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Life Insurance > Review 2 > Flashcards

Review 2 Flashcards

1
Q

An individual has been diagnosed with Alzheimer’s disease. He is insured under a life insurance policy with the accelerated benefit’s rider. Which of the following is true regarding taxation of the accelerated benefits?

A. The entire living benefit is considered taxable income.

B. A portion of the benefit up to a limit is tax-free; the rest is taxable income.

C. Principal is tax-free, but interest is taxed,

D. The entire benefit will be received tax-free,

A

B. A portion of the benefit up to a limit is tax-free; the rest is taxable income.

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2
Q

Why is an equity annuity considered to be a fixed annuity?

A. It has a fixed rate of return.

B. It is not tied to an index like the S&P 500.

C. It has a guaranteed minimum interest rate.

D. It has modest investment potential.

A

C. It has a guaranteed minimum interest rate.

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3
Q

Which of the following features of the indexed Whole life policy is NOT fixed?

A. Policy period.

B. Cash value growth.

C. Premium.

D. Death benefit.

A

B. Cash value growth.

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4
Q

Which of the following types of annuities will generally provide the highest monthly income?

A. Joint and survivor.

B. Installment refund.

C Life with a 10-year period certain.

D. Straight life.

A

D. Straight life.

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5
Q

What is the purpose of establishing the target premium for a universal life policy?

A. To accumulate cash value faster.

B. To pay up the policy faster.

C. To cover all the policy expenses.

D. To keep the policy in force.

A

D. To keep the policy in force.

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6
Q

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

A. Installment refund.

B. Cash refund.

C. Installment for a fixed period.

D. installment for a fixed amount

A

C. Installment for a fixed period.

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7
Q

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

A. Fixed amount option.

B. Interest only option.

C. life income with period certain.

D. Joint and survivor.

A

B. Interest only option.

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8
Q

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

A. The same as the original policy minus the cash value.

B. Equal to the original policy for as long as the cash values will purchase.

C. In lesser amounts for the remaining policy term of age 100.

D. Equal to cash value surrender from the policy.

A

B. Equal to the original policy for as long as the cash values will purchase.

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9
Q

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 a period certain.

D. increasing term.

A

A. Limited pay whole life.

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10
Q

Which of the following is NOT a characteristic of universal life insurance?

A. Cash account.

B. Fixed premium.

C. Unbundled premium.

D. flexible death benefit.

A

B. Fixed premium.

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11
Q

Which of the following is INCORRECT concerning a noncontributory group plan?

A. The employees receive individual policies.

B. They help to reduce adverse selection against the insurer.

C. They require 100% employee participation.

D. The employer pays 100% of the premiums.

A

A. The employees receive individual policies.

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12
Q

What is the advantage of reinstating a policy instead of applying for a new one?

A. Proof of insurability is not required.

B. The face amount can be increased.

C. The cash values have gained interest while the policy was lapsed.

D. The original age is used for premium determination.

A

D. The original age is used for premium determination.

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13
Q

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

A. Paid-up additions.

B. One-year term option.

C. Paid-up option.

D. Accelerated endowment.

A

B. One-year term option.

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14
Q

An employee quits his job on May 15 and doesn’t convert his group life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1 which of the following statements best describes what will happen?

A. The insurer will pay a reduced death benefit to the beneficiary.

B. the insurer will pay the death benefit minus one month’s premium.

C. The insurer will pay nothing because the employee has terminated his group insurance and hasn’t started the individual one.

D. The insurer will pay the full death benefit from the group policy to the beneficiary.

A

D. The insurer will pay the full death benefit from the group policy to the beneficiary.

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15
Q

Which of the following is TRUE regarding the insurance amount in a credit life policy?

