Arizona Life Insurance Exam Questions and Answers (Latest Update 2023) Verified Answers

Arizona Life Insurance Exam Questions and Answers (Latest Update 2023) Verified Answers a whole life policy that provides a choice of dividend options include the following statement about dividends they accrue at a guaranteed rate they are deferred for one year they are not guaranteed they are guaranteed after the first year - Correct Answers they are not guaranteed When there is a named beneficiary on a life insurance policy, the death benefits 1. are directed to a trustee if the insured has any outstanding debts 2. are paid directly to the insured`s creditors, with any remaining balance forwarded to the beneficiary 3. are paid directly to the beneficiary, minus any debt claims by the insured`s creditors 4. are paid directly to the beneficiary without interference from the insured`s creditors - Correct Answers are paid directly to the beneficiary without interference from the insured`s creditors What determines how much an annuitant is paid for a variable annuity 1. varies according to how many outstanding annuitant is paid for a variable annuity 2. payments fluctuate as annuitant gets older 3. the market value variations of the securities backing it 4. varies according to the insurers investments in its general account - Correct Answers the market value variations of the securities backing it a terminated employee has how many days upon termination to convert group life insurance coverage to an individual policy 10 days 15 days 30 days 31 days - Correct Answers 31 days Rick owns a variable universal life insurance policy and chooses a variable death benefit option. what will typically happen to the death benefit as a result of this section 1. remain the same 2 decrease but never increase 3 increase but never decrease 4 fluctuate with changes in the cash amount - Correct Answers fluctuate with changes in the cash amount the policy provision that permits an employee to change from group life insurance to an individual policy is called 1 assignment provision 2 conversion provision 3 certificate provision 4 modification provision - Correct Answers conversion provision when the deferred annuity is surrendered, who must sign the authorization to do so owner annuitant and beneficiary annuitant all parties involved - Correct Answers owner Which of the following is NOT a valid contract exchange? 1. an annuity exchanged for a life insurance policy 2 an annuity exchanged for another annuity 3 a life insurance policy exchanged for another life insurance policy 4 a life insurance policy exchanged for another annuity - Correct Answers an annuity exchanged for a life insurance policy which of these statements regarding the extended term insurance nonforfeiture option in a life policy is accurate evidence of insurability is required coverage remains until death of the insured the premium to purchase the coverage comes from the policy`s cash value cash value will continue to grow - Correct Answers the premium to purchase the coverage comes from the policy`s cash value a life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured death total premiums paid plus the policy face amount face amount plus interest interest acquired plus total premiums paid face amount minus any outstanding loan balances - Correct Answers total premiums paid plus the policy face amount which of these is NOT considered the responsibility of a producer during the underwriting process collecting additional medical information if needed promptly sending the completed application to the insurance company forwarding any material personal observations to the insurer selecting the final approval date - Correct Answers selecting the final approval date which of the following is NOT guaranteed in a whole life policy settlement options nonforfeiture options dividend scale policy loan values - Correct Answers dividend scale all of these duties that a producer may be required to perform when delivering an insurance policy EXCEPT acquire a statement of good health signature gather the initial premium review policy with applicant leave a conditional receipt with client - Correct Answers leave a conditional receipt with client laura added a children`s rider to her life insurance policy. what type of coverage was added level term increasing term decreasing term juvenile term - Correct Answers level term what would be the disadvantage of naming a trust as a beneficiary of a life insurance policy trusts cannot be formed for life insurance purposes trust administrations fees would reduce policy proceeds trusts cannot be used if a minor is the beneficiary trustee must be a bank or brokerage - Correct Answers trust administrations fees would reduce policy proceeds what does a fixed life annuity offer protection against inflation premature death inadequate retirement planning savings depletion due to longevity - Correct Answers savings depletion due to longevity a trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid mandatory income tax withholding on the amount transferred paying transfer fees paying trustee fees ever paying income taxes on the distributions - Correct Answers mandatory income tax withholding on the amount transferred what happens when a policy owner