Practice Exam Questions Flashcards
What is the primary purpose of life insurance?
To provide financial protection to beneficiaries upon the death of the insured.
True or False: Whole life insurance provides coverage for a specified term only.
False
Which type of life insurance accumulates cash value?
Whole life insurance
Fill in the blank: Term life insurance provides coverage for a ______ period.
specified
What is the main difference between term life and whole life insurance?
Term life insurance covers a specific period, while whole life insurance provides lifelong coverage.
Which of the following is NOT a type of life insurance? A) Term B) Whole C) Universal D) Investment
D) Investment
True or False: A beneficiary can be a person, organization, or trust.
True
What does ‘underwriting’ refer to in life insurance?
The process of evaluating risk and determining the premium.
Fill in the blank: The premium is the amount paid for ______ insurance coverage.
life
What is a ‘rider’ in a life insurance policy?
An additional benefit or option added to a policy.
Which policy allows for flexible premium payments? A) Whole B) Term C) Universal
C) Universal
True or False: Life insurance proceeds are typically subject to income tax.
False
What is the ‘face value’ of a life insurance policy?
The amount the insurer pays upon the insured’s death.
Which of the following is true about group life insurance? A) It is individually underwritten B) It is typically less expensive than individual plans C) It requires medical exams for all members
B) It is typically less expensive than individual plans
What is the cash value in a whole life insurance policy?
The savings component that can be borrowed against or withdrawn.
Fill in the blank: A life insurance policy that pays out upon the insured’s death is called a ______ policy.
death benefit
What does ‘convertibility’ mean in the context of term life insurance?
The option to convert a term policy into a permanent policy without evidence of insurability.
Which of the following factors does NOT affect life insurance premiums? A) Age B) Health C) Occupation D) Favorite color
D) Favorite color
True or False: A policyholder can change the beneficiary at any time.
True
What is an ‘accelerated death benefit’?
A provision that allows early payment of death benefits in case of terminal illness.
What is a life insurance policy provision?
A life insurance policy provision is a clause in the insurance contract that outlines the rights and responsibilities of both the insurer and the insured.
True or False: A life insurance contract is a legally binding agreement between the insurer and the policyholder.
True
Fill in the blank: The __________ is the amount the insurer pays to the beneficiaries upon the death of the insured.
death benefit
What are the two main types of life insurance?
Term life insurance and permanent life insurance.
Multiple Choice: Which of the following is NOT a type of permanent life insurance? A) Whole Life B) Universal Life C) Term Life
C) Term Life
What does the ‘incontestability clause’ in a life insurance policy state?
It states that after a certain period, the insurer cannot contest the validity of the policy based on misstatements by the insured.
True or False: A rider can add additional benefits to a life insurance policy.
True
What is the purpose of a ‘grace period’ in a life insurance policy?
It allows the policyholder to make a premium payment after the due date without losing coverage.
Fill in the blank: The __________ option allows the policyholder to receive a portion of the death benefit while still alive, typically due to terminal illness.
accelerated death benefit
What is meant by ‘underwriting’ in the context of life insurance?
Underwriting is the process used by insurers to assess the risk of insuring a person and to determine the appropriate premium.
Multiple Choice: Which of the following is a benefit of whole life insurance? A) Flexible premiums B) Cash value accumulation C) Limited coverage period
B) Cash value accumulation
What is a ‘beneficiary’ in a life insurance policy?
A beneficiary is a person or entity designated to receive the death benefit upon the insured’s death.
True or False: A term life insurance policy typically has a cash value component.
False
What does ‘conversion privilege’ mean in a life insurance policy?
It allows the policyholder to convert a term life policy into a permanent policy without providing evidence of insurability.
Fill in the blank: The __________ provision allows the insurer to adjust premium rates based on the insured’s age and health status.
renewal
What is the significance of the ‘policy face amount’?
The policy face amount is the initial amount of coverage stated in the policy, which is paid out as the death benefit.
Multiple Choice: Which of the following is a type of term life insurance? A) Level term B) Variable life C) Indexed universal life
A) Level term
What is the ‘suicide clause’ in a life insurance policy?
