Wrong answer study Flashcards

1
Q

Under what circumstances will the contingent beneficiary receive the death benefit?

a. If designated by the insured
b. If designated by the primary beneficiary
c. If the primary beneficiary dies before the insured
d. If the tertiary beneficiary dies before the insured

A

c. If the primary beneficiary dies before the insured

The only way the contingent beneficiary will receive the death benefit is if the primary beneficiary dies before the insured.

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2
Q

When a whole life policy is surrendered for its nonforfeiture value, what is the automatic option?

a. Paid up additions
b. Cash surrender value
c. Reduced paid up
d. Extended term

A

d. Extended term

The automatic nonforfeiture option is extended term.

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3
Q

Life insurance creates an immediate estate. Which of the following best explains this statement?

a. The policy has cash values and nonforfeiture values
b. The policy generates immediate cash value
c. The death benefit will always be paid to the estate of the insured
d. The face value of the policy is payable to the beneficiary upon the death of the insured

A

d. The face value of the policy is payable to the beneficiary upon the death of the insured

Unlike a traditional estate where the value of personal wealth is usually built up over time, a life insurance policy’s face value is available immediately in one lump-sum upon the death of the insured.

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4
Q

With adjustable life, the owner can change all of the following EXCEPT

a. The insured
b. The death benefit
c. The premium
d. The length of time the coverage will last

A

a. The insured

The mortality charge is determined by the actuary in the home office. The owner of the policy has no control over this mortality cost.

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5
Q

If an insurance company issues a policy even though some questions on the application were unanswered, when can the insurer get the answers to those questions?

a. At any time within the incontestable period
b. Never, the insurer has waived its right to those answers by issuing the policy
c. Within 3 months of issuing the policy
d. Within 30 days of issuing the policy

A

b. Never, the insurer has waived its right to those answers by issuing the policy

If an insurer accepts an application with unanswered questions and issues the policy, it has waived its right to those answers.

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6
Q

Which of the following indicates the person upon whose life the annuity income amount is determined?

a. Owner
b. Insured
c. Annuitant
d. Beneficiary

A

c. Annuitant

The annuitant is the person upon whose life the annuity income amount is determined.

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7
Q

Because of an injury, an insured has been unable to work for 7 months. When his life insurance premium came due, he was unable to pay, yet the policy remained in force. The policy includes

a. Guaranteed insurability benefits
b. Facility of payment clause
c. Nonforfeiture options
d. Waiver of premium rider

A

d. Waiver of premium rider

The Waiver of Premium rider causes the insurer to waive future premiums if the premium payor is disabled for a period beyond 6 months or more.

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8
Q

Under which of the following conditions would life insurance proceeds be taxable by the federal government?

a. If collateral assigned to a lender
b. If taken as a lump sum
c. If paid to the policyowner
d. If there is a transfer for value

A

d. If there is a transfer for value

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9
Q

A life insurance policy qualifies a Modified Endowment Contract (MEC) if the amount of premium paid exceeds the amount that would have provided paid- up insurance in how many years?

a. 7 years
b. The life of the policy
c. 3 years
d. 5 years

A

a. 7 years

If the policy’s premium paid in its first 7 years exceed what would have been paid into a life policy with level annual premiums that would be paid- up in 7 years, the policy fails the 7- pay test and becomes a Modified Endowment Contract.

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10
Q

Which dividend option will increase the death benefit?

a. Reduced paid up
b. Paid- up additions
c. Accumulation
d. Extended term

A

b. Paid- up additions

Paid- up additions option uses the dividend to purchase small amounts of the same type of insurance as the original policy. The additional insurance is paid up by the dividend.

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11
Q

S set up an individual retirement account that her employer is now contributing to. Her employer’s contributions are not included in her gross income. What kind of retirement plan does S have?

a. HR-10 (Keogh)
b. SIMPLE
c. Simplified Employee Pension (SEP)
d. 401(k)

A

c. Simplified Employee Pension (SEP)

A SEP is a type of qualified plan suited for the small employer. In a SEP, an employee establishes and maintains an individual retirement account to which the employer contributes. Employer contributions are not included in the employee’s gross income.

