PracticeTest

Question 1

In which of the following instances would the premium be tax deductible? 1. Premiums paid by a mother on her son’s policy 2. Premiums paid by an employer on the life of a key person 3. Premiums paid by an employer on a $30,000 group term life insurance plan for employees 4. Premiums paid by an individual on his/her own life insurance

Answer 1

3

Question 2

In which of the following instances would the premium be tax deductible? 1. Premiums paid by a mother on her son’s policy 2. Premiums paid by an employer on the life of a key person 3. Premiums paid by an employer on a $30,000 group term life insurance plan for employees 4. Premiums paid by an individual on his/her own life insurance

Answer 2

3. Premiums paid by an employer on a $30,000 group term life insurance plan

Question 3

What limits the amount that a policyowner may borrow from a whole life insurance policy? 1. Cash value 2. Premiums paid 3. Amount stated in the policy 4. Face amount

Answer 3

1. Cash value

Question 4

Which of the following is NOT true regarding a Variable Universal Life policy? 1. The death benefit is fixed. 2. The policyowner can participate in some of the investment decisions. 3. The minimum death benefit is guaranteed. 4. The cash values are not guaranteed.

Answer 4

1 The death benefit is fixed.

Question 5

If a contract provides a set amount of income for two or more persons with the income stopping upon the first death of the insured, it is called a 1. Joint life annuity. 2. Joint and survivor annuity. 3. Deferred annuity. 4. Pure annuity.

Answer 5

1. Joint life annuity.

Question 6

All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT 1. Education. 2. Age. 3. Gender. 4. Occupation.

Answer 6

1. Education.

Question 7

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? 1. It decreases over the term of the policy. 2. It remains the same as the original policy, regardless of any differences in value. 3. It is reduced to the amount of what the cash value would buy as a single premium. 4. It is increased when extra premiums are paid.

Answer 7

3. It is reduced to the amount of what the cash value would buy as a single premium

Question 8

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are 1. Deducted based on the income level. 2. Never tax deductible. 3. Partially tax deductible depending on the income level. 4. Tax deductible.

Answer 8

4. Tax deductible.

Question 9

What kind of policy does NOT typically require proof of insurability? 1. Individual insurance 2. Group insurance 3. Variable universal life 4. Term insurance

Answer 9

2. Group insurance

Question 10

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? 1. Law of masses 2. Law of averages 3. Law of group evaluation 4. Law of large numbers

Answer 10

4. Law of large numbers

Question 11

Under the 401(k) bonus or thrift plan, the employer will contribute 1. 30% of what the employee contributes. 2. 75% of what the employee contributes. 3. An undetermined percentage for each dollar contributed by the employee. 4. All of the money to the plan.

Answer 11

3. An undetermined percentage for each dollar contributed by the employee.

Question 12

Which of the following is called a “second-to-die” policy? 1. Survivorship life 2. Family income 3. Juvenile life 4. Joint life

Answer 12

1. Survivorship life

Question 13

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? 1. Standard risk pays a higher premium than a substandard risk. 2. Standard risk requires extra rating. 3. Standard risk is also known as high exposure risk. 4. Standard risk is representative of the majority of people.

Answer 13

4. Standard risk is representative of the majority of people.

Question 14

In insurance policies where contract ambiguities are automatically ruled in the favor of the insured, what privilege does the insurer have in order to balance this? 1. The right to determine the wording of a policy 2. The right to refute the rulings 3. The right to revoke the policy 4. The right to raise premiums as a result of court rulings

Answer 14

1. The right to determine the wording of a policy

Question 15

Which of the following is NOT an example of insurable interest? 1. Child in parent 2. Debtor in creditor 3. Business partners in each other 4. Employer in employee

Answer 15

2. Debtor in creditor

Question 16

Which of the following methods of calculating the amount of life insurance needed takes into account the insured’s wages, years until retirement, and inflation? 1. Needs approach 2. Blackout approach 3. Lump-sum approach 4. Human life value approach

Answer 16

4. Human life value approach

Question 17

Events in which a person has both the chance of winning or losing are classified as 1. Insurable. 2. Pure risk. 3. Retained risk. 4. Speculative risk.

