Primerica Test 1

Question 1

A producer has established a separate account for premiums collected on life insurance policies sold by the producer. Who is entitled to the interest earned on the deposits in the separate account?

a) Guaranty Fund
b) Insurance company
c) Producer
d) Policyowner

Answer 1

c) Producer

Question 2

If a producer has procured insurance coverage for a policy owner through an unauthorized insurer, which of the following could happen?

a) The policy main continues in force if the producer did not realize he was in violation.
b) The unauthorized insurer is the party solely responsible for the policy claims.
c) The producer may be held personally liable for policy claims.
d) The policy is considered void and no benefits will be paid.

Answer 2

c) The producer may be held personally liable for policy claims.

Question 3

A domestic insurer issuing variable contracts must establish one or more

a) General accounts.
b) Separate accounts.
c) Liability accounts.
d) Annuity accounts.

Answer 3

b) Separate accounts.

Question 4

An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act?

a) Unfair discrimination
b) Errors and omissions
c) Fraud
d) Defamation

Answer 4

c) Fraud

Question 5

All of the following are true regarding a decreasing term policy EXCEPT

a) The contract pays only in the event of death during the term and there is no cash value.
b) The face amount steadily declines throughout the duration of the contract.
c) The payable premium amount steadily declines throughout the duration of the contract.
d) The death benefit is $0 at the end of the policy term.

Answer 5

c) The payable premium amount steadily declines throughout the duration of the contract.

Question 6

Which of the following is the closest term to an authorized insurer?

a) Licensed
b) Legal
c) Admitted
d) Certified

Answer 6

c) Admitted

Insurers who meet the state’s financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

Question 7

Which of the following statements is correct regarding a whole life policy?

a) The policy premium is based on the attained age.
b) The death benefit may increase or decrease during the policy period.
c) The policy owner is entitled to policy loans.
d) Cash values are not guaranteed.

Answer 7

c) The policy owner is entitled to policy loans.

Question 8

An insured pays $1,200 annually for her life insurance premium. The insured applies this year’s $300 worth of accumulated dividends to the next year’s premium, thus reducing it to $900. What option does this describe?

a) Accumulation at Interest
b) Cash option
c) Flexible Premium
d) Reduction of Premium

Answer 8

d) Reduction of Premium

Question 9

Which of the following is NOT typically excluded from life policies?

a) Death that occurs while a person is committing a felony
b) Death due to war or military service
c) Death due to plane crash for a fare-paying passenger
d) Self-inflicted death

Answer 9

c) Death due to plane crash for a fare-paying passenger

Question 10

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

a) Joint Life
b) Decreasing Term
c) Whole Life
d) Ordinary Life

Answer 10

a) Joint Life

A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.

Question 11

What type of violation is transacting insurance without a license?

a) Misdemeanor
b) Class B felony
c) Class A felony
d) Gross misdemeanor

Answer 11

b) Class B felony

Question 12

What type of insurance would be used for a Return of Premium rider?

a) Annually Renewable Term
b) Increasing Term
c) Level Term
d) Decreasing Term

Answer 12

b) Increasing Term

Question 13

What must happen when an individual policy or annuity has been personally delivered to the policyowner?

a) The policyowner must sign a delivery receipt.
b) The policyowner must pay the annual premium in full.
c) The producer must go over the policy with the policyowner.
d) A notary public must witness the exchange.

Answer 13

a) The policyowner must sign a delivery receipt.

Question 14

Which of the following will NOT be considered unfair discrimination by insurers?

a) Discriminating in benefits and coverages based on the insured’s habits and lifestyle
b) Charging applicants with similar health histories different premiums based on their ethnicity
c) Cancelling individual coverage based on the insured’s marital status
d) Assigning different risk classifications to applicants based on gender identity

Answer 14

a) Discriminating in benefits and coverages based on the insured’s habits and lifestyle

Question 15

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

a) Survivor Life
b) Second-to-Die
c) Common Disaster
d) Accidental Death

Answer 15

c) Common Disaster

Question 16

An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium?

a) It will decrease for the new 5-year term since the insured is now a lesser risk to the company.
b) It will increase each year during the next 5 years as the face amount increases each year.
c) It will increase because the insured will be 5 years older than when the policy was originally purchased.
d) It will remain the same for the new 5-year term.

Answer 16

c) It will increase because the insured will be 5 years older than when the policy was originally purchased.

Question 17

All of the following information about a customer must be used in determining annuity suitability EXCEPT

a) Beneficiary’s age.
b) Tax status.
c) Financial experience.
d) Annual income.

Answer 17

a) Beneficiary’s age.

To ensure suitability of annuity products, producers must obtain relevant information about the consumer’s age, income, financial status, tax status, financial experience and objectives. Beneficiary’s age is not a suitability factor.

Question 18

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

a) Revocation of license
b) $2,500
c) $1,000
d) $100 per violation

Answer 18

b) $2,500

Question 19

How many hours of continuing education is each producer required to complete during each 2-year licensing period?

a) 12 hours
b) 18 hours
c) 24 hours
d) 36 hours

Answer 19

c) 24 hours

Question 20

Your client plans to retire at age 50. He would like to purchase an annuity that would provide income from the time he retires to the age when social security and other pension funds become available. What settlement option should he consider?

a) Annuity certain
b) Fixed annuity
c) Refund Life
d) Variable annuity

Answer 20

a) Annuity certain

Question 21

Which of the following policies would be classified as a traditional level premium contract?

a) Adjustable Life
b) Universal Life
c) Variable Universal Life
d) Straight Life

Answer 21

d) Straight Life

Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.

