AD Banker Comprehensive Exam practice questions

A producer who is acting as an agent is representing: A The insured, the applicant and the beneficiary B Always the insured C The insured and the insurer D Always the insurer - ANSWERSD In order to be valid, a contract must be between individuals considered legally able to enter into an agreement. This principle is known as: A Restricted persons B Considerations C Competent parties D Agreement - ANSWERSC A company that is licensed to sell insurance in a particular state is: A A domiciled company B A nonadmitted company C An authorized company D A foreign companyA company that is licensed to sell insurance in a particular state is: - ANSWERSC An insurance contract is an aleatory contract. This means: A Equal value is not given by both parties to the contract B The contract must be for a legal purpose C Parties to the contract must have the legal capacity to enter into the contract D Statements made in the application are guaranteed to be true in all respects - ANSWERSA Which of the following would be considered a speculative risk? A The possibility your car is totaled in an auto accident B The possibility the painting you bought might be a long-lost masterpiece C The possibility you will die on the job at a young age D The possibility you will become disabled - ANSWERSB Which is the proper term for a company owned by its policyowners? A A charitable insurance company B A reciprocal insurance company C A domestic insurance company D A mutual insurance company - ANSWERSD All of the following are elements of a contract, except: A Offer and acceptance B Legal purpose C Authority D Consideration - ANSWERSC Each of the following would be an element in the definition of fraud, except: A A false statement on the application that is material to the acceptance of the risk B Withholding of known material facts C Intentional material misrepresentation with the intent of causing injury to another party D An individual warrants a fact stated on the application - ANSWERSD Legally speaking, a producer has a __________ duty when handling life insurance premiums and applications for an insurer. A Fiduciary B Undisputed C Negotiated D Professional - ANSWERSA _________ refers to the jurisdiction where an insurer was formed or incorporated. A Authorized B Approved C Domicile D Admitted - ANSWERSC To address adverse selection what can an insurer legally do? A Limit the amount of coverage issued B Raise the premium higher than most people can afford to pay C Establish and enforce sound underwriting practices D Not offer policies to those over age 55 - ANSWERSC The relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as: A Surplus lines or excess insurance B The law of large numbers C The law of agency D Brokerage business - ANSWERSC _____________ consists of groups of underwriters called syndicates, each of which specializes in insuring a particular type of risk. A Lloyds of London B Risk retention insurers C Self insurers D Reciprocal insurers - ANSWERSA The insurance industry is primarily regulated at the _________ level. A State B County C Federal D Insurers - ANSWERSA Which of the following is NOT considered one of the essential elements of a contract? A Competent Parties B Legal Purpose C Offer and Acceptance D Conditions - ANSWERSD The most effective way to ensure that the applicant will accept the policy when it is issued is: A To collect the initial premium upon policy delivery, not at the time of application B To deliver the policy with a gift certificate to a local restaurant C Offer to pay the first premium for them D To have the applicant pay the initial premium at the time of application - ANSWERSD Which of the following is NOT a characteristic of life insurance as property? A It may be paid for in installments B It requires a fund portfolio manager C It creates an immediate estate D It requires no physical maintenance - ANSWERSB Which of the following statements about the average number of people who die each year is true? A It is called the mortality rate B It is called the principle of indemnity C It is called the predictability rate D It is called the principle of life insurance - ANSWERSA Insurers generally calculate premiums on: A A weekly basis B An annual basis C A monthly basis D A daily basis - ANSWERSB Third-party ownership refers to: A A situation where the beneficiary has no insurable interest in the insured B A situation where the beneficiary is irrevocable C A situation where the policyowner is someone other than the insured D A situation where the applicant is someone other than the payor - ANSWERSC With regard to life insurance policies, loading refers to: A The amount of money the insurance company reserves for expected mortality costs B The amount the company anticipates for dividend payout C Assignment of the appropriate share of the company's operating expenses to each policy D Surrender charges applied to the cash surrender of the policy - ANSWERSC Which statement best describes the term reserve? A That amount that enables the insurer to provide sales bonuses and incentives for their commissioned sales staff B That amount that, when increased by future premiums on outstanding policies, and interest on those premiums will enable the company to meet future death claims C That amount, required by law, that the company must hold in reserve to pay only cash value accumulations on permanent insurance policies D That amount insurer's maintain in reserve to guarantee that they can profit from future death claims - ANSWERSB Controlled business may be defined as insurance sold: A To individuals needing an increased amount of term insurance B To existing clients only C To anyone willing to buy D To the producer, the producer's family and friends, and the producer's business