Life Insurance Part XII Flashcards
Albert Metz, who has $2,000 of Group Life insurance, has just terminated his employment. Mr. Metz
has how many days in which to convert his group coverage to individual coverage?
A. 28
B. 31
C. 15
D. 21
Correct Answer(s): [B]
By law, Group Life has a 31-day grace period and a 31-day conversion period. The conversion privilege
is for 31 days from the time Mr. Metz terminates his employment, voluntarily or not. Conversion is
from Group Life, which is Term, to Whole Life, which will cost more.
If an existing client of a producer wants to buy another Life insurance policy, the producer should:
A. Complete and sign the application on behalf of the customer
B. Have the customer come in and complete and sign a new application
C. Submit an unsigned application to the insurer referring to existing underwriting information
D. Advise the customer that no physical exam is required since he is an existing client
Correct Answer(s): [B]
When selling any new Life insurance, even to an existing customer, a producer should always have
their customer compete and sign a new application.
Which federal law governs consumer investigative reports:
A. Privacy Protection Act
B. Telephone Communication Protection Act
C. Employee Retirement Income Security Act
D. Fair Credit Reporting Act
Correct Answer(s): [D]
The Fair Credit Reporting Act is a federal law that regulates consumer investigative reports, also
known as credit reports.
Annuities are commonly used for all of the following EXCEPT:
A. To provide protection in the event of death
B. To supplement retirement income
C. To fund structured settlements
D. To fund deferred compensation plans
Correct Answer(s): [A]
Annuities have many uses, including funding lotteries, retirement plans, sports contracts and
structured settlements of lawsuits. However, annuities are considered to be the opposite of life
insurance, in that annuities pay if you live, while life insurance pays your beneficiary if you die. While
annuities do have a beneficiary during the accumulation or pay in period, the amount that they would
receive is only the annuitant’s account balance, not life insurance proceeds.
All of the following are true regarding Life insurance “Accelerated Benefits” EXCEPT:
A. They apply if the insured has a terminal illness
B. They allow part of the death benefit to be paid out prior to death
C. They reduce the amount payable at death
D. They constitute a policy loan
Correct Answer(s): [D]
If you don’t have an “Accelerated Benefits” provision on your Life policy, in the event you get a
terminal illness, you may have to “sell” your policy to an investor at a discount in order to get money
for medicine. This is known as a “Viatical Settlement”. However, if you have the “Accelerated
Benefits” provision, you may take an advance on your death benefit instead. This is not taxable and is
not considered to be a loan, although any amounts taken will reduce the future death benefit payable.
An insured died during the Grace Period of her Life insurance policy and had not paid the required
annual premium. The insurance company is obligated to pay which of the following to the beneficiary?
A. The cash value of the policy, if any
B. The full face amount of the policy
C. The face amount of the policy less any earned premiums
D. A refund of any premiums paid
Correct Answer(s): [C]
There are 3 Grace Periods to remember: 28 days on Industrial Life, 30 days on all other Life except
Group, and 31 days on Group Life. The purpose of the Grace Period is to protect the insured who
honestly forgot to pay on the due date. The policy will not actually lapse until the end of the Grace
Period. If a client dies within the Grace Period, it is assumed he would have paid his premium, so the
company will pay the face amount to the beneficiary, less any overdue premiums.
Which of the following statements regarding the USA Patriot Act is correct?
A. It requires every insurance agency to file a Currency Transaction Report (CTR) for each cash transaction that exceeds $10,000
B. It was designed to prevent and detect terrorism
C. It requires FINCEN to file a Currency Transaction Report (CTR) to the Insurance Commissioner
D. It requires every financial institution to file a Currency Transaction Report (CTR) for each cash transaction
that exceeds $100,000
Correct Answer(s): [B]
The USA Patriot Act was designed, after September 11, 2001, to prevent and detect terrorism. It
requires every financial institution to file a CTR with FINCEN for each cash transaction over $10,000.
So the rule would apply to the insurance company itself, but not to the insurance agency. FINCEN is a
division of the Treasury Department.