Answer 17

4. Speculative risk.

Question 18

A deferred annuity is surrendered prior to annuitization. Which of the following best describes the nonforfeiture value of the annuity? 1. The surrender value will not be more than 80% of the cash value in the annuity at the time of surrender. 2. The surrender value should be equal to 100% of the premium paid, minus any prior withdrawals and surrender charges. 3. A deferred annuity cannot be surrendered prior to annuitization. The owner must wait until the annuitization period begins to receive any payments. 4. The surrender value will be based on current interest rates.

Answer 18

2. The surrender value should be equal to 100% of the premium paid, minus any prior withdrawals and surrender charges.

Question 19

All of the following are personal uses of life insurance EXCEPT 1. Estate creation. 2. Cash accumulation. 3. Estate liquidation. 4. Survivor protection

Answer 19

3. Estate liquidation.

Question 20

An insured receives an annual life insurance dividend check. What term best describes this arrangement? 1. Accumulation at Interest 2. Cash option 3. Reduction of Premium 4. Annual Dividend Provision

Answer 20

2. Cash option

Question 21

What is the main purpose of the Seven-pay Test? 1. It requires level premium payments for 7 years. 2. It ensures that the policy benefits are paid out in 7 years. 3. It guarantees interest minimum. 4. It determines if the insurance policy is an MEC.

Answer 21

4. It determines if the insurance policy is an MEC.

Question 22

In reference to fixed annuities, what comprises most of a life insurance company’s general account? 1. S&P 500 index 2. Conservative investments like bonds 3. Aggressive stocks and bonds 4. Company stock

Answer 22

2. Conservative investments like bonds

Question 23

All other factors being equal, the least expensive first-year premium payment is found in 1. Increasing Term. 2. Decreasing Term. 3. Level Term. 4. Annually Renewable Term.

Answer 23

4. Annually Renewable Term.

Question 24

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? 1. The proceeds will be split evenly between the two beneficiaries. 2. The policyowner can specify the way proceeds are split in the policy. 3. The way proceeds are split between beneficiaries is decided by which type of policy is chosen. 4. Life insurance policies may have only one beneficiary.

Answer 24

2. The policyowner can specify the way proceeds are split in the policy.

Question 25

All of the following information about a customer must be used in determining annuity suitability EXCEPT 1. Financial experience. 2. Annual income. 3. Beneficiary’s age. 4. Tax status.

Answer 25

3. Beneficiary’s age.

Question 26

Which of the following means having an illness or sickness that can reasonably be expected to result in death in 24 months or less? 1. Chronic illness 2. Fatal illness 3. Malignant illness 4. Terminal illness

Answer 26

4. Terminal illness

Question 27

What are the two components of a universal policy? 1. Insurance and investments 2. Mortality cost and interest 3. Separate account and policy loans 4. Insurance and cash account

Answer 27

4. Insurance and cash account

Question 28

Under which of the following circumstances would an insurer pay accelerated benefits? 1. A couple is nearing retirement and needs a steady stream of income. 2. An insured is looking for a way to put her daughter through college. 3. A couple wants to build a house and would like to make a larger down payment. 4. An insured is diagnosed with cancer and needs help paying for her medical treatment.

Answer 28

4. An insured is diagnosed with cancer and needs help paying for her medical treatment.

Question 29

A man wants to buy a life insurance policy in which he can count on guaranteed minimum benefits. Which type should he buy? 1. Level 2. Variable 3. Solid 4. Fixed

Answer 29

4. Fixed

Question 30

Which of the following best describes taxation during the accumulation period of an annuity? 1. The annuity is subject to state taxes only. 2. The annuity is subject to both state and federal taxation. 3. The growth is subject to immediate taxation. 4. Taxes are deferred.

Answer 30

4. Taxes are deferred.

Question 31

In insurance, an offer is usually made when 1. The application is submitted. 2. The insurer approves the application and receives the initial premium. 3. The agent hands the policy to the policyholder. 4. An agent explains a policy to a potential applicant.

