NC Life Insurance Practice Study Guide Exam Questions and Correct Solutions 2026

NC LIFE NC Life Insurance Practice Study Guide Exam Questions and Correct Solutions 2026 c) Writing North Carolina insurance laws. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. - -All of the following are included within the Insurance Commissioner's duties EXCEPT a) Conducting investigation of all domestic insurers. b) Reviewing the insurers' annual reports. c) Writing North Carolina insurance laws. d) Reporting any violations of insurance laws to the Attorney General. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. b) Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society. - -Which of the following insurance providers must be nonprofit and sell insurance only to its members? a) Reciprocal b) Fraternal c) Service d) Mutual c)Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends. - -A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? a)Second-to-Die b)Family Income Policy c)Joint Life Policy d)Survivorship Life Policy c)$100,000 NC LIFE NC LIFE NC LIFE 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. - 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? a)$0 b)$50,000 (50% of the policy value) c)$100,000 d)$300,000 (triple the amount of policy value) d) Premium always remains level. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. - -In term policies, what happens to the premium throughout the term of the policy? a) Premium gradually increases. b) Premium gradually decreases. c) Premium fluctuates. d) Premium always remains level. c) 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. - -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? a) Representation b) Adhesion c) Consideration d) Good faith d) They can convert their coverage to permanent life insurance without evidence of insurability. NC LIFE NC LIFE Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy. - -When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy? a) They can convert their coverage to permanent life insurance with evidence of insurability .b) Family members are not provided any rights. c) They can surrender the coverage for its cash value. d) They can convert their coverage to permanent life insurance without evidence of insurability. b) Coercion. These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them. - -Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as a) Defamation. b) Coercion. c) Rebating. d) Misleading advertising. b) Furnish a blank form to be used for that purpose. When any company under any insurance policy requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company or its representative must furnish a blank form to be used for that purpose. - -When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must a) Request a police report from the Department of Motor Vehicles. b) Furnish a blank form to be used for that purpose. c) Document the request for further investigation. d) Submit the loss claim to underwriting for premium review and resolution. a) 15 When any company under any insurance policy requires a written proof of loss after notice of the loss has been given by the insured or beneficiary, the company must furnish a blank form within 15 days. - -Insurance companies are required to provide proof of loss forms to the claimant within how many days after receipt of notice of loss? a) 15 b) 30 NC LIFE c) 31 d) 45 a) The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance. - -Which is true about a spouse term rider? a) The rider is usually level term insurance. b) Coverage is allowed for an unlimited time. c) The rider is decreasing term insurance. d) Coverage is allowed up to age 75. a)Level term A 20-year term policy is written to provide a level death benefit for 20 years. - -A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this? a)Level term b)Term to specified age c)Ordinary life policy d)Limited pay whole life b)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 nonforfeiture option provides coverage for the longest period of time? a)Accumulated at interest b)Reduced paid-up c)Extended term d)Paid-up option b)It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity). - -Which of the following is NOT true regarding the accumulation period of an annuity? a)It is also known as the pay-in period. NC LIFE NC LIFE NC LIFE b)It would not occur in a deferred annuity. c)It is the period during which the annuity payments earn interest. d)It is the period over which the owner makes payments into an annuity. b)Generally not taxed as income. Life insurance death benefits are generally not taxed as income. - -Life insurance death proceeds are a)Taxed as ordinary income. b)Generally not taxed as income. c)Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. d)Taxed as a capital gain. d) The premium can be raised up to a guaranteed maximum rate. Indeterminate premium whole life policy premium rate may vary from year to year. After the initial period (usually 2-3 years) when a lower premium is paid, the insurer establishes a new rate which could be raised up to the guaranteed maximum stated in the policy, kept the same or lowered, based on the company's expected mortality, expense and investments. - -Which of the following is TRUE regarding an indeterminate premium whole life policy? a) The premium is lower in the first year of the policy; then it is gradually raised every year. b) The