Chapter Quizzes

Question 1

Chap. 1
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
a. Nonprofit Service Organization
b. Stock
c. Mutual
d. Reciprocal

Answer 1

c. Mutual

Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

Question 2

Chap. 1
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?
a. As of the application date
b. As of the policy delivery date
c. As of the first of the month after the policy issue
d. As of the policy issue date

Answer 2

a. As of the application date

If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

Question 3

Chap. 1
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report
a. Must be informed of the source of the report
b. Are entitled to obtain a copy of the report from the party who ordered it
c. Must be advised that a copy of the report is available to anyone who requests it
d. May sue the reporting agency in order to get inaccurate data corrected

Answer 3

a. Must be informed of the source of the report

Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, the consumer must be advised and provided with the name and address of the reporting agency.

Question 4

Chap. 2
An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell to $10,000. If the insured dies, how much will be paid out?
a. $10,000
b. $40,000
c. $50,000
d. $60,000

Answer 4

c. $50,000

The cash value of a variable life insurance policy is not guaranteed. However, even if investments devalue significantly, they cannot be lower than the initial guaranteed benefit amount.

Question 5

Chap. 2
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?
a. Annuitization Period
b. Pay-Out Period
c. Liquidation Period
d. Depreciation Period

Answer 5

d. Depreciation Period

The “annuitization period” is the the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation, or pay-out period.

Question 6

Chap. 2
Which of the following life insurance policies allows a policyowner to take out a loan from the policy's cash value?
a. Credit term life
b. Decreasing term life
c. Variable universal life
d. increasing term life

Answer 6

c. Variable universal life

Variable universal life policies have cash value, so they allow policy loans. Term insurance policies do not have cash value.

Question 7

Chap. 2
Which of the following is a key distinction between variable whole life and variable universal life products?
a. Variable universal life is regulated solely through FINRA
b. Variable whole life allows policy loans from the cash value
c. Variable universal life has a fixed premium
d. Variable whole life has a guaranteed death benefit

Answer 7

d. Variable whole life has a guaranteed death benefit

Variable universal life insurance may or may not have a minimum death benefit, unlike variable whole life insurance which guarantees a minimum death benefit.

Question 8

Chap. 2
A policy will pay the death benefit if the insured dies during the 20- year premium- paying period, and nothing if death occurs after the 20- year period. What type of policy is this?
a. Level Term
b. Term to Specified Age
c. Ordinary Life Policy
d. Limited Pay Whole Life

Answer 8

a. Level Term

A 20- year term policy is written to provide a level death benefit for 20 years.

Question 9

Chap. 2
What is another name for interest-sensitive whole life insurance?
a. Current assumption life
b. Variable life
c. Term life
d. Adjustable life

Answer 9

a. Current assumption life

Interest- sensitive whole life, aka current assumption life, is a whole life policy that provides a guaranteed death benefit to age 100.

Question 10

Chap. 2
All of the following are true about variable products EXCEPT
a. Policyowners bear the investment risk
b. The premiums are invested in the insurer’s general account
c. The minimum death benefit is guaranteed
d. The cash value is not guaranteed

Answer 10

b. The premiums are invested in the insurer’s general account

Insurers selling variable products invest their customer’s monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk.

Question 11

Chap. 2
Which of the following is a feature of a variable annuity?
a. Interest rate is guaranteed
b. Securities license is not required
c. Benefit payment amounts are not guaranteed
d. payments into the annuity are kept in the company’s general account

Answer 11

c. Benefit payment amounts are not guaranteed

Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant’s payments into the annuity are invested in the insurer’s separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent’s license.

Question 12

Chap. 3
For how long is an insurance company allowed to defer policy loan requests?
a. 30 days
b. 60 days
c. 6 months
d. 1 year

Answer 12

c. 6 months

Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.

Question 13

Chap. 3
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
a. The policyowner has the right to withdraw the accumulations at any time
b. The interest is not taxable since it remains inside the insurance policy
c. The annual dividend is retained by the company
d. The interest is credited at a rate specified by the policy

Answer 13

b. The interest is not taxable since it remains inside the insurance policy

The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Question 14

Chap. 3
Which two terms are associated directly with the premium?
a. term or permanent
b. renewable or convertible
c. level or flexible
d. fixed or variable

Answer 14

c. level or flexible

A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Question 15

Chap. 4
All of the following are business uses of life insurance EXCEPT
a. Compensating executives
b. Funding against financial loss caused by death of a key employee
c. Funding business continuation agreements
d. Funding against company’s general financial loss

Answer 15

d. Funding against company’s general 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 employees.

Question 16

Chap. 4
Which of the following is INCORRECT concerning a noncontributory group plan?
a. the employer pays 100% of the premiums
b. The employees receive individual policies
c. They help to reduce adverse selection against the insurer
d. They require 100% employee participation

Answer 16

b. They employees receive individual policies

The employer receives a master policy, and employees receive a certificate of insurance.