A. Allowable amount of coverage is determined by the State Insurance Commissioner.

B. The amount of coverage can be greater than the amount owed.

C. The creditor can only insure the debtor for the amount owed.

D. The creditor may insure the debtor for an unlimited amount of coverage.

A

C. The creditor can only insure the debtor for the amount owed.

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16
Q

A. By the Department of Insurance.

B. By NAIC.

C. By the Government.

D. By their members-authorized insurers.

A

D. By their members-authorized insurers.

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17
Q

Any agent, broker, or limited representative who acts for a person other than himself negotiating a contract of insurance, for the purpose of receiving the premium, is deemed to be

A. A managing partner of the insured.

B. In violation of the free credit act.

C. An agent of the company.

D. A designated representative of the agent.

A

C. An agent of the company.

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18
Q

An insurer publishes intimidating brochures that portray the insurer’s competition as financially and professionally unstable. Which of the following best describes this act?

A. Illegal until endorsed by Guaranty Association.

B. Legal, provided that the other insurers are paid royalties for the usage of their names.

C. Illegal under any circumstances.

D. Legal, provided that the information can be verified.

A

C. Illegal under any circumstances.

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19
Q

All of the following are correct regarding credit life insurance EXCEPT

A. Benefits are paid to the borrower’s beneficiary.

B. The amount of the insurance permissible is limited per borrower.

C. Premiums are usually paid the borrower.

D. Benefits are paid to the creditor.

A

A. Benefits are paid to the borrower’s beneficiary.

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20
Q

An agent is Ohio wants to become an agent in North Carolina. The commissioner will waive certain examination requirements, provided that same requirements if a North Carolina agent sought licensure in Ohio. What term does this describe?

A. Rebating

B. Indemnity

C. Reciprocity

D. Residency

A

C. Reciprocity

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21
Q

What percentage of a company’s employees must take part in a noncontributory group life plan?

A. 0%

B. 25%

C. 75%

D. 100%

A

D. 100%

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22
Q

Which of the following best describes annually renewable term insurance?

A. It requires proof of insurability at each renewal.

B. Neither the premium nor the death benefit is affected by the insured’s age.

C. It provides an annually increasing death benefit.

D. It is level term insurance.

A

D. It is level term insurance.

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23
Q

Under which of the following annuity options does the annuitant select the time period for the benefits, and the insurer determines how much each payment will be?

A. Installment refund

B. Cash Refund

C. Installments for a fixed period

D. Installments for a fixed amount

A

C. Installments for a fixed period.

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24
Q

Which option for Universal life allows the Beneficiary to collect both the death benefit and cash value upon the death of the insured?

A. Option B

B. Corridor option

C. Variable option

D. Option A

A

A. Option B

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25
Q

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

A. Reduction of premium.

B. Paid-up addition.

C. Accumulation at interest.

D. Cash option

A

A. Reduction of premium.

26
Q

Which of the following settlement options in life insurance is known as straight life?

A. Single life.

B. Life with period certain.

C. Fixed amount.

D. Life income.

A

D. Life income.

27
Q

For how long can a Commissioner issue a temporary insurance agent license?

A. Maximum of 90 days.

B. For 1 Year

C. Up to 180 days.

D. For a period not to exceed 120 days.

A

C. Up to 180 days.

28
Q

Which of the following is not true regarding policy loans?

A. An insurer can charge interest on outstanding policy loans.

B. A policy loan may be repaid after the policy is surrendered.

C. Money borrowed from the cash value is taxable.

D. Policy loans can be repaid at death.

A

C. Money borrowed from the cash value is taxable.

29
Q

Which of the following is a feature of a variable annuity?

A. interest rate is guaranteed.

B. securities license is not required.

C. Benefit payment amounts are not guaranteed.

D. Payment amounts are not guaranteed.

A

C. Benefit payment amounts are not guaranteed.

30
Q

The LEAST expensive first-year premium is found in which of the following policies?

A. Level Term

B. Annually Renewable Term

C. Increasing Term

D. Decreasing Term

A

B. Annually Renewable Term.

31
Q

Which of the following terms is used to name the nontaxed return of unused premium?