premium is level throughout the life of the policy. c) The premium is usually higher in the first few years of the policy. d) The premium can be raised up to a guaranteed maximum rate. a) Class 1 misdemeanor. A person who knowingly obtains information about an individual from an insurer or agent under false pretenses is guilty of a Class 1 misdemeanor. - -A person who knowingly obtains information about an individual from an agent or the insurer under false pretenses has committed a(n) a)Class 1 misdemeanor. b)Trustworthy act. c)Unfair trade practice. d)Felony. d) The amount to be repaid under the contract. NC LIFE NC LIFE The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness. - -The initial amount of credit life insurance may NOT exceed a)An amount set by statute and adjusted regularly for inflation. b)The borrower's monthly income. c)The borrower's annual income. d)The amount to be repaid under the contract. b)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. - -All of the following statements are true regarding installments for a 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)Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year. - -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)Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act. - -An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a)Inspection Report b)Medical Information Bureau's report NC LIFE NC LIFE c)Agent's Report d)Underwriter's Report c)HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees. - Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose a)403(b) plan. b)401(k) plan. c)HR-10 (Keogh Plan). d)Section 457 Deferred Compensation Plan. c)Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured. - -Annually renewable term policies provide a level death benefit for a premium that a)Remains level. b)Fluctuates. c)Increases annually. d)Decreases annually. d)Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher. - -What are the two components of a universal policy? a)Insurance and investments b)Mortality cost and interest c)Separate account and policy loans d)Insurance and cash account a)Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance. - -A Universal Life Insurance policy is best described as a/an NC LIFE NC LIFE a)Annually Renewable Term policy with a cash value account. b)Variable Life with a cash value account. c)Whole Life policy with two premiums: target and minimum. d)Flexible Premium Variable Life policy. d)Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. - -Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a)Corridor option b)Variable option c)Option A d)Option B a)The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC - -All of the following entities regulate variable life policies EXCEPT a)The Guaranty Association. b)Federal government. c)The SEC. d)The Insurance Department. d)The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk. - -All of the following are true about variable products EXCEPT a)The minimum death benefit is guaranteed. b)The cash value is not guaranteed. c)Policyowners bear the investment risk. d)The premiums are invested in the insurer's general account. b)Issuing sales material with exaggerated statements about policy benefits Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of NC LIFE NC LIFE dividends, etc. This includes oral statements. - -Which of the following best describes a misrepresentation? a)Discriminating among individuals of the same insuring class b)Issuing sales material with exaggerated statements about policy benefits c)Making a deceptive or untrue statement about a person engaged in the insurance business d)Making a maliciously critical statement that is intended to injure another person b)Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free. - -Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a)Premiums are taxable to the employee. b)Premiums are not tax deductible as a business expense. c)Premiums are tax deductible by the key employee. d)Premiums are tax deductible as a business expense. d)A monetary fine up to $10,000 for each violation Violations of the cease and desist order pertaining to consumer information privacy will result in a monetary fine of not more than $10,000 for each violation. - -Any person who violates a cease and desist order of the Commissioner pertaining to consumer information privacy may be subject to which of the following penalties? a)Imprisonment for up to 5 years b)Imprisonment for up to 1 year c)A monetary fine up to $5,000 for each violation d)A monetary fine up to $10,000 for each violation b)3 Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn. - -Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? a)10 b)3 c)5 d)7 NC LIFE NC LIFE b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. Insurers cannot refuse to insure or refuse to continue to insure an individual, limit the amount, extent, or kind of coverage available to an individual, or charge an individual a different rate for the same coverage, solely because of blindness or partial blindness, or deafness or partial deafness. - -In cases when an applicant for insurance is blind or deaf, the insurer underwriting the policy may do which of the following? a)Limit the amount or type of coverage available to the applicant b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. c)Charge a different rate for the same coverage based on increased risk. d)Refuse to insure the applicant because of adverse risk. b)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. 