ALABAMA LIFE INSURANCE EXAM QUESTIONS WITH ANSWERS 2024

Which clause allows the insured to change an existing policy to any other policy of any type as long as the new policy has a higher premium, without any proof of insurability? - ANSWERS Privilege of change clause The extended term nonforfeiture option provides: - ANSWERS Paid-up term coverage equal to that of the original policy With a collateral assignment of a life policy to a creditor: - ANSWERS You assign a partial amount of the policy values to the creditor An accounting measure used to determine a contract owner's interest in the separate account of a variable annuity before payments begin is called: - ANSWERS An accumulation unit Group Insurance Market: A certificate of insurance is issued to whom? - ANSWERS Each individual covered by the group life insurance The principal difference between an entity purchase and a cross purchase buy-sell agreement is: - ANSWERS The identity of the policy owner (the main difference is who owns the policy) How long is the probationary period for group life insurance? - ANSWERS The probationary period is usually 90 days. What is the primary purpose of a section 303 redemption? - ANSWERS To provide liquidity to pay estate taxes and administration and funeral costs What is it called when an insurance company sells part of their risk to another insurance company? - ANSWERS Reinsurance (also, risk-sharing) The policy conditions represent the obligation of whom? - ANSWERS Both the insured and the insurer Does social insurance provide equal benefits to all citizens that contribute? - ANSWERS No. As income is re-distributed through the governmental system, insureds who put less into the system such as the poor, elderly, and those with dependents get proportionately greater benefits. In determining whether disability is permanent, most companies call for a waiting period of how long? - ANSWERS 3 to 6 months What can the cash value of a permanent life insurance policy be used for? - ANSWERS Cash values can be used as nonforfeiture option, policy loans, full or partial surrender's, but not for accidental death benefits. What are the essential elements of a contract? - ANSWERS Remember the acronym: CLOC: consideration, offer and acceptance, competent parties, and legal purpose What market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers? - ANSWERS The residual marketplace Describe the term reserve - ANSWERS That amount that, when increased by future premiums on outstanding policies, and interest on this premiums will enable the company to meet future death claims How are premiums generally calculated by insurers? - ANSWERS Insurers generally calculate premiums on an annual basis, and then prorate according to the mode selected. The more frequent the premium, the more overall the cost. When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start? - ANSWERS On the date the policy is delivered and premium collected At what age does the waiver of premium rider normally expire? - ANSWERS 60 In a whole life insurance policy when is the cash value at its greatest? - ANSWERS At the end of the policy term. In a whole life insurance policy when is the insurance protection at its greatest? - ANSWERS The insurance protection is greatest at the start of a policy. At the start, a whole life policy is all insurance protection. The policy begins to build cash value, the cash value eventually equals the death benefit when the policy endows. Therefore, the cash value is its greatest at the end of the policy term. An insured allows a permanent policy to lapse: Unless otherwise instructed, what will the insurance company do? - ANSWERS The insurance company will automatically institute the extended term option What type of annuity guarantees to pay total income at least equal to the purchase price of the contract? - ANSWERS A refund life annuity What does a split-dollar plan do? - ANSWERS A split-dollar plan divides the cost of additional insurance for an employee between that employee and the company. If death occurs while employed, the death benefit is shared between the employer and the employee's beneficiary A Taft-Hartley trust is established by one or more: - ANSWERS Labor unions or associations What is the minimum requirement for currently insured status under the Social Security system? - ANSWERS At least 6 credits earned in the 13 calendar quarters prior to death, disability, or is entitled to retirement benefits Can an annuity contract be exchanged for a life contract under section 1035 policy exchange? - ANSWERS No. An annuity contract can only be exchanged for another annuity contract under IRC section 1035 exchange rules. If an annuitant with drawls funds from their annuity prior to age 59 1/2 what is the tax consequence? - ANSWERS Tax and 10% penalty tax on the withdrawal that represents earnings What qualifying event could initiate the accelerated benefits provision or rider of a life policy? - ANSWERS A condition that is terminal (projected to die within one or two years) What are non-financial regulatory activities known as - ANSWERS Market conduct How long must an applicant who fails two examinations for the same line of authority wait to take another examination for that line of authority? - ANSWERS Three months Who owns a mutual company? - ANSWERS A mutual company is mutually owned by its policy holders, therefore, there are no stockholders. What must a mutual company have in order to be able to start operations? - ANSWERS To be approved to start operations, a mutual company must have a minimum number of applications for insurance, the advanced premium payment for each application, and a minimum surplus. In Alabama, who appoints the Commissioner of insurance? - ANSWERS The Governor Assets in a separate account are valued at: - ANSWERS Their market value on the date of valuation When the cash value account of a universal life policy reaches zero, what will happen if the policy owner does not make a premium payment? - ANSWERS The policy goes into the grace perio