Questions Flashcards
Jack has a $20,000 life insurance policy on himself. He wants to insure the life of his 13 year old daughter. According to New York law, what is the maximum amount of life insurance he can purchase on his daughter? $5,000 $7,500 $10,000 $50,000
$50,000
The limits for a minor under 14½ are $50,000 or 50% of the amount of insurance a person has on him/herself. $10,000 is 50% of $20,000, but Jack can purchase the greater amount of either $50,000 or 50%.
The Federal Fair Credit Reporting Act Prevents money laundering. Regulates consumer reports. Protects customer privacy. Regulates telemarketing.
Regulates consumer reports.
The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
Which of the following is NOT an example of a business use of Life Insurance? Key Person Workers Compensation Buy-sell Funding Executive Bonuses
Workers Compensation
Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.
Which of the following is NOT true regarding an annuity certain?
It will pay until a fixed amount is liquidated.
There are no life contingencies.
It is a short-term annuity.
Benefits stop at the annuitant’s death.
Benefits stop at the annuitant’s death.
Annuities Certain are short-term annuities which limit the amount paid to a certain fixed period or until a certain fixed amount is liquidated. There are no life contingencies.
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the Contingent beneficiary. Irrevocable beneficiary. Revocable beneficiary. Secondary beneficiary.
Revocable beneficiary.
The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.
Which of the following will be included in a policy summary?
Comparisons with similar policies
Primary and secondary beneficiary designations
Premium amounts and surrender values
Copies of illustrations and application
Premium amounts and surrender values
A policy summary must be delivered along with the policy and will provide the producer’s name and address, the insurance company’s home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
During partial withdrawal from a universal life policy, which portion will be taxed? Cash value Principal Loan Interest
Interest
During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a Rollover. Settlement option. Nontaxable exchange. Nonforfeiture option.
Settlement option.
A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.
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? Collateral assignment Insurable interest Modification clause Ownership provision
Collateral assignment
The business owner could make a collateral assignment of his or her life insurance policy to the bank.
An employee is joining a group insurance plan. In order to avoid having to prove insurability, what must the employee do?
Join during the open enrollment period
Provide medical records to the insurer
Sign a statement of continued good health
Nothing: proof of insurability is never required in group policies
Join during the open enrollment period
If one applies for coverage after the open enrollment period, proof of insurability may be required in order to avoid adverse selection.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
It decreases over the term of the policy.
It remains the same as the original policy, regardless of any differences in value.
It is reduced to the amount of what the cash value would buy as a single premium.
It is increased when extra premiums are paid.
It is reduced to the amount of what the cash value would buy as a single premium.
In a reduced paid-up policy, the original policy’s cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured’s death.
In a direct rollover, how is the money transferred from one plan to the new one?
From the participant to the new plan
From the original plan to the original custodian
From trustee to trustee
From trustee to the participant
From trustee to trustee
In a direct rollover, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the new IRA plan.
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval.
Contributions are not currently tax deductible.
It can discriminate in benefits and selecting participants.
Earnings grow tax deferred.
It needs IRS approval.
Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.
Joe, Larry, and Curly own a small business. They have made a legal arrangement which states that if one of them dies or becomes disabled, the other two will be able to buy the partner’s shares. Which term best describes this arrangement? Business Continuation Shares Distribution Business Partner Disability Provision Buy-up Distribution
Business Continuation
In a Business Continuation arrangement, the partners of a business can buy shares belonging to a recently deceased or disabled partner.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The policyholder has the right to withdraw the accumulations at any time.
The interest is not taxable since it remains inside the insurance policy.
The annual dividend is retained by the company.
The interest is credited at a rate specified by the policy.
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.
Which of the following best defines the owner of a life settlement contract? An insurance provider A person who is selling the contract A person insured under the contract A fiduciary for the contract
A person who is selling the contract
The term “owner” refers to the owner of the policy who may seek to enter into a life settlement contract. This does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.
Which of the following best describes the aleatory nature of an insurance contract?
Only one of the parties being legally bound by the contract
Ambiguities are interpreted in favor of the insured
Policies are submitted to the insurer on a take-it-or-leave-it basis
Exchange of unequal values
Exchange of unequal values
An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.