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. - -Which of the following Life Insurance policies would be considered interest sensitive? a)Increasing term b)Universal life c)Adjustable life d)Whole life b)Single premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception. - -An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a)Graded premium whole life. b)Single premium whole life. c)Modified Endowment Contract (MEC). d)Level term life. c)Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, NC LIFE NC LIFE payments cease and there is no refund of payments to survivors. - -What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a)Installment refund b)Joint and survivor c)Pure life d)Life with guaranteed minimum d)The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. - -Which of the following determines the cash value of a variable life policy? a)The company's general account b)The policy's guarantees. c)The premium mode d)The performance of the policy portfolio a)An agent fails to pay state income tax. Failure to pay state income tax is a violation subject to license suspension or revocation; all the other examples are not. - -Which of the following acts would be grounds for a person's license suspension, revocation, or refusal to renew? a)An agent fails to pay state income tax. b)An agent unknowingly misrepresents the terms of an insurance contract. c)An agent refuses to offer an explanation to a policyholder concerning the coverage provided by another insurer. d)A broker does not return a client's calls on timely basis. a)Payments stop after the first death among the annuitants. A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments. - -Which of the following is NOT true about a joint and survivor annuity benefit option? a)Payments stop after the first death among the annuitants. b)A period certain option may be included. c)This option guarantees income for two or more recipients. d)The surviving annuitant may receive reduced payments. c)It will increase because the insured will be 5 years older than when the policy was originally purchased. NC LIFE NC LIFE The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal. - -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. c)Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities. - -Which of the following products requires a securities license? a)Equity Indexed annuity b)Deferred annuity c)Variable annuity d)Fixed annuity d)Domestic A company is domestic when doing business within the state in which it is incorporated. - -Which of the following best describes an insurance company that has been formed under the laws of this state? a)Sovereign b)Alien c)Foreign d)Domestic a)The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance. - -An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? NC LIFE NC LIFE a)The insured may choose to convert to term or permanent individual coverage. b)The insured would not need to prove insurability for a conversion policy. c)The insured may convert coverage to an individual policy within 31 days. d)The premium for individual coverage will be based upon the insured's attained age. a)Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check. - -An insured receives an annual life insurance dividend check. What term best describes this arrangement? a)Cash option b)Reduction of Premium c)Annual Dividend Provision d)Accumulation at Interest 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. - -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 d)Decreasing term A decreasing term policy's face amount decreases as the amount of debt is reduced. - An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation? a)Variable life b)Universal life c)Whole life d)Decreasing term c)30 days Any licensee who ceases to maintain his residency in North Carolina shall deliver his insurance license or licenses to the Commissioner by personal delivery or by mail within NC LIFE NC LIFE 30 days after terminating residency. - -A licensee who ceases to maintain residency in North Carolina is required to deliver any insurance licenses to the Commissioner by mail or in person within how many days after terminating residency? a)10 days b)21 days c)30 days d)90 days d)Beneficiaries are not identified by name. A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive. - -Which of the following is TRUE about a class designation? a)Beneficiaries must be part of the insured's immediate family. b)It is not allowed. c)It determines the succession of beneficiaries. d)Beneficiaries are not identified by name. c)It provides the highest amount of coverage for a temporary period of time. Term insurance has no cash value and provides no death benefit if the insured dies after the policy is expired; however, it provides the highest amount of protection for a temporary period of time. - -Which of the following would be considered an advantage of owning term insurance? a)It provides the death benefit regardless of when the insured dies. b)It provides the greatest living benefits to the insured. c)It provides the highest amount of coverage for a temporary period of time. d)It provides the greatest cash value for a temporary period of time. c)The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase. - -The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? a)The