A. Interest

B. Surrender

C. Dividend

D. Premium return

A

C. Dividend

32
Q

Which of the following is true regarding taxation of accelerated benefits under a life insurance policy?

A. They are taxable to chronically ill insured.

B They are always taxed.

C. There is a 10% penalty for early distribution of the death benefit.

D. They are tax terminally ill insured.

A

D. They are tax terminally ill insured.

33
Q

Annually renewable term policies provide a level death benefit for a premium that

A. Fluctuates.

B. Increases annually.

C. Decreases annually.

D. Remains Level.

A

B. Increases annually.

34
Q

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

A. Dividend Accumulation option

B. Paid-up option.

C. Accumulation at interest.

D. Paid-up additions.

A

B. Paid-up option.

35
Q

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 cash value.

D. To reduce the next year’s premium.

A

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

36
Q

An insured receives an annual life insurance dividend check. What term best describe this arrangement?

A. Reduction of Premium

B. Annual Dividend Provision

C. Accumulation at interest

D. Cash option

A

D. Cash option.

37
Q

All of the following statements are true regarding installments for a fixed amount EXCEPT

A. This option pays a specific amount until the funds are exhausted.

B. The annuitant may select how big the payments will be.

C. The payments will stop when the annuitant dies.

D. Value of account and future earnings
will determine the time period for the benefits.

A

C. The payments will stop when the annuitant dies.

38
Q

If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?

A. It is taxable if it exceeds the amounts paid for premiums by 50%

B. It is automatically taxable.

C. It is only taxable if the cash value exceeds the amount paid for premiums.

D. It is not considered to be taxable

A

C. It is only taxable if the cash value exceeds the amount paid for premiums.

39
Q

All of the following statements are true regarding installments for fixed period annuity settlement option EXCEPT

A. The insurer determines the amount for each payment

B. It is a life contingency option

C. It will pay the benefit only for a designated period of time.

D. The payments are not guaranteed for life.

A

B. It is a life contingency option.

40
Q

Which of the following components must a life insurance policy have to allow policy loans?
A) Cash Value
B) Dividends
C) Flexible premiums
D) Face amount

A

A) Cash Value

41
Q

Which provision of a life insurance policy states the insurer’s duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
A) Entire contract clause
B) Beneficiary clause
C) Consideration clause
D) Insuring clause

A

D) Insuring clause

42
Q

The sole beneficiary of the insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured’s death, the proceeds of the policy will go to
A) Probate.
B) The state.
C) The beneficiary’s estate.
D) The insured estate.

A

D) The insured estate.

43
Q

Which nonforfeiture option provides coverage for the longest period of time?
A) Paid-up option
B) Accumulated at interest
C) Reduced paid-up
D) Extended Term

A

C) Reduced paid-up

44
Q

The two main categories of policy loan interest rates are
A) Compound and variable.
B) Fixed or variable.
C) Simple or compound.
D) Fixed and simple

A

B) Fixed or variable.

45
Q

The policyowner wants to make sure that upon his death, the policy will pay a portion of the proceeds annually to his spouse, but that the principle will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
A) Fixed amount option
B) Interest only option
C) Life income with a period certain
D) Joint and survivor

A

B) Interest only option

46
Q

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividend, plus interest, and the policy cash value to pay the policy up early?
A) Accumulated at interest
B) Paid-up additions
C) Dividend Accumulation option
D) Paid-up option

A

D) Paid-up option

47
Q

The policyowner wants to make sure that upon his death, the policy will pay a portion of the proceeds annually to his spouse, but that the principle will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
A) Fixed amount option
B) Interest only option
C) Life income with a period certain
D) Joint and survivor

A

B) Interest only option

48
Q

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividend, plus interest, and the policy cash value to pay the policy up early?
A) Accumulated at interest
B) Paid-up additions
C) Dividend Accumulation option
D) Paid-up option

A

D) Paid-up option

49
Q

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable. The contract is.
A) Conditional.
B) Aleatory.
C) Personal.
D) Unilateral.