All of the following are true about Group Life insurance EXCEPT:
A. Conversion is to an individual policy issued by the same insurer
B. Conversion is to a more expensive policy
C. It is convertible for 31 days after termination of employment
D. Conversion is subject to insurability
Correct Answer(s): [D]
Most Group Life is written as Annual Renewable Term insurance, which is very inexpensive. State law
requires that Group Life be convertible for you and your dependents for 31 days (which is also the
grace period) after termination of employment. If you die during this 31 day period, you are still
covered. However, you cannot convert Group Life (which is term) to another term policy. It must be to
a more expensive type, such as whole life. No physical exam is required, however.
Survivors need life insurance proceeds to pay all of the following EXCEPT: A. Funeral expenses B. Mortgage obligations C. Unemployment tax liabilities D. Children's college expenses
Correct Answer(s): [C]
There are 2 methods used to determine the proper amount of personal life insurance. The “needs”
approach considers final expenses, such as the funeral, mortgage and college expenses. The “human
life value” approach considers how much future income the family will lose due to the premature
death of the insured. Unemployment tax liabilities are not considered on personal life insurance, but
could be a factor in determining how much life insurance needs to be sold to a small business owner.
On life insurance, which of the following are true about a beneficiary designation by “class”?
A. Class designations may not include minor children
B. All persons designated must be individually named
C. Class designations may not be used when the insured has more than one child
D. The beneficiaries need not be designated by name
Correct Answer(s): [D]
An example of a beneficiary designation by class would be “all my children”. If you had 2 children
from your 1st marriage and 3 from your current marriage, then all 5 children would share the
proceeds equally even though they were not individually named.
Life insurance underwriters order investigative reports primarily to discover more about the applicant's: A. Lifestyle B. Occupation C. Health D. Credit
Correct Answer(s): [A] Investigative reports and consumer privacy are governed by the Federal Fair Credit Reporting Act, which requires your written consent before the insurer may order an investigative report. If they reject your application due to information found in one of these reports, they must tell you where you can get a copy of the report and how to get inaccurate information corrected.
If the insured understated his age and the error is discovered after the insured’s death, the insurance
company will:
A. Pay the claim, less a deduction for the amount of the underpaid premium
B. Pay the amount that the premium paid would have purchased at the correct age
C. Deny the claim under the Incontestability clause
D. Refund all premiums paid plus accumulated interest
Correct Answer(s): [B]
A Life insurance claim may not be ‘contested’ for misstatement of age. However, if the insured
understates his age in order to obtain a lower premium, at his death the insurer will adjust his
benefits according to what the incorrect premium would have purchased at his correct age. The
Misstatement of Age clause applies indefinitely.
Which of the following statements about a Renewable Term policy is true?
A. It is renewable at the option of the insurance company
B. It is renewable at the option of the insured
C. It is renewable at the option of the insurance company, with proof of insurability
D. It is renewable at the option of the insured, with proof of insurability
Correct Answer(s): [B]
If most Term policies (except Decreasing Term) were not renewable, no one would buy them. This
option allows the insured to renew the policy for another “term” without proving good health. Of
course, the insured does not have to renew, it is at his option. Annual Renewable Term (ART) is a good
example. It must be renewed every year. The rate goes up as the insured gets older, but no proof of
good health is required. However, most Term policies are renewable only up to a certain age, usually
age 60 or 65, depending on the company.
Which type of annuity has no accumulation period? A. A Single Premium Deferred Annuity B. A Flexible Premium Deferred Annuity C. A Single Premium Immediate Annuity D. A Level Premium Deferred Annuity
Correct Answer(s): [C]
An Immediate Annuity has no accumulation period. For example, if Aunt Mary died and left you $1
million, you could buy an Immediate Annuity and start to receive monthly payments right away for as
long as you may live. On a Deferred Annuity, you would pay money in now, but take it out later,
perhaps at retirement. Immediate Annuities are often used to fund state lottery payouts.
If the insured dies 5 years after he bought a Life insurance policy and the insurer determines that
there was material misrepresentation on his application, they will:
A. Deny the claim
B. Pay the claim
C. Deny the claim but refund the premium
D. Pay only a portion of the claim
Correct Answer(s): [B]
Under state law, Life insurance policies are only ‘contestable’ for the first 2 years. After 2 years, the
policy is ‘incontestable’, which means that the insurer must pay all claims, even if there was material
misrepresentation on the original application.
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