death benefit can be increased only when the policy has developed a cash value. b)The death benefit can be increased only by exchanging the existing policy for a new one. c)The death benefit can be increased by providing evidence of insurability. d)The death benefit cannot be increased. NC LIFE NC LIFE c)Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written. - -Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? a)Conditional b)Personal c)Adhesion d)Unilateral c)Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated. - -What happens when a policy is surrendered for its cash value? a)The policy can be reinstated by paying back all policy loans and premiums. b)The policy can be converted to term coverage. c)Coverage ends and the policy cannot be reinstated. d)Coverage ends but the policy can be reinstated at any time. c)The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance. - -A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? a)There are not enough people in the group to qualify for group life insurance. b)The group has not been established for long enough. c)The purpose of the group was to purchase life insurance. d)Their profession poses too high of a risk for the insurer. d)Modified Life A Modified Life policy would be best. It charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy. These policies were developed to make the purchase of whole life insurance more attractive for individuals who have limited financial resources but will be able to afford higher premiums in the near future. - -B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially NC LIFE NC LIFE limited until the car is paid off. Which of the following types of policies would be best for B? a)Limited Term b)Limited Pay c)Interest-sensitive Whole Life d)Modified Life b)$15,000 In order to receive a broker's license, the applicant must file a bond with the Commissioner for at least $15,000, or in lieu of a bond, deposit with the Commissioner the equivalent amount in cash or certificate of deposits. - -Before the Commissioner will issue a broker's license, the licensee must obtain a bond for at least a)$10,000 b)$15,000 c)$20,000 d)$50,000 d)Misrepresentation. Making false or misleading statements with the intent to defraud another is misrepresentation. - -During a sales presentation a producer intentionally makes a statement which may mislead the insurance applicant. This describes a)Defamation. b)Twisting. c)Coercion. d)Misrepresentation. b)The policyowner can specify the way proceeds are split in the policy. - -The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? a)The proceeds will be split evenly between the two beneficiaries. b)The policyowner can specify the way proceeds are split in the policy. c)The way proceeds are split between beneficiaries is decided by which type of policy is chosen. d)Life insurance policies may have only one beneficiary. a)Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is NC LIFE NC LIFE often tied to a familiar index like the Standard and Poor's 500. - -Equity indexed annuities a)Seek higher returns. b)Are more risky than variable annuities. c)Are security instruments. d)Invest conservatively. b)Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income. - -The interest earned on policy dividends is a)40% taxable, similar to a capital gain. b)Taxable. c)Nontaxable. d)Tax deductible. d)Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement. - -Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a)Term insurance only b)Permanent insurance only c)Universal life insurance only d)Any form of life insurance a)Time to be set by the Commissioner. The Commissioner sets the time for a licensee suspension or revocation. - -When a licensee is accused of any act, omission, or misconduct that would subject the licensee to a license suspension or revocation, with the approval of the Commissioner, the license may be surrendered for a period of a)Time to be set by the Commissioner. b)90 days. c)6 months. d)1 year. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. NC LIFE NC LIFE When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive. - -An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a)The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b)The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c)One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. c)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. - -Which of the following will NOT be an appropriate use of a deferred annuity? a)Accumulating funds in an IRA b)Funding a child's college education c)Creating an estate d)Accumulating retirement funds d)Refund the premiums paid. If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium. - -An insured committed suicide one year after his life insurance policy was issued. The insurer will a)Pay the policy's cash value. b)Pay the full death benefit to the beneficiary c)Pay nothing. d)Refund the premiums paid. b)Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk. - -Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? a)Warranty NC LIFE NC LIFE b)Aleatory c)Adhesion d)Subrogation c)Both the principal and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time. - -Which of the following best describes fixed-period settlement option? a)The death benefit must be paid out in a lump sum within a certain time period. b)Income is