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12
Q

All of the following are general requirements of a qualified plan EXCEPT

a. The plan’s benefit cannot discriminate in favor of the “prohibited group”
b. The plan must be temporary
c. The plan must be approved by the IRS
d. The plan must have a vesting requirement

A

b. The plan must be temporary

Qualified plans must be permanent. All the other characteristics above are also true.

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13
Q

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

a. They are taxable to the insured’s estate
b. They are tax deductible
c. They are received tax free
d. They are considered taxable income

A

c. They are received tax free

When accelerated benefits are paid under a life insurance policy to a terminally ill insured, the benefits are received tax free.

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14
Q

According to the Fair Credit Reporting Act, all of the following statements are true EXCEPT

a. It ensures that consumer reporting agencies are fair in their treatment of consumers
b. Investigative consumer reports can be used to obtain information on the applicant’s character and reputation
c. If an applicant is declined for an insurance policy, he or she has no right to know what was in the report
d. It protects consumers against circulation of inaccurate information

A

c. If an applicant is declined for an insurance policy, he or she has no right to know what was in the report

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15
Q

Where are premiums from fixed annuities invested?

a. a general account
b. a variable account
c. a hedge fund
d. a separate account

A

a. a general account

A fixed annuity is characterized by a general account into which the purchase payments (premiums) are invested.

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16
Q

Which of the following would NOT be eligible for coverage under key person?

a. The pharmacist in a drug store
b. The manager of a small store
c. The owner of a shop
d. The executive officer of a company

A

c. The owner of a shop

The owner is the principal, not a key person.

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17
Q

Which statement is an accurate description of life insurance policy dividends?

a. They are not taxable and are not guaranteed
b. They are paid as return of premium to policyowners by stock insurers
c. They are guaranteed to be paid and they are taxable as income
d. They are likely to be larger in nonparticipating policies

A

a. They are not taxable and are not guaranteed

Policy dividends, considered a return of excess premium by a mutual insurer, are not taxable since the original premium was paid with after- tax dollars. Future dividends cannot be predicted nor guaranteed.

18
Q

Which of the following types of insurance policies would perform the function of cash accumulation?

a. Credit life
b. Increasing term life
c. Whole life
d. Term life

A

c. Whole life

Life insurance is unique from other types of insurance in that it could perform the function of cash accumulation. Cash values are available in whole life policies.

19
Q

J is receiving fixed amount benefit payments from his late wife’s insurance policy. He was told that if he dies before all the benefits are paid, the remaining amount will go to the contingent beneficiary. Which settlement option did J choose?

a. Interest only
b. Joint and survivor
c. Fixed amount
d. Fixed period

A

c. Fixed amount

20
Q

. All of the following are true of annually renewable term insurance EXCEPT

a. The policy must be renewed no matter what happens to one’s health
b. Proof of insurability must be provided at each renewal
c. The premium increases each year
d. The death benefit remains level

A

b. Proof of insurability must be provided at each renewal

ART is a form of level term insurance, in which the death benefit remains level and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the insured’s attained age.

21
Q

Life insurance creates an immediate estate. Which of the following best explains this statement?

a. The death benefit will always be paid to the estate of the insured
b. The face value of the policy is payable to the beneficiary upon the death of the insured
c. The policy has cash values and nonforfeiture values
d. The policy generates immediate cash value

A

b. The face value of the policy is payable to the beneficiary upon the death of the insured

Unlike a traditional estate where the value of personal wealth is usually built up over time, a life insurance policy’s face value is available immediately in one lump- sum upon the death of the insured.

