Practice Exam

Front 1

How do premiums for limited payment life policies compare to ordinary life policies?

Back 1

They are higher during the premium-payment period

The premiums for limited payment life insurance policies are not lower during the premium-payment period.

Front 2

Insurers use inspection reports to verify the information applicants provide to agents and examiners. Who is most likely to be the subject of an inspection report?

Back 2

applicants who ask for very high amounts of life insurance or business insurance

Insurers generally do not order inspection reports on all applicants.

Front 3

When paying policy death benefits, life insurance companies must consider all of the following, EXCEPT?

Back 3

the insurable interest between the insured and beneficiary

The insurance company must follow the deceased owner's instructions about order of beneficiaries named and their succession.

Front 4

People who are members of associations, such as school districts or towns, can be insured under an association group life insurance plan. Which of the following statements regarding association group life is correct?

Back 4

All members must be eligible to participate in the plan.

Premiums can be paid by contributions made entirely by the association, entirely by the members, or a combination of the two.

Front 5

When asked about the payment of dividends by a prospect, Agent Maloney states that policy dividends are always guaranteed, even though they are not. Which unfair trade practice has the agent committed?

Back 5

misrepresentation

It is considered misrepresentation to circulate misleading information about an insurance contract, such as by assuring policyholders that they will receive future dividends when they are not guaranteed.

Front 6

Which one of the following statements about limited payment whole life insurance and ordinary whole life insurance is most correct?

Back 6

Both types of policies give protection for the insured's whole life.

The premiums for a limited payment policy are higher than those for an ordinary straight life policy because the premiums are paid for a shorter time.

Front 7

All of the following statements about long-term care riders and long-term care policies under the Health Insurance Portability and Accountability Act (HIPAA) of 1996 are correct, EXCEPT:

Back 7

The insured must spend time in a hospital before payment.

Long-term care riders and policies may require an elimination or waiting period of 10 to 100 days before benefits are payable.

Front 8

Jason, age 27, is single, works for a small computer company, and earns $125,000 a year. Because the company does not have any retirement plan for its employees, Jason set up and contributed to a traditional IRA this year. Which of the following statements is correct?

Back 8

Jason can deduct the full amount that he contributes to his traditional IRA.

Because Jason is not covered by a qualified employer plan, he is eligible to deduct all, not just part of, his IRA contribution this year.

Front 9

At any moment, an adjustable life insurance can be structured and function like any of the following types of life insurance, EXCEPT

Back 9

universal life insurance.

Adjustable life insurance can be adjusted to look like term life insurance.

Front 10

To be classified as terminally ill and thus qualify for accelerated benefits from a life insurance policy on a tax-free basis, an insured must meet all of the following qualifications, EXCEPT:

Back 10

The person must be certified by a doctor as having a condition that can be expected to result in death within five years.

A qualified viatical settlement provider must pay the accelerated benefits.

Front 11

Angela is the beneficiary of her mother's group life insurance policy. At her mother's death, Angela decides to receive the proceeds under a life with term certain settlement option. Which portion of the payments will be subject to taxation?

Back 11

the portion representing the interest on the death proceeds\

The death benefits paid to the employee's beneficiary under a group life insurance plan are exempt from income taxes if they are paid in a lump sum. If they are paid under a settlement option, the interest portion of each periodic payment is taxable to the beneficiary.

Front 12

The Department cannot suspend or revoke an agent's license for which of the following reasons?

Back 12

failing to meet projected sales goals

The Department can suspend or revoke an agent's license for all of the reasons listed except for failing to meet his or her projected sales goals.

Front 13

The Department can suspend or revoke an agent's license for all of the reasons listed except for failing to meet his or her projected sales goals.

Back 13

credit life insurance

Credit life insurance covers the life of a debtor and is issued in connection with a specific loan or other credit transaction.

Front 14

To be considered qualified, a retirement plan must meet all of the following requirements EXCEPT:

Back 14

The plan must cover all employees.

-The plan must be in writing and communicated to employees

-The employer, the employees, or both must contribute to the plan.

-The plan must meet minimum funding levels.

A qualified plan is not required to cover all employees. However, a qualified plan cannot discriminate in coverage, which means that the employer cannot set up the plan mainly for the benefit of key employees or business owners. Also, a qualified plan must be in writing and must meet minimum funding levels, and contributions must be made by the employer, the employees, or both.

Front 15

Karen transfers all rights in her life insurance policy to her brother, David, in an absolute assignment. Who is typically responsible for paying the policy's premiums from that point forward?

Back 15

David must pay the premiums.