guaranteed for the life of the beneficiary c)Both the principal and interest will be liquidated over a selected period of time. d)Only the principal amount will be paid out within a specified period of time. d)5 Reinstatement provision allows a policy to be reinstated at any time within 5 years after the policyowner defaulted on a premium payment. - -The reinstatement provision in life insurance policies in this state allows an owner of a lapsed policy to reestablish it within how many years? a)2 b)3 c)4 d)5 c)Death benefits Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance. - -Which of the following are NOT fundable by annuities? a)A person's retirement b)Estate liquidation c)Death benefits d)Cash accumulation for any reason a)Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100. - -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? NC LIFE a)Limited pay whole life b)Interest-sensitive whole life c)Life annuity with period certain d)Increasing term a)Gross premium If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" (or "loading") represents company operating costs, then the interest is subtracted from the cost of mortality, yielding the net premium, and the loading is added to the net premium to yield the gross premium. - -Mortality - Interest + Expense = a)Gross premium b)Benefits budget c)Operating expenses d)Net premium d)30 days The replacing insurer must provide to the policyowner notice of the right to return the policy or contract within 30 days of the delivery of the contract and receive an unconditional full refund of all premiums. - -How long is a free-look period for replacement policies? a)10 days b)14 days c)20 days d)30 days d)Someone who works 400 hours per year A person must have worked at least 1,000 hours per year to be eligible for a Keogh Plan. - -Which of the following applicants would NOT qualify for a Keogh Plan? a)Someone who has been employed for more than 12 months b)Someone who is over 25 years of age c)Someone who works for a self-employed individual d)Someone who works 400 hours per year b)Annually Renewable Term. Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant NC LIFE NC LIFE NC LIFE throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year. - -All other factors being equal, the least expensive first-year premium payment is found in a)Level Term b)Annually Renewable Term. c)Increasing Term. d)Decreasing Term. c)It is never legal to limit coverage based on marital status. Availability of insurance benefits or coverage may not be denied based on sex or marital status. Marital status may be considered for the purpose of defining persons eligible for dependent benefits. - -In which of the following situations is it legal to limit coverage based on marital status? a)Legal separation during the application process b)Divorce within the last six months of applying for insurance c)It is never legal to limit coverage based on marital status. d)Excessive number of divorces, as defined by the Insurance Code d)Renewable. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate. - All of the following are the types of term insurance depending on how the face amount changes during the policy term EXCEPT a)Decreasing. b)Level. c)Increasing. d)Renewable. b)Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21). - -If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a)Single premium policy b)Jumping juvenile policy NC LIFE c)Limited pay whole life policy d)Modified life insurance policy a)10 days All hearings will be held at a time and place designated in a written notice provided by the Commissioner. The notice must be provided at least 10 days prior to the hearing, and must also state any specific charges. - -If the Commissioner is scheduling a hearing for a potential violation of the Insurance Code, what is the minimum required notice? a)10 days b)15 days c)30 days d)45 days a)Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower. - -Which of the following premium payment modes will incur the lowest overall payment? a)Annual b)Semi-annual c)Quarterly d)Monthly c)Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time. - -Which nonforfeiture option has the highest amount of insurance protection? a)Decreasing Term b)Reduced Paid-up c)Extended Term d)Conversion b)Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity. - -Which of the following is another term for the accumulation period of an annuity? a)Annuity period b)Pay-in period c)Premium period NC LIFE NC LIFE NC LIFE d)Liquidation period c)The State. Each state regulates the business of insurance conducted within that state. - -The regulation of the insurance industry primarily rests with a)Private insurers. b)The federal government. c)The State. d)The NAIC. a)Naming beneficiaries as a group. Class designations are used when an insured chooses to distribute benefits among the living beneficiaries and/or their heirs without naming each individual person, such as "all my children." - -Using a class designation for beneficiaries means a)Naming beneficiaries as a group. b)Not naming beneficiaries. c)Naming an estate as the beneficiary. d)Naming each beneficiary by his or her name b)An endowment policy Because the cash value in an endowment has to build up faster since the funds are intended to be used while the insured is alive, the premium for an endowment is considerably more expensive than an ordinary straight life