LIFE HEALTH AND ANNUITIES INSURANCE QUESTIONS & VERIFIED CORRECT DETAILED ANSWERS

LIFE HEALTH AND ANNUITIES INSURANCE QUESTIONS & VERIFIED CORRECT DETAILED ANSWERS Insurance addresses what type of risk? - ANSWER Pure In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this? - ANSWER Unilateral Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features? - ANSWER Aleatory Which of these is NOT a type of agent authority? - ANSWER principal When must insurable interest be present in order for a life insurance policy to be valid? - ANSWER When the application is made A life insurance policy would be considered a wagering contract WITHOUT: - ANSWER Insurable interest All of the following are considered to be typical characteristics describing the nature of an insurance contract, EXCEPT: - ANSWER Bilateral A policy of adhesion can only be modified by whom? - ANSWER The insurance company Which of these is considered a statement that is assured to be true in every respect? - ANSWER Warranty Which of these require an offer, acceptance, and consideration? - ANSWER Contract Who makes the legally enforceable promises in a unilateral contract? - ANSWER Insurance company When must insurable interest exist for a life insurance contract to be valid? - ANSWER Inception of the contract Which of the following consists of an offer, acceptance, and consideration? - ANSWER Contract Which of the following BEST describes a warranty? - ANSWER Statement guaranteed to be true What is the consideration given by an insurer in the consideration clause of a life policy? - ANSWER Promise to pay a death benefit to a named beneficiary The part of a life insurance policy guaranteed to be true is called a - ANSWER warranty Which of these is NOT considered to be an element of an insurance contract? - ANSWER negotiating Taking receipt of premiums and holding them for the insurance company is an example of - ANSWER Fiduciary responsibility A life insurance arrangement which circumvents insurable interest statutes is called: - ANSWER Investor-Originated Life Insurance Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid. - ANSWER Conditional Insurance policies are offered on a "take it or leave it" basis, which make them: - ANSWER Contracts of Adhesion Which of these arrangements allows one to bypass insurable interest laws? - ANSWER Investor-Originated Life Insurance E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to? - ANSWER F Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements? - ANSWER Legal Purpose (Insurable Interest) Life and health insurance policies are: - ANSWER unilateral contracts When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have - ANSWER Insurable interest in the proposed insured A policy of adhesion can only be modified by whom? - ANSWER The insurance company The consideration clause of an insurance contract includes: - ANSWER The schedule and amount of premium payments A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of - ANSWER Adhesion Insurance policies are considered aleatory contracts because - ANSWER Performance is conditioned upon a future occurrence At what point does an informal agreement become a binding contract? - ANSWER When consideration is provided by one of the parties to the contract If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of? - ANSWER Insured The insured and Insurance company will share the cost of covered losses under which health policy feature? - ANSWER Payment of Claims provision XYZ Corp was issued a group Health policy for its employees. Under this plan a: - ANSWER Policy must be issued to XYZ, and a certificate must be issued to each employee Bryce purchased a disability income policy with a rider that guarantees him the option of purchasing additional amounts of coverage at predetermined times without requiring to provide evidence of insurability. What kind of rider is this? - ANSWER Guaranteed insurability rider An employer that offers a qualified retirement plan to its employees is eligible to: - ANSWER make tax-deductible contributions to the plan A policyowner's rights are limited under which beneficiary designation? - ANSWER Irrevocable The Notice of Claims provision requires a policyowner to: - ANSWER Notify an insurer of a claim within a specified time An underwriter determines that a life insurance applicant's risk should be reclassified due to a health issue. This policy may be issued with a(n): - ANSWER Extra premium P's individual health policy is now in the Grace Period. P's coverage will remain in force if: - ANSWER the premium is paid In health insurance policies, a waiver of premium keeps the coverage in force without premium payments: - ANSWER After an insured has become totally disabled as defined in the policy T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this? - ANSWER Life annuity with period certain Dividends payable to a policyowner are - ANSWER declared by the insurance company A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a: - ANSWER risk retention group What type of reinsurance contract involves two companies automatically sharing their risk exposure? - ANSWER Treaty Who elects the governing body of a mutual insurance company? - ANSWER policyholders An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the - ANSWER Fair Credit Reporting Act At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act? - ANSWER Upon completion of the application When a policy pays dividends to its policyholders, it is said to be - ANSWER participating The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called - ANSWER Reserves Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated: - ANSWER 1970- Fair credit reporting act What year was the McCarran-Ferguson Act enacted? - ANSWER 1945 Which of these describe a participating insurance policy? - ANSWER Policyowners are entitled to receive dividends A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as: - ANSWER A fraternal benefit society What is the name of the law that requires insurers to disclose information gathering practices and where the information was obtained? - ANSWER Fair