Question 17

Chap. 4
Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose
a. HR-10 (Keogh Plan)
b. Section 457 Deferred Compensation Plan
c. 403(b) plan
d. 401(k) plan

Answer 17

a. HR-10 (Keogh Plan)

HR-10(Keogh Plans) are specifically for self-employed and their employees

Question 18

Chap. 4
Which of the following describes the tax advantage of a qualified retirement plan?
a. Distributions prior to age 59 1/2 are tax deductible
b. Employer contributions are deductible as a business expense when the employee receives benefits
c. Employer contributions are not taxed when paid out to the employee
d. The earnings in the plan accumulate tax deferred

Answer 18

d. The earnings in the plan accumulate tax deferred

Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis

Question 19

Chap. 5
Within how many days are insurers required to notify the Commissioner that a producer's employment has been terminated?
a. 45 days
b. 10 days
c. 15 days
d. 30 days

Answer 19

d. 30 days

The Commissioner must be notified within 30 days following the effective date of the termination.

Question 20

Chap. 5
How many days do producers have to report administrative actions taken against them in another jurisdiction?
a. 10 days
b. 15 days
c. 20 days
d. 30 days

Answer 20

d. 30 days

It is the responsibility of the producer or business entity to report the Commissioner any administrative action taken in another jurisdiction or by another governmental agency in this state within 30 days after the final disposition of the matter.

Question 21

Chap. 5
All of the following are regulations for producers using an assumed name EXCEPT
a. The name may not be identical to the name of a producer whose license has been revoked
b. The name must be registered with the Commissioner
c. The name must not be misleading to the public
d. The name may be similar to another name currently on file

Answer 21

d. The name may be similar to another name currently on file

The Commissioner must not accept registration of any name that is similar to another currently on file, that would tend to be misleading to the public, or that is identical or similar to the name of any producer whose license has been revoked or suspended.

Question 22

Chap. 5
A lender is requiring that a borrower purchases an insurance policy through a particular insurer, as a condition to the extension of credit. This is an example of which of the following?
a. Unfair practice of coercion
b. Controlled Business
c. Rebating
d. An appropriate and allowed condition

Answer 22

a. Unfair practice of coercion

Debtors cannot be told to purchase credit insurance from any particular person or entity. This is known as an unfair practice of coercion.

Question 23

Chap. 5
An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice?
a. Defamation
b. Illegal
c. A legal advertising strategy
d. Unfair discrimination

Answer 23

b. Illegal

It is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly.

Question 24

Chap. 5
All of the following are true regarding rebates EXCEPT
a. Rebates are allowed if it’s in the best interest of the client
b. Rebates are only allowed if specifically stated in the policy
c. Rebating can be anything of economic value, given as an inducement to buy
d. Dividends are not considered to be rebates

Answer 24

a. Rebates are allowed if it is in the best interest of the client

A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.

Question 25

Chap. 5
Which of the following scenarios would be an example of coercion on the part of a lender?
a. Persuading the insured to switch policies to the insured’s detriment
b. Persuading the insured to replace policies for the sole purpose of making a commission
c. Requiring the debtor to purchase insurance
d. Requiring the debtor to acquire a policy from a specific producer

Answer 25

d. Requiring the debtor to acquire a policy from a specific producer

Debtors cannot be told to purchase credit insurance from any particular person or entity. This is known as an unfair practice of coercion.

Question 26

Chap. 6
Insurance companies must maintain copies of all sales materials and applications used in replacement situations for a minimum of
a. 1 year
b. 3 years
c. 5 years
d. 7 years

Answer 26

c. 5 years

Insurers must maintain records pertaining to replacement for at least 5 years.

Question 27

Chap. 6
All of the following are the duties of the replacing producer where replacement is involved EXCEPT
a. Submit to the replacing insurer a copy of all soliciting material
b. Submit to the replacing insurer a statement signed by the applicant as to whether or not there is existing life insurance
c. Send a letter to the policyowner of the right to receive information regarding the existing policy
d. Provide a copy of all solicitation material used for the presentation to the applicant

Answer 27

c. Send a letter to the policyowner of the right to receive information regarding the existing policy

Most states have adopted the NAIC model act on the replacement of policies. Insurers are required to inform its producers of the requirements of this regulation into all relevant producer training manuals and institute procedures to confirm the requirements of the regulation are met. It is the duty of the existing insurer to send a letter to the policyowner regarding the existing policy.

Question 28

Chap. 6
In which of the following situations has replacement occurred?
a. An applicant buys a new policy but intends to keep his old policy in force
b. An insured lapses his group life coverage in order to buy a whole life policy
c. A policyowner borrows 25% of their cash value to buy a new policy
d. An applicant buys life insurance for the very first time

Answer 28

c. A policyowner borrows 25% of their cash value to buy a new policy

Borrowing any portion of an existing life insurance policy’s cash value to purchase a new policy constitutes a replacement transaction and requires following replacement rules.

Question 29

Chap. 6
An insured decides to replace his life insurance policy with one offered by a new insurer. After receiving the policy, he is unsatisfied with the provisions and decides to return it. Within how many days must he return the policy to receive a full refund?
a. 10 days
b. 15 days
c. 20 days
d. 30 days

Answer 29

d. 30 days

The replacing insurer must provide a 30- day free-look period that gives the policyowner the right to return the policy and receive an unconditional full refund of all premiums.