policy. - -Your customer doesn't mind paying a higher premium as long as he gets a life insurance product that would allow for a faster growth of the cash value. What kind of policy would you recommend? a)A whole life policy b)An endowment policy c)A term policy d)An annuity a)Educate the buyer about policy protection by the Guaranty Association. The regulations of life insurance solicitation are intended to improve the buyer's knowledge and understanding of life insurance policies or plans. - -All of the following describe the purpose of the North Carolina regulations governing the solicitation of life insurance EXCEPT a)Educate the buyer about policy protection by the Guaranty Association. NC LIFE NC LIFE b)Require insurers to deliver information to applicants to improve their ability to select the most appropriate kind of life insurance. c)Improve the buyer's understanding of the basic features of the policy. d)Improve the ability of the buyer to evaluate the relative costs of similar life plans. c)It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost. - -Which of the following best describes annually renewable term insurance? a)Neither the premium nor the death benefit is affected by the insured's age. b)It provides an annually increasing death benefit. c)It is level term insurance. d)It requires proof of insurability at each renewal. c)Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate. - -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)Beneficiary clause b)Consideration clause c)Insuring clause d)Entire contract clause d)Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. - -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 b)Equal to the original policy for as long as the cash values will purchase. NC LIFE NC LIFE With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age. - -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 the cash value surrendered from the policy a). Alien An insurer incorporated in a foreign country is considered to be an alien insurer - -An insurer who transact insurance in this state but whose articles of incorporation are registered in Canada is considered what type of insurer? a). Alien b). Unauthorized c). Surplus lines d). Foreign b). Before accepting the initial premium deposit The insurer must provide a buyer's guide and a policy summary to all prospective purchases before accepting the initial premium deposit - -In life insurance, when must the policy summary be presented? a). At the time of application b). Before accepting the initial premium deposit c). At the time of policy delivery d). Within 30 days of policy delivery a). At the insured's age 100 The cash value, created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 and is paid out - -In whole life insurance, when is the policy cash value scheduled to equal the face amount? a). At the insured's age 100 b). By the policy's 10th year c). When the insured paid up all policy loans d). It depends on the type of whole life purchased c). A policy is reissued with a reduction in cash value NC LIFE NC LIFE Replacement refers to any transaction in which new life insurance or an annuity is purchased, resulting in reduced paid-up insurance, continuation of extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values - -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 policy 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 d. Without evidence of insurability The renewable provision allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability. - -The renewable provision allows the policyowner to renew the coverage at the expiration date a). Only with evidence of insurability b). With evidence of insurability if the insurer requires it c). With evidence of insurability if the insurer risk has increased d. Without evidence of insurability a). Enact statutes to govern the insurance industry State statutes are enacted by the state legislature. The Insurance Commissioner is empowered to enforce the laws pertaining to insurance - -All are true regarding the Insurance Commissioner's powers related to hearing and investigations EXCEPT a). Enact statutes to govern the insurance industry b). Disseminate information regarding the Department activities c). Enforce the NC Insurance Code d). Determine if an agent has acted in violation of the Insurance Code a). No more that 100 employees A SIMPLE ( Saving Incentive Match of Employees) plan is available to small business that employ not more than 100 employees receiving at least 5K in compensation from the employer during the previous year. - -What is a specific requirement regarding the number of employees in a SIMPLE plan? a). No more that 100 employees b). At least 100 employees c). Between 2 and 50 employees d). No more than 2 employees a) Insurable interest NC LIFE To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss this is called insurable interest - -To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss. What is this concept called? a) Insurable interest b). Indemnity c). Exposure d). Pure Loss d). 30 days Within 30 days of new agent appointments, the insurer must file the names, addresses, and other information with the Commissioner. - -After an insurer appoints a new agent, the Commissioner must be notified within a). 10 days b). 15 days c). 20 days d). 