associates - ANSWERSD Which of the following policies could be expected to have the lowest premium? A Whole life B Endowment to age 65 C Single pay life D 10-pay life - ANSWERSA A variable life policy: A Has a fixed death benefit B Death benefit varies to reflect the investment results of the underlying separate account, but never falls below a guaranteed minimum C Guarantees a minimum return on the cash value account D Has flexible premiums that can be changed as well as frequency - ANSWERSB If an insured currently has a policy with a waiver of premium rider and should change to a more hazardous occupation, the insurance company will: A Void the policy B Continue the waiver of premium rider C Increase the premium D Cancel the waiver of premium rider - ANSWERSB The waiver of premium rider normally expires at age: A 55 B 60 C 70 D 65 - ANSWERSB Term insurance differs from permanent insurance in that term: A Builds cash value and provides limited death benefit options only B Costs more than permanent insurance C Builds no cash value, pays a death benefit only D Provides a variety of living benefits - ANSWERSC If Greg's policy on his own life has a guaranteed insurability rider, it means that he can purchase more insurance: A On his own life at certain specified ages without proof of insurability B On his own life at specified periods of time at a fixed guaranteed premium C Anytime before the age of 65 D On his own life at specified periods, but must prove insurability - ANSWERSA In many jurisdictions, permanent policies are required to have some cash value by the end of: A The fourth year B The first year C The second year D The third year - ANSWERSD A limited pay life policy: A Requires premium payments for a specified number of years or until a specified age is reached B Start off with small premium payments and then they increase, but only up to a specified limit C Is offered in limited face amounts only D Can only be purchased by individuals on a specified limited income - ANSWERSA Which of the following provides the basis for the benefit amount paid to an insured under a disability income rider? A The length of time income payments are to be paid out B The face amount of the policy C The elimination period D The amount of monthly benefit selected - ANSWERSB Allen purchases an estate builder (jumping juvenile) policy for his 5-year old son, Donald. Suppose that when Donald reaches age 21 his father presents him with the policy as a gift. Which of the following statements is NOT correct? A Donald has enjoyed protection against the problems of premature death B The premium will continue to be based on his original age of 5 C The face value of Donald's policy has increased by 5 times D Donald must change the beneficiaries immediately - ANSWERSD The type of policy that can be changed from one that does not accumulate cash values to one that does is a: A Universal life policy B Variable life policy C Permanent policy D Convertible term policy - ANSWERSD With a modified premium whole life contract, premium payments: A Are lower in the early years of the contract B Are invested in the stock market C Never change for the life of the policy D Are modified throughout the life of the plan and may fluctuate at the insurer's discretion - ANSWERSA With regard to the waiver of premium rider, after the disability a policyowner normally: A Must prove insurability to continue the policy on an annual basis B Must reapply for the insurance C Need not repay the premiums paid by the company during disability D Must repay the premiums paid by the company during disability - ANSWERSC In a whole life insurance policy: A The insurance protection remains level throughout the policy period, and the cash value does not impact the amount of insurance protection at all B The cash value is equal to the face amount of insurance throughout the life of the policy C The cash value provides no living benefits until the policy endows D The cash value is greatest at the end of the policy period, and the insurance protection is greatest at the start of the policy - ANSWERSD Warren and Wilma have a joint life policy. Warren dies and the policy pays nothing. Later on, Wilma dies and the policy death benefit is paid to the beneficiary. This is called a: A Variable life policy B Level term policy C Survivorship or second-to-die policy D Reduced paid up policy - ANSWERSC Each of the following is a source of life insurance policy dividends, except: A Guaranteed cash value accumulations B Reductions in operating expenses C Savings in mortality D Additional interest earnings - ANSWERSA Each of the following statements about policy loans is correct, except: A A policy loan cannot be made on a policy until it has been in force long enough to accumulate some cash value B If a policy has cash value, the insurance company cannot refuse to lend the policyowner money C The loan value of a policy cannot exceed the current cash value D Policy loans may be made on any type of policy - ANSWERSD Why should a policyowner be especially careful when deciding to increase the amount of an outstanding policy loan? A If the loan amount, plus interest charged exceeds the face amount at death, the beneficiary would owe the insurance company the balance of the loan B If the outstanding loan balance, plus interest, equals or exceeds the cash value of the policy, the company could cancel the insurance C If a loan payment is not established within one year, the insurance company may cancel the policy - ANSWERSB The main purpose of the spendthrift clause contained in a settlement option is to prevent the beneficiary from doing all of the following, except: A Purchasing a new car once the claim has been settled and proceeds have been paid out according to the beneficiary designations B Transferring