Answer 31

1. The application is submitted.

Question 32

An insured states her age as 40 on the application. When she dies, the insurer discovers that she was actually only 37 at the time of application. What will the insurance company do? 1. Pay nothing since there was a material misrepresentation on the application 2. Pay the death benefit in the amount that the premium at the correct age would have purchased 3. Pay a decreased death benefit 4. Pay an increased death benefit

Answer 32

2. Pay the death benefit in the amount that the premium at the correct age would have purchased

Question 33

A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy? 1. Family (Protection) Policy 2. Universal Life Policy 3. Family Income Policy 4. Level Term Policy

Answer 33

1. Family (Protection) Policy

Question 34

An insured with a life insurance policy is diagnosed with a terminal illness. Which of the following could be a suitable option for this insured? 1. Policy replacement 2. Change of beneficiary 3. Viatical settlement 4. Policy loan

Answer 34

3. Viatical settlement

Question 35

Which of the below statements is FALSE concerning a Modified Endowment Contract (MEC)? 1. Policy loans are taxable distributions. 2. MECs lose some of the favorable tax treatment of distributions. 3. The policyholder can receive distributions at any time without being penalized. 4. Distributions before age 59 1/2 have a penalty tax of 10% on the gain in the policy.

Answer 35

3. The policyholder can receive distributions at any time without being penalized.

Question 36

Which is TRUE about the cash surrender nonforfeiture option? 1. The policy remains active for some time after the policyholder opts for cash surrender. 2. The policyholder receives the original cash value of the policy. 3. Funds exceeding the premium paid are taxable as ordinary income. 4. After the cash surrender, the insured is covered for a grace period of 1 month.

Answer 36

3. Funds exceeding the premium paid are taxable as ordinary income.

Question 37

Which is the primary source of information used for insurance underwriting? 1. Application 2. Applicant interviews 3. Medical records 4. Private investigations

Answer 37

1. Application

Question 38

An Adjustable Life policyowner can change which of the following policy features? 1. The mortality expense 2. The investment account 3. The insured 4. The coverage period

Answer 38

4. The coverage period

Question 39

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called 1. Premature distribution. 2. Rollover. 3. 1035 exchange. 4. Qualified distribution.

Answer 39

3. 1035 exchange.

Question 40

Your client’s employer does not offer a company-wide annuity contract. What type of annuity contract could your client obtain? 1. Independent Group Contract 2. Single 3. Nonqualified 4. Individual

Answer 40

4. Individual

Question 41

Which statement is NOT true regarding a Straight Life policy? 1. It has the lowest annual premium of the three types of Whole Life policies. 2. Its premium steadily decreases over time, in response to its growing cash value. 3. The face value of the policy is paid to the insured at age 100. 4. It usually develops cash value by the end of the third policy year.

Answer 41

2. Its premium steadily decreases over time, in response to its growing cash value.

Question 42

A rider attached to a life insurance policy that provides coverage on the insured’s family members is called the 1. Juvenile rider. 2. Payor rider. 3. Other-insured rider. 4. Change of insured rider.

Answer 42

3. Other-insured rider.

Question 43

After three years of making payments into a flexible premium deferred annuity, the owner decides to surrender the annuity. The insurer returns all the premium payments to the owner, except for a predetermined percentage. What is this percentage called? 1. Inflation adjustment 2. Surrender charge 3. Termination penalty 4. Bail-out charge

Answer 43

2. Surrender charge

Question 44

Which of the following is an example of apparent authority of an agent appointed by an insurer? 1. The agent accepts a premium payment during the grace period. 2. The agent has business cards and stationery printed. 3. The agent puts up a sign with the insurer’s logo without express permission. 4. The agent accepts a premium payment after the end of the grace period.