22
Q

Because of an injury, an insured has been unable to work for 7 months. When his life insurance premium came due, he was unable to pay, yet the policy remained in force. The policy includes

a. Waiver of premium rider
b. Guaranteed insurability benefits
c. Facility of payment clause
d. Nonforfeiture options

A

a. Waiver of premium rider

The waiver of premium rider causes the insurer to waive future premiums if the premium payor is disabled for a period beyond 6 months or more.

23
Q

A whole life policy that will generate immediate cash value is a

a. Variable life policy
b. Limited pay policy
c. Single premium policy
d. Continuous premium policy

A

c. Single premium policy

A whole life policy that will generate immediate cash value is a single premium policy.

24
Q

An insurer must notify the consumer in writing that an investigative consumer report has been requested, within how many days of the initial request?

a. 3 days
b. 5 days
c. 10 days
d. 30 days

A

a. 3 days

If a consumer report is requested, the insurer must notify the consumer at least 3 days following the initial request

25
Q

All group life policies issued in Colorado must contain all of the following provisions EXCEPT

a. A 31-day grace period
b. Misstatement of age
c. Evidence of insurability
d. Incontestability after 1 year

A

d. Incontestability after 1 year

In this state, the incontestability provision in group life policies is 2 years and it states that the insurer cannot deny a claim based on statements on the application after the policy has been in force for a period of 2 years. All the other options are required provisions.

26
Q

. Which of the following statements is TRUE regarding a nonresident license?

a. A license issued to a nonresident person will confer the same rights and privileges as those afforded a nonresident licensee
b. A nonresident licensee is not required to pay any additional fees for the nonresident status
c. An insurance agency may qualify as a nonresident if the agency has its principal office located in this state with at least 10 branch offices in another state
d. A nonresident licensee is not required to hold a valid resident license during the same time period

A

a. A license issued to a nonresident person will confer the same rights and privileges as those afforded a nonresident licensee

27
Q

All premiums received from insurers or credited by insurers to a producer’s account must be credited to the insured’s account within

a. 3 business days
b. 10 days
c. 30 days
d. 60 days

A

c. 30 days

All returned premiums received from insurers or credited by insurers to the account of the licensee must be remitted to or credited to the account of the person entitled within 30 days after such receipt or credit.

28
Q

. The aggregate commissions for controlled business written by a producer are calculated for what period of time?

a. 6 months
b. 12 months
c. 2 years
d. From license issue date

A

b. 12 months

In Colorado, a producer’s license will be deemed to have been, or intended to be, used for the purpose of writing controlled business, if during any 12- month period the aggregate amount of premiums on controlled business exceeds the aggregate amount of premiums on all other insurance business of the applicant or licensee.

29
Q

An insured decides to replace his life insurance policy with one offered by a new insurer. After receiving the policy, he is unsatisfied with the provisions and decides to return it. Within how many days must he return the policy in order to receive a full premium refund?

a. 10
b. 20
c. 30
d. None: free- look provisions do not apply to replacement policies

A

c. 30

The replacing insurer must provide a 30 day free look period that gives the policyowner the right to return the policy and receive an unconditional full refund of all premiums.

30
Q

What is the main justification for the existence of the State Insurance Department?

a. To protect insurers from insolvency
b. To protect the state from harmful practices of companies and producers
c. To protect the public
d. To protect companies from malicious lawsuits

A

c. To protect the public

The State Insurance Department exists to protect the public.

31
Q

When dealing with funds from the insured or insurer, the producer may do all of the following EXCEPT

a. Keep all premiums and returned premiums separate from personal funds
b. Keep accurate records of all fiduciary funds
c. Use fiduciary funds as collateral for personal or business loans
d. Receive interest on funds being held in a fiduciary capacity

A

c. Use fiduciary funds as collateral for personal or business loans

The insurance producer must treat all premiums and returned premiums in a fiduciary capacity and cannot use these funds as collateral for personal or business loans.