the proceeds of the policy C Encumbering the proceeds of the policy D Commuting the proceeds of the policy - ANSWERSA The factors that determine the amount of each payment under the fixed period settlement option are: A Length of the fixed period, face amount of the policy and interest B Age of the beneficiary only C Length of the fixed period, face amount of the policy, interest, and age of the beneficiary D Length of the fixed period payout only - ANSWERSA Fred purchased a $100,000 policy naming his wife, Wilma, as primary beneficiary, and his only child, Pebbles, to receive any proceeds if Wilma dies before Fred, or if she dies after Fred, but before receiving all the policy proceeds. Fred elected the interest settlement option for Wilma, with the right of withdrawal after 5 years. No settlement option was stipulated for Pebbles. Fred dies on May 6th, 1991. When Fred dies, his insurance company will make settlement by paying: A Interest in periodic payments to Wilma B $100,000 total death benefit amount to Wilma immediately C Nothing, until a period of 5 years has elapsed D Equal lump sum payments to both Wilma and Pebbles immediately - ANSWERSA If a policyowner has a $100,000 policy with an accumulated cash value of $6,000, the policyowner can borrow up to: A The entire accumulated cash value of $6,000, less interest for 1 year B Never more than the full face amount of the policy C The total amount of premiums paid into the policy D 50% of the accumulated cash value - ANSWERSA The settlement option that provides for the proceeds plus interest to be paid in installments for a specified period of time is called the: A Life income period certain option B Joint life option C Fixed amount option D Fixed period option - ANSWERSD Collateral for a policy loan is: A The cash value of the policy itself B The premiums applied to the cash value account minus the load C Not required at all D Provided by the policy's death benefit - ANSWERSA An insured allows a permanent policy to lapse. Unless otherwise instructed, the insurance company: A May apply the cash values to purchase additional paid up insurance B May exercise any nonforfeiture option it deems appropriate C Applies the remaining cash values into a deferred annuity D Will automatically institute the extended term option - ANSWERSD If an insured has an outstanding loan of $5,000 on a policy with a face amount of $25,000, at death the company will: A Pay the beneficiary $20,000, after subtracting the amount of the outstanding loan B Cancel the policy C Pay the beneficiary the full $25,000 face amount D Institute a required loan repayment schedule before allowing the death claim to be processed - ANSWERSA What is a postmortem dividend? A A second dividend declared after the initial dividend had been paid out B A dividend declared but held for future payout C A dividend declared and paid out at least one year after an insured's death D A dividend earned, but not yet paid, in the year of the insured's death and paid with the death claim - ANSWERSD The nonforfeiture option that provides the most life insurance protection is the: A Extended term option B Reduced paid-up option C Paid up additions option D Cash surrender option - ANSWERSA An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased. A Whole Life B Decreasing term C Level term D Renewable term - ANSWERSA What is the easiest and best way to assure that the life insurance policy's death proceeds don't end up in probate court process? A List a primary and contingent beneficiary by their full name and relationship to the insured B Name the estate as beneficiary C Make sure the client has a will that is current and in an easily accessible location D Ascertain that the client has a trust that is filed with the County court - ANSWERSA The type of annuity that guarantees to pay total income at least equal to the purchase price of the contract is a: A Refund life annuity B Pure life annuity C Joint life annuity D Joint life and survivorship annuity - ANSWERSA An annuitant has a temporary annuity certain, and dies shortly after the payments start but before the certain period of 10 years has elapsed. Any money remaining is: A Subject to probate and will be disbursed according to state law B Paid out for the beneficiary's entire life C Paid to the beneficiary for the rest of the certain period D Placed into an insurance trust account - ANSWERSC 'Annuity Period' refers to which of the following? A The process in determining the cost basis of an annuity B The time in which the annuity is accumulating and earning interest C The period of time in which an annuity is subject to a 10% premature withdrawal penalty D The time during which payments are made to the annuitant - ANSWERSD An annuity policyowner may do all of the following, except: A Select or change the settlement option prior to death B Name and change the beneficiary C Change the annuity date D Determine the policy's interest credit - ANSWERSD Which product, offered by insurers is specifically designed to allow an individual's savings to be distributed to him/her periodically over his/her entire life, regardless of how long he/she lives? A Universal Life Insurance B Annuities C Participating Whole Life D Variable Life Insurance - ANSWERSB How can an annuity payout an income benefit income tax free? A Purchase the annuity within a Roth IRA account B When the annuity was purchased as a Traditional IRA with premiums tax deductible C When the annuity payout is going to the estate of the deceased D When the annuitant is over age 70 1/2 - ANSWERSA When converting a group life policy to an individual policy, the departing group member's new policy must be a: A Fixed deferred annuity B Decreasing term policy C 20 year term life policy D Permanent or whole life policy - ANSWERSD