Credit Reporting Act The probability of loss becoming more predictable is attributed to: - ANSWER Law of Large Numbers Which of the following is a requirement for a risk to be considered insurable? - ANSWER Predictability of loss The Law of Large Numbers involves a: - ANSWER Large group of homgeneous units The cause of a loss is referred to as a - ANSWER Peril All of the following are examples of pure risk EXCEPT - ANSWER Losing money at a casino Insurance companies determine risk exposure by which of the following? - ANSWER Law of large numbers and risk pooling What is known as the immediate specific event causing loss and giving rise to risk? - ANSWER Peril How do insurers predict the increase of individual risks? - ANSWER Law of large numbers People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called - ANSWER Adverse selection In regards to representations or warranties, which of these statements is TRUE? - ANSWER If material to the risk, false representations will void a policy Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called - ANSWER Representations All of these are characteristics of an Adjustable Life policy EXCEPT - ANSWER face amount can be adjusted using policy dividends The investment gains from a Universal Life Policy usually go toward - ANSWER The cash value Term insurance has which of the following characteristics? - ANSWER Expires at the end of the policy period The combination of Whole Life and _________ Term insurance is referred to as a Family Income Policy - ANSWER Decreasing Which of the following types of permanent life insurance policies offers the highest initial cash value? - ANSWER Single Premium A Limited-Pay Life policy has: - ANSWER premium payments limited to a specified number of years What advantage does the renew ability feature give to a term policy? - ANSWER The insured may extend the coverage period Which of these characteristics is consistent with a Straight Life policy? - ANSWER Premiums are payable for as long as there is insurance coverage in force Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy? - ANSWER Increase face amount Who has the option to renew a renewable term policy? - ANSWER Insured Additional coverage can be added to a Whole Life policy by adding a(n) - ANSWER Decreasing term rider How does a typical Variable Life Policy investment account grow? - ANSWER Through mutual funds, stocks, bonds A life policy that contains a monthly mortality charge as well as self-directed investment choices is called a(n) - ANSWER Variable Universal Life policy G purchased a Family Income policy at age 40, The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income? - ANSWER 10 years Which statement is correct regarding the premium payment schedule for whole life policies? - ANSWER Premiums are payable throughout the insured's lifetime/ coverage lasts until death of the insured A(n) ________ life policy offers the owner investment in products such as money-market funds, long-term bonds and equities. - ANSWER Variable Which statement about a whole life policy is true? - ANSWER Cash value may be borrowed against Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health? - ANSWER conversion Whole Life insurance is sometimes referred to as "Straight Life." What does the word "straight" indicate when using this phrase? - ANSWER The duration of premium payments Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase? - ANSWER Whole life policy with an other insured rider P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own? - ANSWER Endowment at age 70 S, age 40, is looking to buy a Life Insurance policy that will allow for increases or decreases in coverage as his needs change. The policy best suited for S would be - ANSWER Universal Life D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed? - ANSWER Level Term Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling? - ANSWER Variable Life S is covered by a whole life policy. Which insurance product can cover his children? - ANSWER Child term rider What does a Face Amount Plus Cash Value Policy supposed to pay at the insured's death? - ANSWER Face amount plus the policy's cash value Life insurance immediately creates an estate upon the death of an insured. Which of the following policies is characterized by a guaranteed minimum death benefit? - ANSWER Variable Life A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision? - ANSWER Payor provision At what point does a Whole Life insurance policy endow? - ANSWER When the cash value equals the death benefit Which of the following policies is characterized by a flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan? - ANSWER Variable universal life Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies? - ANSWER Policyowner Which of these is an element of a Variable Life Policy? - ANSWER A fixed, level premium What type of life insurance incorporates flexible premiums and an adjustable death benefit? - ANSWER Universal Life Which of the following features of a group term life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability? - ANSWER Conversion privilege Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - ANSWER Variable life A 15-year mortgage is best protected by what kind of life policy? - ANSWER 15-year decreasing term What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years? - ANSWER Family maintenance policy How long does the coverage normally remain on a limited-pay life policy? - ANSWER age 100 What type of life insurance gives the greatest amount of coverage for a limited period of time? - ANSWER Term life What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time? - ANSWER Decreasing term What kind of life insurance product covers children under their parent's policy? - ANSWER Term rider What kind of premium does a whole life policy have? - ANSWER Level Premium Which of the following types of Term Life policies most likely contains a Renewability feature? - ANSWER 10 year convertible term Which is true concerning a Variable Universal Life policy? - ANSWER Policyowner controls where the investment will go and selects