borrows against the cash value of his life insurance policy the policy proceeds would be reduced by the outstanding loan balance no additional loans can be taken out in the future the amount borrowed is added to the policy owners gross income for tax purposes the interest on the loan is tax deductible - Correct Answers the policy proceeds would be reduced by the outstanding loan balance straight whole life insurance can be accurately described in all of these statements EXCEPT policy protection normally expires at age 65 nonforfeiture values are available to the policy owner provides level protection with level premiums cash value loans are permitted - Correct Answers policy protection normally expires at age 65 which statement regarding the joint and survivor life insurance settlement options is NOT true age of beneficiaries plays a factor when determining the payment amounts income continues until the last beneficiary dies two or more beneficiaries can be paid the amount of each installment is larger than the single life income option - Correct Answers the amount of each installment is larger than the single life income option which statement regarding universal life insurance in correct cash value accumulations have a guaranteed minimum interest rate policy owner can change the face amount but not the premium policy owner can change the premium but not the face amount partial withdrawals cannot be made from the policy`s cash value - Correct Answers cash value accumulations have a guaranteed minimum interest rate which of the following statements about universal life insurance in NOT true death benefit can be increased premiums are flexible universal life insurance normally has a minimum guaranteed cash value for duration of the policy the cash value interest rate must equal or exceed a guaranteed minimum value - Correct Answers universal life insurance normally has a minimum guaranteed cash value for duration of the policy contributions made by an employee to a qualified retirement plan are required to be subject to income taxes fully refundable nonforfeitable subject to a vesting schedule - Correct Answers subject to a vesting schedule taxable income may be the result from all of these modified endowment contract (MEC) tranasactions except for a cash value loan is taken out automatic premium loan provision is utilized the policy is surrendered for less than what was paid into it dividend is issued - Correct Answers the policy is surrendered for less than what was paid into it which statement regarding the life insurance premium for a childrens rider is true decreasing premium as each child becomes an adult premium remains the same no matter how many children increasing premium as additional children are born no premium is normally charged for a childrens rider - Correct Answers premium remains the same no matter how many children which of the life insurance policies does NOT contain a cash value provision modified whole life universal life decreasing term life adjustable life - Correct Answers decreasing term life what is the tax treatment of benefit payments for a non-qualified annuity benefit payments are always fully taxable benefit payments are subject to taxes only prior to age 70 1/2 benefit payments must begin at age 59 1/2 to void a penalty benefit payments received after 70 1/2 are always tax-exempt - Correct Answers benefit payment are always fully taxable the insurance coverage in a variable life insurance policy may vary based on the value of the AM best rating the company has received its underlying investments the consumer price index the total premiums paid - Correct Answers its underlying investments a life insurance policys waiver of premium rider has the ability to waive the premium payments in the event the insured becomes financially insolvent relieve the insured of preimum payments following an initial waiting period after the insured becomes totally disabled provide a policy loan to cover the premium payments in the event the insured becomes totally disabled waive the premiums on this policy as well as any other insurance policy belonging to the insured i the event of total disability - Correct Answers relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled kevin has an existing life insurance policy and assigns it to another insurer for a new contract. how would this transaction be treated for tax purposes as section 1035 exchange as a transfer as a rollover as a section 1040 exchange - Correct Answers as a section 1035 exchange when would evidence of insurability be required for a person already covered with a variable universal life policy when the premium is increased when the policy has renewed when the death benefit is increased when policy is being converted to permanent coverage - Correct Answers when the death benefit is increased which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy mortality costs administrative charges investment management fees federal premium taxes - Correct Answers federal premium taxes a material change in a modified endowment contract (MEC) results in the contract becoming void a new contestable period the seven pay test, adjustable for cash value, applies again a tax penalty - Correct Answers the seven pay test, adjustable for cash