During replacement of life insurance, a replacing insurer must do which of the following?
Designate a new producer for a replaced policy
Send a copy of the Notice Regarding Replacement to the Department of Insurance
Obtain a list of all life insurance policies that will be replaced
Guarantee a replacement for each existing policy
Obtain a list of all life insurance policies that will be replaced
The replacing insurance company must require from the producer a list of the applicant’s life insurance policies to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.
Regarding the free-look provision, the insurance company
Cannot charge a premium after 10 days.
Must issue a free policy for 30/31 days.
Must issue a free policy for 10 days.
Must allow the policyowner to return the policy for a full refund.
Must allow the policyowner to return the policy for a full refund.
This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.
A Universal Life insurance policy has two types of interest rates that are called Fixed and Variable. Minimum and Target. Guaranteed and Current. Option A and Option B.
Guaranteed and Current.
The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest.
Another name for a substandard risk classification is Declined. Elevated. Rated. Controlled.
Rated.
Substandard risk classification is also referred to as “rated” since these policies could be issued with the premium rated-up, resulting in a higher premium.
Which of the following will NOT be an appropriate use of a deferred annuity?
Accumulating funds in an IRA
Funding a child’s college education
Creating an estate
Accumulating retirement funds
Creating an estate
Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children’s college education. Unlike life insurance, annuities do not create an estate, but liquidate it.
Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT
Family health history.
Alcohol and tobacco consumption.
Recent surgeries.
Other insurance coverages.
Other insurance coverages.
Part 2 of the application contains questions regarding the applicants’ health history. Part I of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.
When must the Buyer’s Guide be delivered to the proposed insured?
At the time the appointment is set for the first presentation
At the time of application
At policy delivery
At the time the first premium is paid
At the time of application
The buyer’s guide must be provided prior to or at the time of application.
Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?
A notice regarding replacement
A privacy notice
A buyer’s guide
A policy summary
A policy summary
A policy summary usually includes all the listed information, and must be delivered along with a new policy.
Which of the following best describes gross annual premium?
Expense premium
Net premium plus expenses
Annual loading
Basic insurance rate plus commissions
Net premium plus expenses
Gross annual premium is net premium plus expenses (loading).
Which of the following documents must be provided to the policyowner or applicant during policy replacement?
Notice Regarding Replacement
Disclosure Authorization Form
Buyer’s Guide and Policy Summary
Policy illustrations
Notice Regarding Replacement
During policy replacement, the replacing producer must present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer.
In forming an insurance contract, when does acceptance usually occur?
When an insurer delivers the policy
When an insurer receives an application
When an insured submits an application
When an insurer’s underwriter approves coverage
When an insurer’s underwriter approves coverage
In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
Nonforfeiture option.
Rollover.
Settlement option.
Nontaxable exchange.
Settlement option.
A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.
Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
Delivery receipt.
Signed waiver of premium.
Statement of good health.
Payment of premium.
Signed waiver of premium.
The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
Which of the following insurance options would be considered a risk-sharing arrangement?
Surplus lines
Reciprocal
Stock
Mutual
Reciprocal
When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.
Which of the following is an approved written document that identifies procedures in place to keep the insurer’s Information System safe?
Cybersecurity Policy
Certificate of Coverage
Privacy Disclosure
Consumer Report
Cybersecurity Policy
The Cybersecurity Policy is an approved written document that identifies the policies and procedures in place to keep the Information System safe
What describes the specific information about a policy?
Illustrations
Buyer’s guide
Producer’s report
Policy summary
Policy summary
A policy summary describes the features and elements of the specific policy for which a person is applying.
All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT
The insurer determines the amount for each payment.
It is a life contingency option.
It will pay the benefit only for a designated period of time.
The payments are not guaranteed for life.
It is a life contingency option.
Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies.
Can the Superintendent investigate fraudulent claims if they occurred outside of the resident’s state according to the Insurance Fraud Prevention Act?
No. If fraudulent acts are believed to have been committed, the Superintendent must notify the state’s Superintendent or Commissioner. It will then become a federal matter.
Yes. The Superintendent has the power to make an investigation within this state or outside of the state.