32
Q

. According to the life insurance replacement regulations, which of the following would be an example of policy replacement?

a. Term insurance is changed to whole life
b. A lapsed policy is reinstated within a specific timeframe
c. A policy is reissued with a reduction in cash value
d. A term policy expires, and the insured buys another term life policy

A

c. A policy is reissued with a reduction in cash value

33
Q

According to the life insurance replacement regulations, which of the following would be an example of policy replacement?

a. Term insurance is changed to whole life
b. A lapsed policy is reinstated within a specific timeframe
c. A policy is reissued with a reduction in cash value
d. A term policy expires, and the insured buys another term life policy

A

c. A policy is reissued with a reduction in cash value

Replacement means any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the proposing producer that by reason of the transaction, existing life insurance or annuities have been or will be converted to reduced paid- up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

34
Q

Under Colorado’s Insurable Interest Act, which of the following is true?

a. Insurable interest can only be on a family member
b. Insurable interest requires the desire to see the insured person’s life continue
c. Engaging in stranger- oriented life insurance is legal
d. Purchasing life insurance on a friend is legal

A

b. Insurable interest requires the desire to see the insured person’s life continue

An insurable interest, with reference to insurance on the life of another, exists when an individual has a substantial interest endangered by love and affection in the continuation of the life of the insured.

35
Q

A nonresident producer moved from one state to another. How soon thereafter should the producer file a change of address and provide certification from the new state?

a. 6 months
b. 1 year
c. 31 days
d. 30 days

A

d. 30 days

In this case, the producer should take action 30 days after changing legal residence.

36
Q

. All of the following would be prohibited use of senior specific certification EXCEPT

a. Using a certification that was obtained by an organization that is primarily engaged in the business of instruction in sales or marketing
b. Using a certification that has been accredited by the American National Standards Institute
c. Using a certification that was not actually earned by the producer
d. Using a self- conferred certification or professional designation

A

b. Using a certification that has been accredited by the American National Standards Institute

The purpose of the Senior Specific Certification regulation is to protect consumers from misleading and fraudulent marketing practices of producers not certified to provide adequate service to the senior market. Obtaining certification that has been accredited by the American National Standards Institute (ANSI) allows producers to legally advertise their senior certification.

37
Q

If an agent only sells annuities, the agent should be licensed as:

a. A life insurance producer
b. An adjuster
c. A limited lines producer
d. An annuities agent

A

a. A life insurance producer

Even if an agent only sells annuity products, the agent must still be licensed as a life insurance producer

38
Q

After an insurer has notified the commissioner that they have terminated employment with a producer, the insurer is required to mail a copy of the notification to the producer at the producer’s last known address within

a. 20 days
b. 10 days
c. 30 days
d. 15 days

A

d. 15 days
Within 15 days after making the notification to the Commissioner, the insurer shall mail a copy of the notification to the producers at the producer’s last- known address.

39
Q

The purpose of insurance regulation is to

a. Make insurance statutes uniform between states
b. Keep producers honest
c. Make insurance companies pay taxes
d. Promote the public welfare

A

d. Promote the public welfare

The purpose of the State Insurance Department is to protect the public’s interest in matters concerning insurance.

40
Q

Among people in the same class and life expectancy, which of the following factors can be used to influence premium rates?

a. Race
b. Occupation
c. Ancestry
d. Marital status

A

b. Occupation

41
Q

If replacement is involved, the producer must do all of the following EXCEPT

a. Keep records regarding replacement for at least 7 years
b. Submit a list of policies to be replaced along with the application
c. Sign and give the applicant a notice prior to taking the application
d. Have the applicant complete and sign the notice

A

a. Keep records regarding replacement for at least 7 years

Replacement records must be kept on file by both the producer involved and the insurer, for at least 5 years.

42
Q

In replacement, an existing insurer must provide policyowners with a policy summary for existing life insurance within how many days of receiving the written communication and replacement?

a. 31 business days
b. 5 business days
c. 3 business days
d. 20 business days

A

b. 5 business days

Existing insurers must provide policyowners with a policy summary for the existing life insurance within 5 business days of receiving the written communication and replacement.