of an Adjustable Life policy can increase premium payments and a. have a lower non forfeiture option b. have a higher cash value interest rate c. have a higher face amount without proof of insurability d. have a limited pay policy - ✔✔d. have a limited pay policy- Adjustable life policy has the following privileges 1. increasing decreasing the premium 2. changing the premium-paying period 3. increasing or decreasing the face amount of coverage 4. changing the period of protection All other factors being equal, the least expensive first-year premium payment is found in a. level term b. annually renewable term c. increasing term d. decreasing term - ✔✔b. annually renewable term- is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. decreasing policies-the face amount decreases, the premium is constant level term and increasing term policies- the premium remains level for the term of the policy Who can make changes to the policy once it is in effect? a. the insured b. the policyowner c. the agent d. an executive officer of the insurer - ✔✔d. an executive officer of the insurer- any changes made to policy must be endorsed and attached to the policy over the signature of an authorized officer of that insurer. No other individual has the authority to make changes or waive policy provisions. Who has the legal title of the property in a trust? a. guardian b. trustee c. grantor d. beneficiary - ✔✔b. trustee The rider that allows the company to forgo collecting the premium if the insured is disabled is called a. waiver of premium b. guaranteed insurability c. waiver of cost of insurance d. payor benefit - ✔✔a. waiver of premium-rider allows waives the premium if the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life An agent is acting ethically in all the of following situations EXCEPT a. working within the conditions of his/her contract b. representing the insurer, not the insured c. keeping customers' best interests in mind d. always representing the insured - ✔✔d. always representing the insured-they are deemed to represent the insurer, not the insured 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. total contract b. aleatory contract c. complete contract d. entire contract - ✔✔d. entire contract-the policy with the attached application which is a mandatory provision in life insurance. This provision limits the use of evidence other than the contract and the application in a test of the contract's validity. If a consumer requests additional information concerning an Investigative Consumer Report, how long does the insurer or reporting agency have to comply? a. 5 days b. 7 days c. 10 days d. 3 days - ✔✔a. 5 days An insurer has filed a new rate with the Commissioner, and is waiting for a reply. The Commissioner hasn't responded yet. After how many days can the insurer apply the new rate? a. 5 days b. 10 days c. 60 days d. 45 days - ✔✔b. 10 days- if the rate filed, but is not disapproved within 10 days, the higher rate may be applied. If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving instability, his policy includes a a. Conversion option b. Non forfeiture option c. Guaranteed insurability option d. Guaranteed renewable option - ✔✔c. Guaranteed insurability option- allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without providing continued insurability. Rates for the additions are based upon attained age. The paid-up addition option uses the dividend a. to accumulate additional savings for retirement b. to purchase a smaller amount of the same type of insurance as the original policy c. to purchase a one-year term insurance in the amount of the cash value d. to reduce the next year's premium - ✔✔b. to purchase a smaller amount of the same type of insurance as the original policy-additional permanent policy An insured purchases a policy in 2000 and dies and 2005. The insurance company discovers at the time that the insured concealed information during the application process. What can they do? a. Sue for the right to not pay the death benefit b. Pay the death benefit c. Refuse to pay the death benefit because of the fraud d. Pay a decreased death benefit - ✔✔b. Pay the 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, even on the basis of a material misstatement of facts or concealment of a material fact. The following are legitimate uses of insurance in a business setting EXCEPT a. Funding business continuation agreements b. Funding against general company financial loss c. compensating executives d. funding against financial loss caused by the death of a key employee - ✔✔b. Funding against general company financial loss-both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key empolyees When must insurable interest exist in a life insurance policy? - ✔✔At the time of application An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? (Choose from the following options) 1. Term life 2. Limited pay 3. Universal life 4. Adjustable life - ✔✔3) Universal life All of the following statements are true regarding mortgage protection insurance EXCEPT A. It is used to pay off the balance on the mortgage. B. The face amount decreases as the amount owed on the mortgage decreases. C. It's a decreasing term insurance. D. The face amount remains the same throughout the life of the policy. - ✔✔D. The face amount remains the same throughout the life of the policy. Mortgage Protection Term (or Mortgage Redemption) policy is a type of decreasing term insurance in which the face amount directly correlates with the amount of outstanding loan and length of time remaining on a mortgage. The face amount decreases as the amount owed on the mortgage decreases. Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. Estate conservation B. Life insurance proceeds C. State Education Waiver D. Viatical settlement - ✔✔Life insurance proceeds 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 nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values. Are insurance company underwriters allowed to discriminate? - ✔✔Yes, but not unfairly The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting. Which of the following is usually true of a participating life insurance policy? - ✔✔It may pay dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance. Dividends, however, are not guaranteed. Adverse selection is a concept best described as: - ✔✔risks with higher probability of loss seeking insurance more often than other risks Courts will interpret any ambiguity in an insurance contract: - ✔✔in the favor of the insured- insurance policies are contracts of adhesion. the insurer writes the contract and the insured accepts the contract as it is written. when ambiguities exist, courts generally rule in the favor of the insured. which of the following is NOT an essential element of an insurance contract? a. counteroffer b. consideration c. agreement