It is a provision that limits or denies the death benefit if the insured commits suicide within a specified period after the policy is issued.
True or False: Life insurance contracts can be assigned to another party.
True
What is the role of a ‘policyholder’?
The policyholder is the individual who owns the life insurance policy and is responsible for paying the premiums.
What is key person insurance?
Key person insurance is a life insurance policy taken out by a business on the life of an individual whose death would significantly impact the business.
True or False: Buy-sell agreements are legal contracts that dictate how a business will be transferred upon the death of an owner.
True
An agreement that provides for the sale of a business interest at the death or disability of an owner; often referred to as a business continuation plans
Buy-sell agreement
Which type of insurance is often used to fund buy-sell agreements?
Life insurance
What is the primary purpose of key person insurance?
To protect the business from financial loss due to the death of a crucial employee.
Multiple Choice: Which of the following is NOT a benefit of key person insurance? A) Financial security B) Tax-free proceeds C) Guaranteed investment returns
C) Guaranteed investment returns
What can cause variations in life insurance premiums?
Factors such as age, health status, lifestyle choices, and the type of policy can cause variations in life insurance premiums.
True or False: The premium for a key person insurance policy is typically lower than that of a standard life insurance policy.
False
Short Answer: How can a business determine the appropriate amount of key person insurance to purchase?
By evaluating the financial impact of the key person’s absence and considering their contributions to revenue and operations.
Fill in the blank: In a buy-sell agreement, the price for the business interest is often determined using a ____ valuation method.
fair market
What is a life insurance policy provision?
A life insurance policy provision is a specific clause or condition in the insurance contract that outlines the rights and responsibilities of both the insurer and the insured.
True or False: Front-end load premiums are deducted from the initial premium payment.
True
What is a rear-end load premium?
A rear-end load premium is a charge deducted from the policy’s cash value or death benefit at the time of withdrawal or surrender.
Fill in the blank: An unbundled life insurance policy separates _______ from _______.
insurance coverage; investment components
Which of the following is a benefit of unbundled life insurance? (A) Simplified fees (B) Higher premiums (C) Limited investment options
A) Simplified fees
What does the term ‘surrender charge’ refer to in a life insurance policy?
A surrender charge is a fee that the policyholder must pay if they withdraw funds from the policy before a specified period.
True or False: Life insurance policy provisions can vary significantly between different insurers.
True
What is the purpose of a grace period in a life insurance policy?
The grace period allows the policyholder to make a premium payment after the due date without losing coverage.
Multiple Choice: Which of the following is NOT a common life insurance policy provision? (A) Contestability period (B) Automatic premium loan (C) Dividend payout (D) Medical exam requirement
D) Medical exam requirement
What is the contestability period in a life insurance policy?
The contestability period is a timeframe, usually two years, during which the insurer can contest a claim based on misrepresentation.
Fill in the blank: A policy’s _______ provision allows the policyholder to convert their term policy to a permanent policy.
conversion
True or False: Unbundled life insurance policies typically offer more flexibility than bundled policies.
True
What is the difference between ‘term’ and ‘whole’ life insurance?
Term life insurance provides coverage for a specific period, while whole life insurance offers coverage for the insured’s entire life with a cash value component.
Multiple Choice: Which premium type generally results in higher initial costs? (A) Front-end load (B) Rear-end load (C) Both (D) Neither
A) Front-end load
Sickness with a reasonable expectation to result in death within 24 months.
terminal illness
condition of being unable to perform at least two activities of daily living (eating, bathing, toileting); or, requiring substantial supervision due to severe cognitive impairment
chronic illness
written agreement to pay less than the expected death benefit of a policy in return for the owner’s assignment, sale or bequest of the death benefit
viatical settlement contract
A viatical settlement provider does not include
- a bank, credit union, or other licensed lending institution that takes assignment as collateral;
- an insurance company providing accelerated benefits; or
- a natural person who enters into no more than one agreement per calendar year.
the risk assumed by an insurer and the amount that the insurer is responsible to pay out at any given time
exposure
If the life insurance rate is $32 per $1000 of death benefit, what would the premium be for a $100,000 policy?