Answer 44

4. The agent accepts a premium payment after the end of the grace period.

Question 45

For how many years is an insurer required to maintain a complete file of its advertisements? 1. 1 year 2. 2 years 3. 4 years 4. 5 years

Answer 45

3. 4 years

Question 46

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? 1. Insurable interest 2. Modification clause 3. Ownership provision 4. Collateral assignment

Answer 46

4. Collateral assignment

Question 47

Which of the following statements about group life is correct? 1. The group sponsor receives a Certificate of Insurance. 2. The policy can be converted to an individual term insurance policy. 3. The cost of coverage is based on the ratio of men and women in the group. 4. The premiums are higher than in an individual policy because there is no medical exam.

Answer 47

3. The cost of coverage is based on the ratio of men and women in the group.

Question 48

What is the term which best describes when a person develops a formal program identifying, evaluating, and funding its losses? 1. Self-insuring 2. Lloyd’s Association 3. Purchasing group 4. Mutual holding company

Answer 48

1. Self-insuring

Question 49

When agents are acting within the scope of their contract, their actions will be assumed to be the acts of the 1. Insurer. 2. Policyowner. 3. Department of Insurance. 4. Insured.

Answer 49

1. Insurer.

Question 50

An insured purchased a Life Insurance policy. The agent told him that depending upon the company’s investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an 1. Adjustable Life. 2. Interest-sensitive Whole Life. 3. Credit Life. 4. Annual Renewable Term.

Answer 50

2. Interest-sensitive Whole Life.

Question 51

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? 1. $100,000 plus the total of paid premiums 2. $0 3. $100,000 4. $200,000

Answer 51

4. $200,000

Question 52

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? 1. Mortgages 2. Expenses 3. Estimated longevity 4. Outstanding debt

Answer 52

3. Estimated longevity

Question 53

Which of the following statements concerning buy-sell agreements is true? 1. Premiums paid are deductible as a business expense. 2. Benefits received are considered income taxable. 3. Buy-sell agreements pay in the event of a medical emergency. 4. Buy-sell agreements are normally funded with a life insurance policy.

Answer 53

4. Buy-sell agreements are normally funded with a life insurance policy.

Question 54

In life insurance policies, cash value increases 1. Are only taxed when the owner reaches age 65. 2. Grow tax deferred. 3. Are income taxable immediately. 4. Are taxed annually.

Answer 54

2. Grow tax deferred.

Question 55

Items stipulated in the contract that the insurer will not provide coverage for are found in the 1. Benefit Payment clause. 2. Consideration clause. 3. Exclusions clause. 4. Insuring clause.

Answer 55

3. Exclusions clause.

Question 56

Which of the following includes information regarding a person’s credit, character, reputation, and habits? 1. Agent’s Report 2. Consumer Report 3. Consumer History 4. Insurability Report

Answer 56

2. Consumer Report

Question 57

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as 1. Survivorship insurance 2. Juvenile protection provision 3. Survivor protection 4. Life planning

Answer 57

3. Survivor protection

Question 58

An insurer invests the money it receives from premiums paid by its insureds. Which of the following is TRUE regarding the interest earned on these investments? 1. It is used to lower premiums. 2. It is paid out as dividends. 3. It is used to fund executive bonuses 4. It is used to increase the death benefit.

Answer 58

1. It is used to lower premiums.

Question 59

What is the waiting period on a Waiver of Premium rider in life insurance policies? 1. 30 days 2. 3 Months 3. 5 Months 4. 6 Months

Answer 59

4. 6 Months

Question 60

Rebating is an unfair trade practice and is regulated by law. All of the following would be considered to be rebating EXCEPT 1. An agent offers the use of his lake house to person as an inducement to buy. 2. An agent offers to share his commission with a policyholder. 3. An agent offers tickets to a baseball game as an inducement to buy insurance. 4. An agent uses misrepresentation to convince a person to cancel an existing policy and take a new policy from him.