value, applies again which event triggers a deferred annuity to start making benefit payments to the annuitant when he owner dies when the contracts cash value exceeds the cost basis when the contract is annuitized cash surrender of the annuity - Correct Answers when the contract is annuitized A business becoming incorporated is an example of risk . eduction severance retention transfer - Correct Answers transfer A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct? If the interest rate falls below a specified level, the surrender charge is waived If the interest rate rises above a certain level, the surrender charge is waived It allows the Life and Health Guaranty Association to bailout the insolvent insurer A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent - Correct Answers If the interest rate falls below a specified level, the surrender charge is waived An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction? 10% is withheld for income taxes 20% is withheld for income taxes 30% is withheld for income taxes Nothing is withheld - Correct Answers 20% is withheld for income taxes Which of these is NOT an advantage of term life insurance? The greatest amount of coverage can be provided for the initial premium paid It can be provided as a rider to another policy A cash benefit will be provided if the insured is alive at the end of the policy period Temporary insurance needs can be met - Correct Answers A cash benefit will be provided if the insured is alive at the end of the policy period Which of the following is a TRUE statement regarding universal life insurance? Death benefits are normally taxable Policy loans are not permitted Premiums or face amount cannot be changed Policy indicates how much of each premium is used toward company expenses - Correct Answers Policy indicates how much of each premium is used toward company expenses Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments? Variable universal life Modified endowment contract Adjustable life Graded premium whole life - Correct Answers Variable universal life How long does protection normally extend to under a limited pay whole life policy? It depends on the performance of the underlying investment account When premiums are no longer required as stated in the contract Until age 65 Until age 100 - Correct Answers until age 100 A life policy that has premiums that are lower than normal during the early years is called Decreasing term Modified life Variable life Limited-pay life - Correct Answers Modified life The annuitant in a single premium deferred annuity (SPDA) receives immediate benefit payments makes only one premium payment can make tax-free withdrawals until the principal is recovered is also the beneficiary - Correct Answers receives immediate benefit payments How can an insurance company minimize exposure to loss? Risk concealing Reinsuring risks Reissuance Risk assumption - Correct Answers Reinsuring risks What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured? Joint and survivorship Survivorship life Universal life Joint life - Correct Answers joint life What happens to the cash value of a market value adjusted annuity if it's surrendered prior to the end of the stated guarantee period? Subject to market value adjustment Subject to no adjustments Subject to a surrender charge only Cash value is forfeited - Correct Answers Subject to market value adjustment What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract? All actions by the producer Not responsible for any acts by the producer Responsible for acts that involve misrepresentation only Responsible for acts by the producer that are authority only - Correct Answers Responsible for acts by the producer that are authority only A life insurance producer's underwriting duties may include approving or declining a life insurance application seeking additional information requested by the insurance company ordering an MIB report determining the rate classification of the applicant - Correct Answers seeking additional information requested by the insurance company Which of these annuity contract features is meant to discourage withdrawals and exchanges? Annuitization Annual fees Withdrawal penalty Surrender charges - Correct Answers Surrender charges A Keogh plan is a(n) unqualified retirement plan for large corporations qualified retirement plan for the self employed tax-exempt annuity for government workers split dollar plan for key employees - Correct Answers qualified retirement plan for the self employed A qualified profit-sharing plan is designed to allow key employees to participate in the profits of the company distribute a portion of company earnings to its employees keep key employees from leaving the company allow employees to elect company officers - Correct Answers distribute a portion of company earnings to its employees What effect can a long-term care benefit rider have on a life insurance policy? Increased cash value Decreased cash value Increased death benefit Reduced death benefit - Correct Answers Reduced death benefit ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk transference retention reduction avoidance - Correct Answers reduction Which of the following is NOT a reason for a business to buy key person life insurance? The reduction