$32 x $100 = $3200
$32 multiplied by each $1000 unit of exposure (one hundered individual $
In determining the an assets loss of value, what must be done?
To determine the amount of loss, the value of an asset is measured before and after the loss.
What are the four types of agents as related to the selling of life insurance products?
- independent insurance agents
- exclusive or captive agents (i.e. career agents)
- General agents (GAs) or managing general agents (MGAs)
- direct-writing companies
Marketing conducted through mail, by advertisements in newspapers, on television, or through the internet. This marketing requires no producer/agent and, policies are sold directly to the public.
direct response
True or False: Most distributions from a life insurance policy at the insured’s death are income tax-free, but pre-death distributions may be subject to income taxation if the withdrawal exceeds premiums paid.
True) Pre-death distributions are subject to income tax to the extent there is gain in the policy. The death benefit of a policy that is subject to transfer-for-value rules may be subject to income taxation, so it is not correct to say all policies enjoy a tax-free death benefit.
True or false) An insurance company that holds a certificate of authority in a state may be known as an accepted insurer.
False
When an insurer is licensed in a state, they are considered admitted, authorized, or approved.
Defined as number of deaths per 1,000 people. It is one of 3 factors used in determing life insurance rates. Information from mortality table is converted into dollar-and-cents rate.
mortality rate
Which of the following does NOT appear in the producer’s report?
A. Habits
B. Education
C. Financial status
D. Character
B) Education
The producer’s report contains information based on the agent’s knowledge of the insured and is used as an additional underwriting resource. The report is never seen by the applicant and it is not attached to the policy or application.
True or False
The concept of agent confidentiality includes notifying the applicant of a substandard rating decision by the insurer.
False
*Notifying applicants of rating decision is important, but it is not a part of an agent’s confidentiality practices. Agent confidentiality refers to the need for safeguarding applicants’ confidential information from anyone except authorized insurer personnel. *
During the underwriting process, an insurer may do all of the following EXCEPT:
A. order a credit report
B. contact the Medical Information Bureau to check on the applicant’s medical history
C. order a consumer report to provide details on reputation, character, and habits
D. verify the applicant’s military records, if any
D. verify military records
During the underwriting process the insurer may contact the MIB to check on medical history. In addition, the insurer may order a credit report to determine whether the client is a good credit risk and may order a consumer report to provide details on reputation, character, and habits.
Sometimes referred to as Public Law 15, this 1945 act exempts insurance from federal antitrust laws to the extent insurance is regulated by states.
McCarren-Ferguson Act
What is a Notice to Applicant?
- requirement per Fair Credit Report Act (FCRA)
- informs applicants that a report will be ordered concerning their past credit history and other life/health applications
- MUST be given no later than three days after a report is requested
- may pay for actual damages suffered by consumer
- punitive damages awarded by court
- reasonable attorney’s fees
- $5,000 fine and/or imprisonment (one year)
Penalties for violating Fair Credit Reporting Act
True or False: A policy owner stops paying premiums on his whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. The term policy will retain the accidental death benefit.
**False: **The policy’s cash surrender value is used to purchase an amount of term insurance equal to the original policy’s face amount. The term insurance will last as long as the cash value is sufficient to pay premiums. An AD&D benefit would not be included.
arrangement between two parties where life insurance is written on the life of one, who names the beneficiary of the net death benefits (death benefits less cash value), and the other is assigned the cash value, with both sharing premium payments
split-dollar life insurance
amount of the rider and 100% of the death benefit; paid upon accidental death of insured
principal sum
What is a family income rider?
A family income rider is an insurance policy add-on that provides a monthly income benefit to the insured’s family in the event of the policyholder’s death.
Reasons for adverse underwriting
How long does an applicant have to request information on an adverse underwriting decision? Within how many days must the insurer provide the requested information?
written request submitted to insurer within 90 business days; insurer must furnish information within 21 business days from receipt of request
An agreement in which a business assumes the obligation of purchasing a deceased owner’s interest in the business, thereby proportionately increasing the interest of surviving owners.
Entity plan
This rider permits the insured to use all, some, or none of their life insurance benefit while they are still living to pay for qualified services such as home care, assited living, or nursing home care.
Long-term care rider