the amount of the premium payment A life insurance policy that provides a policyowner with cash value along with a level face amount is called: - ANSWER Whole life N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase? - ANSWER 30 pay life A company that owns a life insurance policy on one of its key employees may do all of the following EXCEPT - ANSWER Change the policy's interest rate K purchased a Life insurance policy in 1986 which paid 10% interest in the early years of the policy. Twenty years after the purchase, she received a notice from the insurer stating that the policy will soon terminate unless a much-higher premium is paid because of falling interest rates. This type of policy is known as a(n) _________ life policy. - ANSWER Universal Life insurance that covers an insured's whole life with level premiums paid over a limited time is called: - ANSWER Limited Pay life Which of the following actions is NOT possible with a Universal Life policy? - ANSWER Premiums may be applied as a credit against income tax When is the face amount paid under a joint life and survivor policy? - ANSWER upon the death of the last insured K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - ANSWER 20,000 death benefit Which of the following life insurance policies combine term insurance with an investment element? - ANSWER Universal Life What type of life policy covers two people and pays upon the death of the last insured? - ANSWER Survivorship Which of these life products is NOT considered interest-sensitive? - ANSWER Modified Whole Life K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this? - ANSWER Modified Whole Life Variable Whole Life Insurance can be described as - ANSWER both an insurance and securities product K is looking to purchase Renewable Term insurance. Which of these types of Term insurance may be renewable? - ANSWER Level Which of the following information is NOT required to be included in a Whole Life policy? - ANSWER Policy's guaranteed dividend table Whole Life insurance policies are contractually guaranteed to provide each of the following EXCEPT - ANSWER Partial withdrawal features beyonh a surrender charge period What type of life policy covers two lives and pays the face amount after the first one dies? - ANSWER Joint Life Policy When is the face amount of a whole life policy paid? - ANSWER When the insured dies or at the policy's maturity date, whichever happens first Which of these statements describe a Modified Endowment Contract (MEC)? - ANSWER Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract Credit Life Insurance is: - ANSWER issued in an amount not to exceed the amount of the loan J is issued a Life Insurance policy with a death benefit of $100,000. She pays $600 per year in premium for the first 5 years. The premium then increases to $900 per year in the sixth year, and remains level thereafter. The policy's death benefit also remains at $100,000. Which type of Life Insurance policy is this? - ANSWER Modified Premium Life Which of these would be considered a Limited-Pay Life policy? - ANSWER Life paid-up at age 70 Which of the following is considered an element of a Variable Life Policy - ANSWER Underlying equity investment All of these insurance products require an agent to have proper FINRA securities registration in order to sell them, EXCEPT for: - ANSWER Modified Whole Life A term life insurance policy matures: - ANSWER upon the insured's death during the term of the policy What type of policy would offer a 40-year old the quickest accumulation of cash value? - ANSWER 20-pay Life The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is: - ANSWER The cost A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - ANSWER 20-pay Life accumulates cash value faster than straight life Credit life insurance is typically issued with which of the following types of coverage? - ANSWER Decreasing Term Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n): - ANSWER Third-party with no insurable interest Under a Graded Premium policy, the premiums - ANSWER are lower during the policy's early years S owns a life insurance policy with cash values that fluctuate according to the underlying investment performance of common stocks. Which of these policies does S own? - ANSWER Variable Whole Life An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager? - ANSWER Key person Insurance What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies? - ANSWER Family Maintenance Policy What type of insurance offers permanent life coverage with premiums that are payable for life? - ANSWER Whole Life A policy that becomes a Modified Endowment Contract (MEC): - ANSWER Will lose many of its tax disadvantages When a life insurance policy exceeds certain IRS table values, the result would create which of the following? - ANSWER Modified Endowment Contract (MEC) The amount of coverage on a group credit life policy is limited to: - ANSWER The insured's total loan value A variable insurance policy: - ANSWER does not guarantee a return on its investment accounts T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase? - ANSWER 10-year endowment The cash value in a __________ life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors. - ANSWER Universal Which statement is TRUE regarding a Variable Whole Life policy? - ANSWER A minimum guaranteed Death benefit is provided K is shopping for a permanent life insurance policy that will offer her the MOST protection per dollar of annual premium. Which of these policies best fits her needs? - ANSWER Straight Life When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply? - ANSWER Conversion provision Term Life Policies that have the ability to be converted to permanent coverage may do so during a specific time period. This conversion period - ANSWER Varies according to the contract Which of the following types of policies pays a benefit if the insured goes blind? - ANSWER Accidental death and dismemberment (AD&D) P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20 year period. What type of policy should P purchase? - ANSWER Family Maintenance Policy