in sales as a direct result from death of the key employee A void in leadership if the key person were to die The loss of company revenues while a replacement is being sought An increased pension liability if the key employee dies - Correct Answers An increased pension liability if the key employee dies The insurance coverage in a variable life insurance policy may vary based on the value of the AM Best rating the company has received its underlying investments the consumer price index the total premiums paid - Correct Answers its underlying investments Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy? Convert the cash value to a paid-up term policy Gives policyowner ability to borrow against funds within two years Increases the policy's face amount Provide supplemental income in 35 years - Correct Answers Provide supplemental income in 35 years An agent's authority to bind an insurer to an insurance contract may be granted in the agent's contract and the insurance company's appointment agent's license and insurance company's certificate of authority buyer's guide and policy summary state guaranty association - Correct Answers agent's contract and the insurance company's appointment An annuity's accumulation period may continue after the purchase payments stop continue after the benefit payments start continue after the annuitant dies continue after the annuity has been surrendered - Correct Answers continue after the purchase payments stop When would evidence of insurability be required for a person already covered with a variable universal life policy? When the premium is increased When the policy has renewed When the death benefit is increased When policy is being converted to permanent coverage - Correct Answers When the death benefit is increased What is considered the collateral on a life insurance policy loan? No collateral is needed The policy's cash value The policy's face value The equity in a policyowner's home - Correct Answers The policy's cash value What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued? $0 $50,000 Under $50,000 initially, but decreases annually over time Under $50,000 initially, but increases over time - Correct Answers Under $50,000 initially, but increases over time Under the Law of Agency, the principal is considered to be the producer the insurer the plan administrator the insured - Correct Answers the insurer Which would be described as a beneficiary designation by class? Children of the insured Estate of the insured Tertiary beneficiary A specific named beneficiary - Correct Answers Children of the insured Which of these policies is considered a whole life policy? Credit life Single premium life Renewable life Convertible life - Correct Answers Single premium life An insurance policy that can also be classified as a securities product is called variable life modified life universal life a Modified Endowment Contract - Correct Answers variable life How does a continuous premium whole life policy differ from a limited payment whole life policy? The time period in which premiums will be paid The availability of cash value loans The availability of nonforfeiture options The settlement options - Correct Answers The time period in which premiums will be paid Which statement is INCORRECT about the interest-only settlement option in a life insurance policy? Interest rate is guaranteed with a minimum rate Interest on proceeds must be paid by the beneficiary Interest is payable to a stated beneficiary Interest must be paid at least annually - Correct Answers Interest on proceeds must be paid by the beneficiary All of these are considered features of whole life insurance EXCEPT Cash value accumulation Permanent coverage Initial premium is lower than for an equivalent amount of term insurance Policy loans are allowed - Correct Answers Initial premium is lower than for an equivalent amount of term insurance Which benefit is normally payable to a life insurance policyowner when the insured's life expectancy has been severely limited? Reduced paid-up option Accelerated (living) benefit Return of Premium benefit Extended term option - Correct Answers Accelerated (living) benefit Who normally pays the premiums for group credit life insurance? Creditor and borrower share the cost equally Borrower Creditor Beneficiary - Correct Answers Borrower Which of these is NOT a common life insurance nonforfeiture option? Reduced paid-up insurance Extended term option Cash surrender option Life income annuity - Correct Answers Life income annuity An individual who purchases a modified life insurance policy expects a higher rate of return coverage for two people an improvement in future income a flexible face amount - Correct Answers an improvement in future income Which of these is a true statement regarding survivor benefits under a qualified retirement plan? Survivor benefits can only be waived with the written consent of a married employee's spouse Survivor benefits CANNOT be waived with the written consent of a married employee's spouse Survivor benefits are rarely included in small company plans Survivor benefits do not apply to divorced employees - Correct Answers Survivor benefits can only be waived with the written consent of a married employee's spouse Which of the following