d. legal purpose - ✔✔a. counteroffer- is not required for a contract to be legally binding 4 essential elements are agreement and acceptance consideration competent parties legal purpose an insured modifies his insurance claims, illegally adjusting them to display a lower amount. what insurance concept does this violate? - ✔✔utmost good faith which insurer is owned by stockholders who have the usual rights of ownership, including the right of voting and incurring profits or losses? - ✔✔Stock insurance the authority granted to an agent through the agent's contract is referred to as: - ✔✔Express authority: express powers are written into the contract between the insurer and the agent A participating insurance policy may: - ✔✔pay dividends to the policy owner based upon actual mortality cost, plus interest earned, less expenses of running the business When an insurance company agrees to automatically assume a portion of the risk written by another insurance company, it is known as a(n): - ✔✔Reinsurance treaty-insurers limit their exposure to catastrophic losses by purchasing insurance from a reinsurance company. a reinsurance agreement whereby the re insurer automatically assumes the risks ceded to it is a reinsurance treaty. an individual's tendency to be dishonest would be indicative of a: - ✔✔moral hazard-an applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint insurance companies may be classified according to the legal form of their ownership. the typeof company organized to return any surplus money to their policyholders is a: - ✔✔Mutual insurer-mutual companies are owned and controlled by their policyholders. any surplus money is returned to the policy holders as dividends. an insurer incorporated in which of the following locations would be considered a foreign insurer in Washington D.C.? a. Canada b. Washington D.C. c. Maryland d. Mexico - ✔✔c. Maryland-foreign is a insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. Insurer that is incorporated and operates in Washington D.C. would be considered domestic. According to the Law of Agency, a principal is represented by a/an: - ✔✔Agent-a person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties an insured purchased an insurance policy 5 years ago. last year she received a dividend check from the insurance company which 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? - ✔✔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. units with the same or similar exposure to loss are referred to as: - ✔✔homogeneous-the basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss. what authorities can an agent hold? - ✔✔express and implied What company produces evaluations of insurer financial status often used by the Insurance Department? - ✔✔AM Best & Company- assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer. what must an alien insurer obtain in order to transact insurance within a given state? - ✔✔Certificate of authority- all insurers, wheter alien, foreign, or domestic, must obtain before transacting insurance within a given state what is the most common way to transfer risk? - ✔✔purchase insurance- the transfer of loss is borne by another party all of the following actions by a person could be described as risk avoidance EXCEPT a. never flying in an airplane b. taking a flu shot each year c. investing in the stock market d. refusing to scuba dive - ✔✔c. investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss concerning insurance, the definition of a fiduciary responsibility is - ✔✔handling insurer funds in a trust capacity what is the major difference between a stock company and a mutual company? - ✔✔the ownership-mutual companies are owned by policyholders, while stock companies are owned by stockholders which authority is NOT stated in an agent's contract but is required for the agent to conduct business? - ✔✔implied-it exists because not every single detail of an agent's authority can be written in a contract in insurance policies, contract ambiguities are automatically ruled in the favor of the insured. what privilege does the insurer have in order to balance this? - ✔✔the right to determine the wording of a policy-the policyholder will receive benefits denied due to a contract ambiguity which of the following is an example of an agent's fiduciary responsibilities? - ✔✔promptly forwarding premiums to the insurance company-fiduciary refers to a position of trust, they are acting in a fiduciary capacity when handling the premiums for the purpose of insurance, risk is defined as: - ✔✔the uncertainty or chance of loss under what conditions would a contract between an insurer and prospective insured be legal? a. the applicant is drunk at the time of the application b. the applicant is a 12-year-old student c. the applicant is high on meth at the time of the application d. the applicant has been convicted of a felony - ✔✔d. the applicant has been convicted of a felony-both parties must be of legal age and mentally competent. all of the following are examples of risk retention EXCEPT a. co-payments b. self-insurance c. premiums d. deductibles - ✔✔c. premiums- retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, co-payments, or self-insurance a morale hazard may exist due to: a. tendency toward alcoholism b. indifference to loss c. past fraudulent claims against the insurer d. past medical history - ✔✔b. indifference to loss-morale hazards arise from a state of mind that causes indifference to loss, such as carelessness an insurance company that is formed under the laws of another state is known as which type of insurer? - ✔✔foreign a insurer that has not applied, or has applied and has been denied a Certificate of Authority and may not transact insurance is known as which type of insurer? - ✔✔a non admitted or unauthorized insurer an agent is acting ethically in all of the following situations EXCEPT: a. keeping customers' best interests in mind b. always representing the insured c. working within the conditions of his/her contract d. representing the insurer, not the insured - ✔✔b. always representing the insured-an agent is deemed to represent the insurer, not insured. if an agent is working within the conditions of the contract, the insurance company is fully responsible for his/her actions. however, when making a sale, the agent should keep the customers' best interest in mind a insurance company that is domiciled in one state and transacts insurance in another is: - ✔✔foreign a insurance company that is domiciled in one country and transacts insurance in another is: - ✔✔alien insurer a ______ company results from an interchange of _______ agreements of indemnity among subscribers - ✔✔reciprocal which type of authority is based on the actions, words, or deeds of the principal [Show More]

Last updated: 2 years ago

Preview 1 out of 182 pages