A

A) Conditional.

50
Q

What is the official name for the Social Security program?
A) Social Insurance Program
B) Defined Benefit Retirement Insurance
C) Qualified Pension Plan
D) Old Age Survivors Disability Insurance

A

D) Old Age Survivors Disability Insurance

51
Q

Which of the following types of insurance policies is most commonly used in credit life insurance?
A) Whole life
B) Equity indexed life
C) Decreasing term
D) Increasing term

A

C) Decreasing term

52
Q

An employee quits his job on May 15 and doesn’t convert his Group Life policy to an individual policy for two weeks. He dies in a freak accident on June1. Which of the following statements best describes what will happen?
A) The insurer will pay the death benefit minus one month’s premium.
B) The insurer will pay nothing because the employee has terminated his group insurance and hasn’t started the individual one.
C) The insurer will pay the full death benefit from the group policy to the beneficiary.
D) The insurer will pay a reduced death benefit to the beneficiary.

A

C) The insurer will pay the full death benefit from the group policy to the beneficiary.

53
Q

Which of the following is an IRS qualified retirement program for the self – employed?
A) Buy-sell agreement
B) 401(k) plan
C) Keogh plan
D) Split Dollar

A

C) Keogh plan

54
Q

Which of the following is TRUE regarding the insurance amount in the credit life policy?
A) The creditor may insure the debtor for an unlimited amount of coverage.
B) Allowable amount of coverage is determined by the State Insurance Commissioner.
C) The amount of coverage can be greater than the amount owed.
D) The creditor can only insure the debtor for the amount owed.

A

D) The creditor can only insure the debtor for the amount owed.

55
Q

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
A) Reasonable expectations
B) Indemnity
C) Stop-loss
D) Consideration

A
56
Q

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
A) Concealment
B) Indemnity
C) Representation
D) Warranty

A

D) Warranty

57
Q

Which of the following is true regarding taxation of dividends in participating policies?
A) Dividends are taxable in some life insurance policies and nontaxable in others.
B) Dividends are considered income for tax purposes.
C) Dividends are not taxable.
D) Dividends are taxable only after a certain amount is accumulated annually.

A

C) Dividends are not taxable.

58
Q

Which of the following would qualify as a competent party in an insurance contract?
A) The applicant is under the influence of a mind-impairing medication at the time of application.
B) The applicant has a prior felony conviction.
C) The applicant is intoxicated at the time of application.
D) The applicant is a 12-year-old student.

A

B) The applicant has a prior felony conviction.

59
Q

Because an insurance policy is a legal contract, it must conform to the laws governing contracts which require all of the following elements EXCEPT
A) Legal purpose.
B) Offer and acceptance.
C) Conditions.
D) Consideration.

A

C) Conditions.

60
Q

All of the following Statement are correct regarding credit life insurance EXCEPT
A) Benefits are paid to the borrower’s beneficiary.
B) The amount of insurance permissible is limited per borrower.
C) Premiums are usually paid by the borrower.
D) Benefits are paid to the creditor.

A

A) Benefits are paid to the borrower’s beneficiary.

61
Q

All of the following are requirements of eligibility for Social Security disability income benefits EXCEPT
A) Fully insured status.
B) Waiting period of 5 months.
C) Being age 65.
D) Inability to perform any gainful work.

A

C) Being age 65.

62
Q

Which of the following best describes a pure life annuity settlement option?
A) Pure life guarantees that all the proceeds will be paid out.
B) Benefits are paid for a fixed period of time, specified when the policy begins to pay.
C) Pure life provides payments for as long as both the annuitant and the spouse are living.
D) Pure life provides payment for as long as the annuitant is alive

A

Life Insurance (8 decks)

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