would NOT be appropriate for an immediate annuity? A lottery winner who opted for a lump-sum payment A parent saving for a child's college A beneficiary collecting the face amount of a life insurance policy Someone who just won a large settlement - Correct Answers A parent saving for a child's college A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to purchase life insurance policies on his children as they are born purchase life insurance on a spouse after becoming married purchase additional life insurance at anytime periodically purchase additional insurance - Correct Answers periodically purchase additional insurance Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity? Ages 70 and 72 Ages 60 and 80 Ages 71 and 73 Ages 69 and 71 - Correct Answers Ages 71 and 73 How is a collateral assignment used in a life insurance contract? Transfers permanent ownership rights to a creditor Assigns complete ownership rights to a creditor Transfers specific ownership rights to a creditor Assigns ownership rights to the primary beneficiary - Correct Answers Transfers specific ownership rights to a creditor What could be the potential result of taking out a cash value loan under a life insurance policy? Death benefit will be subject to income taxes if insured dies with an outstanding loan balance Interest that accrues on policy loan is tax-deductible to the policyowner Loan amount will be added to the policyowner's gross income Reduces the amount receivable upon surrender of the contract - Correct Answers Reduces the amount receivable upon surrender of the contract Which statement regarding the cash value of a whole life insurance policy is correct? Can be borrowed against, starting in the policy's fifth year Cash value accumulation is based on the performance of a separate investment account Available to the policyowner when policy has been surrendered Starts growing with the initial premium - Correct Answers Available to the policyowner when policy has been surrendered During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to? Trustee Beneficiary Policyowner Annuitant - Correct Answers Annuitant Which of these statements is NOT true regarding a cash value loan against a life insurance policy? Interest normally accrues on unpaid balances Loan cannot exceed the policy's cash value Policy contract terms dictate the interest rate Interest payments made by policyowner are deductible - Correct Answers Interest payments made by policyowner are deductible Which of these is NOT considered to be a cost connected with an individual's death? Funeral expense Tax liability Business expenses Probate costs - Correct Answers Business expenses What is an insurance contract that identifies individuals by relationship to a specific organization? Employer insurance Group insurance COBRA plan Industrial insurance - Correct Answers Group insurance According to the IRS, a company may NOT do which of the following in regards to funds in a qualified retirement plan? Transfer the funds to a new custodian Invest the funds in mutual funds Transfer vested funds to terminated employees Repossess the funds for business purposes - Correct Answers Repossess the funds for business purposes Which of the following is associated with an immediate annuity? Tax-free benefit payments Installment premium payments Lack of an accumulation period Lump-sum benefit - Correct Answers Lack of an accumulation period Scott has a life insurance policy in which the dividends are left with the insurance company. This particular policy may be paid up when the cash value plus accumulated dividends equal the net single premium for the same face amount at the insured's attained age can purchase extended term coverage for a period of two years or more equal the nonforfeiture value of the policy can purchase a paid-addition - Correct Answers equal the net single premium for the same face amount at the insured's attained age A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called fixed period period certain installment refund straight life - Correct Answers period certain What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up? Increases Decreases Not affected by inflation Tied to stock index - Correct Answers Decreases Under which circumstance is the interest rate guaranteed within a market value adjusted annuity? When the contract has been held for the period specified in the policy For the entire length of the contract Never When the cash value has reached a stated minimum amount - Correct Answers When the contract has been held for the period specified in the policy When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus bailout option charge surrender charges taxes owed expenses and withdrawals - Correct Answers expenses and withdrawals A retired couple would like to maximize the income derived from their combined life savings and have it payable until they both die. Which annuity would be their best choice? Fixed annuity Survivorship annuity Joint life annuity Joint and survivor annuity - Correct Answers Joint and survivor annuity The reason for backdating a policy is to avoid being considered a substandard risk due to a recent cancer diagnosis to obtain a premium rate based on an earlier age to decrease the face amount to decrease the Contestable