Yes, but only if it is a violation of another state’s insurance law.
No. Because insurance is regulated by the state, all claims must occur within state boundaries.
Yes. The Superintendent has the power to make an investigation within this state or outside of the state.
If the insurance frauds bureau has reason to believe that a person is engaged or is about to engage in a fraudulent act, the Superintendent has the power to make an investigation within this state or outside of the state.
Which of the following is NOT true of Section 1035 Policy Exchanges?
It requires an absolute assignment of the existing policy to the replacing company who surrenders the contract and issues a replacement policy.
It is an IRS Code which permits like kind exchanges of property.
It is typically used when exchanging or replacing a less competitive life policy with a more competitive life policy.
Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days.
Any exchange made under Section 1035 of the Internal Revenue Code must be completed within 30 days.
Section 1035 of the Internal Revenue Code does not give a specific time limit to complete such an exchange.
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a
Nonforfeiture option.
Rollover.
Settlement option.
Nontaxable exchange.
Settlement option.
A settlement option is exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender.
Which statement is NOT true regarding a Straight Life policy?
It has the lowest annual premium of the three types of Whole Life policies.
Its premium steadily decreases over time, in response to its growing cash value.
The face value of the policy is paid to the insured at age 100.
It usually develops cash value by the end of the third policy year.
Its premium steadily decreases over time, in response to its growing cash value.
Straight Life policies charge a level annual premium throughout the insured’s lifetime and provide a level, guaranteed death benefit.
Which of the following is NOT true regarding the annuitant?
The annuitant receives the annuity benefits.
The annuitant must be a natural person.
The annuitant cannot be the same person as the annuity owner.
The annuitant’s life expectancy is taken into consideration for the annuity.
The annuitant cannot be the same person as the annuity owner.
While they don’t have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant’s life expectancy is taken into consideration, the annuitant must be a natural person.
Which nonforfeiture option provides coverage for the longest period of time?
Extended term
Paid-up option
Accumulated at interest
Reduced paid-up
Reduced paid-up
The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
Which of the following is NOT true of life settlements?
The seller must be terminally ill.
They could be used for a key person coverage.
They could be sold for an amount greater than the current cash value.
They involve insurance policies with large face amounts.
The seller must be terminally ill.
With Life Settlements, unlike with viatical settlements, the seller does not need to be terminally ill. They usually involve life insurance policies with a face amount of $250,000 or more, “key-person” coverage, corporate owned policies, or policies representing excess coverage that is no longer needed, and could be sold for an amount greater than the current cash value.
For the protection of public interest, the Superintendent may examine the books and records of any of the following EXCEPT
Fraternal benefit societies.
Producers.
Policyowners.
Domestic insurers.
Policyowners.
The Superintendent may examine the books and records of any insurer, any pension fund, retirement system or organization authorized in the state of New York, as often as deemed necessary, for the protection of public interest.
Which of the following would NOT be considered an insurance producer?
An insurer’s officer
An insurance broker
A reinsurance intermediary
An insurance agent
An insurer’s officer
Insurance producer means any person required to be licensed to sell, solicit or negotiate insurance, including agents, brokers and intermediaries. Officers are not required to be licensed.
The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
$0
$50,000 (50% of the policy value)
$100,000
$300,000 (triple the amount of policy value)
$100,000
The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy’s death benefit.
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
Consideration
Good faith
Representation
Adhesion
Consideration
The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called
Revocable designation.
Irrevocable designation.
Stirpes designation.
Class designation.
Class designation.
A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit. `
Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured’s death?
Viatical settlement
Estate conservation
Life insurance proceeds
State Education Waiver
Life insurance proceeds
There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Daycare is considered to be among these expenses.
When a fixed annuity owner pays pays a monthly annuity premium to the insurance company, where is this money placed?
The insurance company’s general account
Forwarded to an investor
Each contract’s separate account
The annuity owner’s account
The insurance company’s general account
Fixed annuities guarantee a minimum amount of interest to be credited to the purchase payment. The insurance company can afford to make guarantees because the money of a fixed annuity is placed in the general account of the insurance company, which is part of its investment portfolio. The company makes conservative enough investments to insure a guaranteed rate to the annuity owners.