30 days a). Not taxable because they are a return of unused premiums Dividends on participating life insurance policies are not income taxable because they are a return of unused premiums - -Dividends received on participating life insurance policies are a). Not taxable because they are a return of unused premiums b. Taxable because they are a return on your investment c). Not taxable because they are a return on your investment d). Taxable because they are a return of unused premiums d). Cash surrender values The insurer does not guarantee or participate in the investment risk of a variable life insurance policy. Because all underlying assets must kept in separate account variable life insurance policies cannot provide guaranteed cash surrender value - -In a variable life insurance policy, all of the following assets are held in the insurance company's general account EXCEPT a). Mortality reserves b). Face amount reserves c). Incidental benefit amounts d). Cash surrender values NC LIFE NC LIFE NC LIFE a). Paid-up additions The paid-up addition dividend option is used to purchase more paid-up insurance each year, thereby increasing the death benefit - -When the owner of participating whole life policy uses the dividend to provide more life insurance coverage, which of the following dividend options is being used? a). Paid-up additions b). Reduce the premium c). Fixed amount d). Reduced paid up d). The premium is based on the age of each insured Survivorship Life (or second-to-die policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age - -All of the following are true of the Survivorship Life policy EXCEPT a). The death benefit is not paid until the last death b). The premium would be lower than in a joint life policy c). It can insure more than 2 lives d). The premium is based on the age of each insured c). False financial statement Statements of this kind - when used to put the company into a favorable light are often called false financial statements - -An important fact about financial status of an insure was deliberately withheld. Which of the following terms best describes this action? a). Twisting b). Loading c). False financial statement d). Defamation a). Both guarantee that the principal and interest will be fully paid out Neither the fixed-period nor fixed-amount settlement options guarantee income for the life of the beneficiary; however they both guarantee that the entire principal and interest will be distributed - -Which of the following would be true of both the fixed-period and fixed-amount settlement options? a). Both guarantee that the principal and interest will be fully paid out b). The amount of payments is based on the recipient's life expectancy. c). The size of installments decreases after certain period of time d). Both guarantee payments for the life of the beneficiary NC LIFE NC LIFE b). Nonforfeiture values Because permanent life insurance policies have cash values, there are certain guarantees that are built into the policy that cannot be forfeited by the policy owner. These guarantees (know as nonforfeiture values) are required by state law to be included in the policy. A table showing the nonforfeiture values must be included in the policy for a minimum period of 20 years. The policy owner has options as to how to exercise nonforfeiture values. - -Cash Value guarantees in whole life policy are called a). Dividends b). Nonforfeiture values c). Living Benefits d). Cash Loans c). 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. - -All of following are true of annually renewable term insurance EXCEPT a). The death benefit remains level b). The policy must be renewed no matter what happens to one's health c). Proof of insurability must be provided at each renewal d). The premium increases each year c). Contract interest rate The insurer guarantees a contract interest rate. A current interest rate is not guaranteed in the contract and may be higher because of current market conditions - What type of an interest rate is guaranteed in universal life policies a). Adjustable interest rate b). Current interest rate c). Contract interest rate d). Nominal interest rate c. The Commissioner may hold hearing immediately after determining that a violation has occurred. The Commissioner must give 10 days written notice of all hearings - -All are true regarding the Insurance Commissioner's power related to hearings and investigations EXCEPT a). The Commissioner must examine every domestic insurer at least once every 5 years NC LIFE NC LIFE b). If the Commissioner finds that there is sufficient evidence to charge a person with a criminal violation, he or she may have the person arrested c. The Commissioner may hold hearing immediately after determining that a violation has occurred. d). The Commissioner may examine the affairs of anyone involved in the insurance industry c). Modified Whole Life Modified life required low premiums at the beginning of the policy. The premiums are increased at a later date, usually three to five years after the issue. - -A college student will graduate next year. His studies have limited his ability to work, so he has borrowed funds to pay for his education. He would like to start a permanent life insurance program that would cover his debt and still be affordable during the period he is establishing his earning potential. An appropriate policy would be a). Level Term to age 65 b). Single Premium Whole Life c). Modified Whole Life d). Current Assumption Whole Life