period - Correct Answers to obtain a premium rate based on an earlier age What effect does interest income have upon insurance premiums? Increases premium Decreases premium Levels the premium Adjusts premium on a quarterly basis - Correct Answers Decreases premium A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today? $200,000 $80,000 $120,000 $0 - Correct Answers $200,000 An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately had the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee? Distribution is subject to capital gains tax Distribution is subject to ordinary income tax Distribution is subject to a tax penalty Distribution is subject to federal income tax withholding - Correct Answers Distribution is subject to federal income tax withholding When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld? 10% 20% 30% None - Correct Answers none Which of the following would most likely purchase an immediate annuity? Individual wishing to contribute to a tax-sheltered annuity Individual wanting to accumulate an investment over time Retiree having a lump sum to invest Business needing an immediate tax write-off - Correct Answers Retiree having a lump sum to invest A business may purchase an annuity for all of the following reasons EXCEPT Structuring a liability settlement payment informally funding a non-qualified deferred compensation plan Accumulating assets on a tax-deferred basis Providing a pension to employees - Correct Answers informally funding a non-qualified deferred compensation plan During the first two years a life insurance policy is in force, the insurer may contest a policy for all of the following reasons EXCEPT Misstatement of age in the application Material misrepresentation in the application Fraud in the purchase of the policy Material concealment in the purchase of a policy - Correct Answers Misstatement of age in the application An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as? Back-end assessment Cancellation fee Surrender charge Tax penalty - Correct Answers Surrender charge Which statement regarding the waiver of premium rider is accurate? Policy loans are used to keep the policy active Cash payment is not directly provided to the policyowner Insurance companies are required to offer this to all policyowners Premiums are waived in the event of bankruptcy - Correct Answers Cash payment is not directly provided to the policyowner The initial premium for a life insurance policy is typically paid in what way? The applicant mails it to the insurer after the policy has been approved It is typically obtained by the producer and forwarded to the insurer It is typically forwarded to the insurer by the applicant The producer pays it from any commissions received - Correct Answers It is typically obtained by the producer and forwarded to the insurer An officer for a corporation takes out numerous unsecured loans from the company's qualified retirement plan. Which of these rules is the plan in violation of? Key employee rule Top heavy rule Vesting rule Exclusive benefit rule - Correct Answers Exclusive benefit rule The time limit an individual has to "rollover" funds from an IRA or qualified plan is 60 days 90 days 120 days No Limit - Correct Answers 60 days The contractual rights which allow the owner of a deferred annuity to surrender the cash value several years before the annuity date are called nonforfeiture options settlement options conversion options surrender options - Correct Answers nonforfeiture options Which statement concerning a decreasing term life policy is accurate? Cash value decreases over the policy period Premium decreases over the policy period Face amount decreases over the policy period Face amount stays the same over the policy period - Correct Answers Face amount decreases over the policy period Which type of policy can group term life insurance normally be converted to? An individual renewable policy An individual level term policy An individual permanent life insurance policy A group permanent life insurance policy - Correct Answers An individual permanent life insurance policy Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment? The insurer can charge a higher rate of interest Loan amount is increased to reflect the amount of interest due Future loan privileges will be suspended The loan balance becomes due immediately - Correct Answers Loan amount is increased to reflect the amount of interest due In a qualified retirement plan, the yearly contributions to an employee's account are not tax-deductible are restricted to minimum levels set by the IRS are restricted to maximum limits set by the IRS must be matched dollar-for-dollar by the employer - Correct Answers are restricted to maximum limits set by the IRS How are qualified Roth IRA distributions normally treated for tax purposes? 