Question 22

What is the penalty for the insurer who fails to refund premiums within 30 days after the free-look period?

a) 3%
b) 5%
c) 10%
d) 12%

Answer 22

c) 10%

Question 23

Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit?

a) Equity Indexed Universal Life
b) Variable Universal Life
c) Universal Life – Option A
d) Universal Life – Option B

Answer 23

c) Universal Life – Option A

Universal Life Option A (Level Death Benefit option) policy must maintain a specified “corridor” or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance.

Question 24

Which of the following would be the beneficiary in credit life insurance?

a) Insured
b) Company
c) Borrower
d) Creditor

Answer 24

d) Creditor

Question 25

Circulating deceptive sales material to the public is what type of Unfair Trade Practice?

a) False advertising
b) Defamation
c) Coercion
d) Misrepresentation

Answer 25

a) False advertising

Question 26

Which of the following provisions in annuity contracts allow the owner to surrender the annuity if interest rates drop to a specified level?

a) Annuitization
b) Bail-out
c) Surrender
d) Nonforfeiture

Answer 26

b) Bail-out

Question 27

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

a) Assumed
b) Apparent
c) Express
d) Implied

Answer 27

b) Apparent

Question 28

Which of the following ultimately determines the interest rates paid to the owner of a fixed annuity?

a) Statewide predetermined annual interest rate
b) Insurer’s guaranteed minimum rate of interest
c) Investment performance of the company
d) Investment performance of the insured

Answer 28

b) Insurer’s guaranteed minimum rate of interest

Question 29

Which of the following statements concerning buy-sell agreements is true?

a) Buy-sell agreements pay in the event of a medical emergency.
b) Buy-sell agreements are normally funded with a life insurance policy.
c) Premiums paid are deductible as a business expense.
d) Benefits received are considered income taxable.

Answer 29

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

A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy.

Question 30

A producer has been convicted of a felony. How will that affect the producer’s license?

a) The license may be revoked immediately.
b) The license may only be revoked with a 30-day notice.
c) The license will not be renewed at the next license anniversary.
d) The license will be suspended for up to 12 months.

Answer 30

a) The license may be revoked immediately.

Question 31

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) Waiver of premium
b) Incontestability period
c) Assignment
d) Automatic premium loan

Answer 31

d) Automatic premium loan

Installments for a fixed amount option has no life contingencies. A specific amount of benefits will be paid until funds are exhausted whether or not the annuitant is living.

Question 32

What is the term for how frequently a policyowner is required to pay the policy premium?

a) Schedule
b) Grace period
c) Consideration
d) Mode

Answer 32

d) Mode

Question 33

When an individual purchases insurance, what risk management technique is he or she practicing?

a) Retention
b) Transfer
c) Avoidance
d) Sharing

Answer 33

b) Transfer

Question 34

According to the state regulations pertaining to claims settlements, after receiving a notification of claim from an individual policyowner, the insurer must acknowledge that notice within

a) 30 calendar days.
b) 10 working days.
c) 3 working days.
d) 30 working days.

Answer 34

b) 10 working days.

Question 35

All of the following statements are true regarding group insurance EXCEPT..

a) Small groups such as labor unions are eligible for group insurance.
b) Participants in the policy each receive a policy.
c) The group sponsor is the policyholder.
d) Participants in a group insurance plan are issued certificates of insurance.

Answer 35

b) Participants in the policy each receive a policy.

Question 36

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.

Answer 36

b) To purchase a smaller amount of the same type of insurance as the original policy.

Question 37

All of the following are true about variable products EXCEPT

a) The cash value is not guaranteed.
b) Policyowners bear the investment risk.
c) The premiums are invested in the insurer’s general account.
d) The minimum death benefit is guaranteed.

Answer 37

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

Question 38

When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered

a) Controlled business.
b) Adverse selection.
c) Discrimination.
d) Twisting.

Answer 38

c) Discrimination.

Permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination.

Question 39

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

a) Limited pay whole life
b) Interest-sensitive whole life
c) Life annuity with period certain
d) Increasing term

Answer 39

a) Limited pay whole life

Question 40

Which of the following is the most common way to transfer risk?

a) Increase control of claims
b) Lessen the possibility of loss
c) Name a beneficiary
d) Purchase insurance

Answer 40

d) Purchase insurance

Question 41

All of the following are required to be included in all life insurance policy illustrations EXCEPT

a) The initial death benefit.
b) The marital status of the insured.
c) The underwriting or rate classification.
d) The generic name of the policy.

Answer 41

b) The marital status of the insured.

Question 42

A producer just completed a continuing education (CE) course. When would the producer be allowed to repeat the same course as part of his CE requirement?

a) Never
b) After 3 years
c) The next licensing period
d) No sooner than after 5 years

Answer 42

b) After 3 years