d). If there is a transfer for value If life insurance proceeds are collected in a lump-sum payment, they are generally not subject to federal taxation. If the benefit payment results in a transfer of value (if the policy is sold to another person), it may not be exempt from taxation. Transfer for value rules do not apply when a policy is collaterally assigned to a lender. - -Under which of the following conditions would life insurance proceeds are taxable by the federal government? a). If collaterally assigned to the lender b). If taken as a lump sum c). If paid to the policyowner d). If there is a transfer for value d). Income payments begin within 1 year from the date of purchase Deferred annuity benefit payments begin sometime after one year after the contract was purchased. The rest of the statements are true regarding deferred annuities. - -Which of the following is NOT true regarding a deferred annuity? a). It is used to accumulate funds for retirement b). It can be purchased with single lump sum c). The annuity grows tax deferred d). Income payments begin within 1 year from the date of purchase NC LIFE c). Annuitant The annuitant is the person upon whose life the annuity income amount is determined - -Which of the following indicated the person upon whose life the annuity income amount is determined? a). Owner b). Insured c). Annuitant d). Beneficiary d). Grace period Grace period is a mandatory found in all life insurance policies that provide coverage for a period of time after the premium becomes past due. - -An insured brought an insurance policy that requires him to pay $150 in premiums on the 15th of each month. He takes an extended vacation and forgets to pay the premium. Ten days later, his policy is still in effect and has not lapsed. Which policy provision allowed for this? a). Waiver of premium b). Automatic premium loan c). Incontestability d). Grace period c). If the primary beneficiary dies before the insured - -Under what circumstances will the contingent beneficiary receive the death benefit? a). If designed by the insured b). If designed by the primary beneficiary c). If the primary beneficiary dies before the insured d). If the tertiary beneficiary dies before the insured d)Automatically suspended. The conviction of an insurance licensee for a criminal violation automatically suspends the license of that person. - -If a licensee is convicted of a criminal violation, the licensee's insurance license is a)Automatically revoked. b)Not affected. c)Suspended after a hearing. d)Automatically suspended. b)Upon conversion, the death benefit of the permanent policy will be reduced by 50%. NC LIFE NC LIFE NC LIFE Convertible term insurance is convertible without proof of insurability up to the full term death benefit. However, upon conversion, the premium for the permanent policy will be based on the insured's attained age. - -All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT a)Upon conversion, the premium for the permanent policy will be based upon attained age. b)Upon conversion, the death benefit of the permanent policy will be reduced by 50%. c)Evidence of insurability is not required. d)Most term policies contain a convertibility option. a)$1,000 Industrial life insurance is a form of life insurance where premiums are payable monthly or more frequently. The face amount of an industrial insurance policy may not exceed $1,000. - -What is the maximum face amount on an industrial life policy? a)$1,000 b)$10,000 c)$1 million d)Unlimited b)The recommended amount to keep the policy in force throughout its lifetime The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime. - -Which of the following best defines target premium in a universal life policy? a)The corridor of insurance b)The recommended amount to keep the policy in force throughout its lifetime c)The maximum amount the policyowner may pay on a policy d)The minimum amount to make sure the policy is annually renewable d)Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy. - -An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? a)One-year term b)Reduction of premium c)Accumulation at interest NC LIFE NC LIFE d)Paid-up option d)Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy. - -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)Accumulation at Interest b)Paid-up additions c)Dividend Accumulation option d)Paid-up option b)The original age is used for premium determination The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status. - -What is the advantage of reinstating a policy instead of applying for a new one? a)The cash values have gained interest while the policy was lapsed b)The original age is used for premium determination c)Proof of insurability is not required d)The face amount can be increased d)Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount. - -Which of the following riders would NOT cause the Death Benefit to increase? a)Guaranteed Insurability Rider b)Cost of Living Rider c)Accidental Death Rider d)Payor Benefit Rider c)An agent of the company. NC LIFE NC LIFE 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 the company's agent. Any agent, broker or limited representative knowingly procuring by fraudulent representations payment, or the obligation for the payment, of a premium of insurance, may be found guilty of a Class 1 misdemeanor. - -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 o