10% penalty tax is applied Taxed as ordinary income Capital gains tax is applied Received income tax-free - Correct Answers Received income tax-free What is the guaranteed cash value of a whole life insurance policy when the insured turns 65 years old? Greater than the policy's face amount Less than the policy's face amount Depends on the performance of the separate underlying investment account Equal to the policy's face amount - Correct Answers Less than the policy's face amount In an individual retirement account (IRA), rollover contributions are subject to capital gains tax subject to ordinary income tax partially limited by dollar amount unlimited by dollar amount - Correct Answers unlimited by dollar amount When does the owner's contractual rights begin under an individual annuity contract? Time of purchase When the benefit period begins When the accumulation period ends After free-look period expires - Correct Answers Time of purchase Where is the difference between a standard risk and a substandard risk reflected? Backdating Coverage is not offered Premium charges Back-end charges - Correct Answers Premium charges Which of these factors does NOT influence an individual's need for life insurance? Lifestyle of the applicant Number of dependents Future educational costs of the dependents Self-maintenance expenses - Correct Answers Self-maintenance expenses An appointed producer's implied authority is derived from the NAIC express authority the insurer's Certificate of Authority evident authority - Correct Answers express authority What could be the potential result of taking out a cash value loan under a life insurance policy? Death benefit will be subject to income taxes if insured dies with an outstanding loan balance Interest that accrues on policy loan is tax-deductible to the policyowner Loan amount will be added to the policyowner's gross income Reduces the amount receivable upon surrender of the contract - Correct Answers Reduces the amount receivable upon surrender of the contract The death proceeds of a credit life insurance policy are typically paid to the borrower lender annuitant borrower's dependents - Correct Answers lender Rick recently died and left behind an individual IRA account in his name. His widow was forwarded the balance of the IRA. The transfer of Rick's IRA account balance to his surviving spouse qualifies for the marital deduction death benefits Section 1035 exchange capital gains taxation - Correct Answers the marital deduction Which of the following is NOT considered to be an expense for surviving family members of a deceased wage earner? Estate taxes Unemployment tax expenses Funeral expense Living expenses - Correct Answers Unemployment tax expenses Tim is confined to a nursing home but doesn't have a terminal illness. Which life insurance rider is designed to help pay for this type of expense? Cash value rider Viatical rider Accelerated (living) benefit rider Long-term care benefit rider - Correct Answers Long-term care benefit rider Which benefit can be found in an equity indexed annuity, but not in a fixed annuity? Protection against living too long Equity loans A fixed rate of return Protection against long-term inflation - Correct Answers Protection against long-term inflation What type of premiums are associated with individual mortgage protection life insurance policies? Level premiums Flexible premiums Modified premiums Decreasing premiums - Correct Answers Level premiums Which of the following can be used to avoid the mandatory withholding tax on qualified plan distributions? Qualified plan waiver Trustee-to-trustee transfer Conduit IRA 1035 exchange - Correct Answers Conduit IRA A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen? Paid-up additions Accumulation at interest 1-year term Reduction of premium payment - Correct Answers Reduction of premium payment Which action will trigger a penalty tax on premature distributions from a modified endowment contract (MEC)? policy loans claim on a death benefit extended term settlement option policyowner reaching the age of 70 1/2 - Correct Answers policy loans Which of the following would NOT be a reason for purchasing life insurance on a child's life? Provide benefits for the child if the parents die Pay for the child's funeral expenses Provide a start on the child's personal insurance Help provide funds for the child's education - Correct Answers Provide benefits for the child if the parents die A nonparticipating whole life insurance policy was surrendered for its $20,000 cash value. The total premiums paid had totaled $16,000. What were the federal income tax consequences to the policyowner on receipt of the cash value? $16,000 was received as ordinary income and $4,000 as tax-free $20,000 was received as a capital gain $20,000 was received as ordinary income $16,000 was received tax-free and $4,000 as ordinary income - Correct Answers $16,000 was received tax-free and $4,000 as ordinary income The surrender charge on many deferred annuity contracts are waived when the annuitant becomes unemployed annuitant dies or becomes disabled contract's interest rate falls below a stated percentage contract is canceled within the first year - Correct Answers annuitant dies or becomes disabled Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy? Prevents a policy from lapsing in the event of total disability Premiums waived by the insurer do not have to be repaid by the policyowner Policy's cash value would still increase as policy premiums are being waived It allows a policy loan to cover premium payments if the policyowner becomes totally disabled - Correct Answers It allows a policy loan to cover premium payments if the policyowner becomes totally disabled