Answer 60

4. An agent uses misrepresentation to convince a person to cancel an existing policy and take a new policy from him.

Question 61

Which of the following people would receive a commission from the sale of a policy? 1. Another of the agent’s clients who referred the client 2. The agent who took the client’s application 3. The consultant who found the agent for the client 4. A retired agent who recommended the client to the agent

Answer 61

2. The agent who took the client’s application

Question 62

Which of the following would NOT be considered rebating? 1. Sending a $50 gift certificate to the insured’s employee after the insurance has been effected as a thank you for the referral 2. Sharing commission with the insured 3. Giving an applicant a $25 pen with the insurer’s logo during the insurance application process 4. Collecting a lower premium than what’s specified in a policy as a token of client appreciation

Answer 62

3. Giving an applicant a $25 pen with the insurer’s logo during the insurance application process

Question 63

How is the Commissioner selected for the office? 1. Election by authorized insurers 2. Public election 3. Appointment by the Governor 4. Appointment by the Department of Insurance

Answer 63

3. Appointment by the Governor

Question 64

An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of 1. Rebating. 2. Coercion. 3. Twisting. 4. Controlled business.

Answer 64

1. Rebating.

Question 65

Kristin wishes to become an insurance producer in Maryland. In order to do so, she must do all of the following EXCEPT 1. Meet the education, experience, and other qualification provisions. 2. Have a college education. 3. Pay the required fees. 4. File an application with the Commissioner.

Answer 65

2. Have a college education.

Question 66

An agent just received his Maryland Life\Health insurance license. His specialty is selling long-term care policies. In order to satisfy his continuing education requirement, he must do which of the following? 1. Complete 2 hours of long-term care education in addition to the 16-hour continuing education requirement. 2. Complete 24 hours of continuing education, including 2 hours of long-term care education, and 3 hours of ethics, every two years. 3. Complete 16 hours of continuing education regardless of subject matter. 4. Nothing. Maryland does not have a continuing education requirement.

Answer 66

2. Complete 24 hours of continuing education, including 2 hours of long-term care education, and 3 hours of ethics, every two years.

Question 67

Roger has insurance coverage through his company. Who owns the policy? 1. The insurance company 2. Roger’s employer 3. Roger 4. The State

Answer 67

2. Roger’s employer

Question 68

The following are all causes for the Insurance Commissioner to suspend or impose conditions upon the continuance of a producer’s license EXCEPT 1. Conviction of a felony involving moral turpitude. 2. The applicant has been shown to be a poor personal credit risk. 3. Misappropriation or illegal withholding of the policyholder’s money. 4. Obtaining a license through fraud

Answer 68

2. The applicant has been shown to be a poor personal credit risk.

Question 69

The act of trying to discourage a policyholder from dropping his/her existing policy is called 1. Conservation effort. 2. Dissuasive effort. 3. Baiting. 4. Bargaining.

Answer 69

1. Conservation effort.

Question 70

Willful violations of insurance laws of this state are considered 1. Misdemeanors. 2. Felonies. 3. Class A offenses. 4. Crimes of moral turpitude.

Answer 70

1. Misdemeanors.

Question 71

Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices? 1. Exaggerating the benefits provided in the policy 2. Stating that the competitors will arbitrarily increase their premiums each year 3. Making comparisons between different policies 4. Stating that the insurance policy is a share of stock

Answer 71

3. Making comparisons between different policies

Question 72

In group insurance, if the premiums are paid in full by the employer, it is called 1. Noncontributory and 75% of the employees must participate. 2. Contributory and 100% of the employees must participate. 3. Noncontributory and 100% of the employees must participate. 4. None of the above

Answer 72

3. Noncontributory and 100% of the employees must participate.

Question 73

Which of the following authorities can legally suspend a license? 1. The NAIC 2. An executive of the producer’s insurance company 3. The state police 4. The Insurance Commissioner

Answer 73

4. The Insurance Commissioner

Question 74

Which of the following is paid to make recommendations about changes in coverage and limits? 1. Underwriters 2. Producers 3. Advisers 4. Brokers

Answer 74

3. Advisers

Question 75

Existing insurers must provide policyowners with a policy summary for the existing life insurance how soon after receiving the written communication and replacement? 1. 5 days 2. 10 days 3. 20 days 4. 31 days

Answer 75

3. 20 days