There is nothing to decide. The assignee, David, assumes full responsibility for the policy, including paying future premiums—although he and Karen can come to a separate agreement on the matter.

Front 16

A life insurance policy matures or endows when its guaranteed cash value equals its face amount. With an endowment contract, when does the policy endow?

Back 16

well before age 120, usually at age 65

Endowment contracts do not endow after age 120.

Front 17

Carolyn bought a $500,000 five-year renewable term policy with a guaranteed renewal rate. Two years after buying it, she develops cancer and is no longer insurable. If Carolyn is alive at the end of the five-year term, which of the following statements is most correct?

Back 17

She can renew the policy but must pay a higher premium based on her age at the time of renewal.

The premium for the renewal coverage will be based on her age—not her health—at the time of renewal and will therefore be higher than her initial premium.

Front 18

Settlement options with a life contingency are most correctly based on which of the following?

Back 18

the lifespan of the payee

Settlement options with life contingency are not based on the option selected by the beneficiary.

Front 19

All the following statements about children's term riders on life insurance policies are correct, EXCEPT

Back 19

The modest amount of coverage in a children's term rider reflects the small amount parents are willing to pay for children's insurance.

-A children's term insurance rider provides a modest amount of coverage

-Children's term riders often are issued for a specified amount

-A children's term rider can be issued for a specified percentage of the primary insured parent's base policy

A children's term rider can be issued for a specified percentage of the primary insured parent's base policy.

Front 20

Under traditional whole life insurance plans, policy loans can be as high as what percent of the cash value?

Back 20

100 percent

Policy loans under traditional whole life insurance plans can be as high as 100 percent of the cash value.

Front 21

An agent for ABC Insurance Company met with a client to talk about long-term care policies. The agent showed the client ABC's sample policies, referred to the ABC rate book, gave him an ABC business card, and told the client that ABC has given him unlimited binding authority. If the client assumes this is true, then which of the following describes the agent's authority in this case?

Back 21

apparent authority

Implied authority refers to other acts that an agent can perform that the agent's contract does not specifically mention. An agent's authority is implied when the insurer intends to give it. It usually relates to the general customs of the business, and the contract does not create or specifically explain it.

Front 22

Karen bought a life insurance policy at age 23. She added the guaranteed insurability rider to the policy. If Karen buys another policy under the rider at age 39, the premium of that policy will be based on which of the following?

Back 22

Karen's current age

The premiums for any future policies Karen buys under the rider are based on her age when she buys the policies, not her age when she bought the original policy.

Front 23

Tanya has a private pilot's license and flies recreationally. Her life insurance company allows coverage for that risk and does not have an aviation exclusion. If Tanya continues piloting aircraft, her insurer will most likely do which one of the following?

Back 23

Charge Tanya an additional premium as long as she pilots her own plane

An aviation exclusion is not included in Tanya's policy, so the insurer would not pay a reduced death benefit if Tanya were killed while piloting a plane.

Front 24

Which statement about the net single premium for a traditional life insurance policy is NOT correct?

Back 24

The net single premium for a traditional life insurance policy is the amount charged to the policyowner.

-Net single premium reflects two of the premium factors: mortality and interest.

-The net single premium is the sum of the present values of all the expected benefits under the policy.

- The net single premium is the premium that an individual would need to pay, in a lump sum, to provide all the benefits promised in the policy, if no insurer expenses were considered.

The net single premium is the premium that an individual would need to pay, in a lump sum, to provide all the benefits promised in the policy, if no insurer expenses were considered

Front 25

Which of the following penalties may the Office of Insurance Regulation impose if an agent intentionally represents an unauthorized insurer in Florida?

Back 25

a fine of up to $10,000

Agents who intentionally represent an unauthorized insurer commit a felony of the third degree. The Office may impose a fine of up to $10,000 for each willful violation.

Front 26

An applicant for a $500,000 whole life insurance policy pays the initial premium along with his application. In this case, what has the applicant done?

Back 26

made an offer to the insurer

By submitting an application along with the first premium, the applicant has not accepted an offer from the insurer.

Front 27

What is the main difference between ordinary whole life and limited payment whole life insurance?

Back 27

the length of time that the insured must pay premiums

Both limited payment and whole life insurance have level premiums.

Front 28

Which of the following describes a group whose members pay a pro-rata share of the losses suffered by other members in the group?

Back 28

reciprocal insurer

A reciprocal insurer is a group of people or businesses that exchange this promise: each member agrees to pay a pro-rata share of any loss suffered by any other member. A reciprocal insurer is essentially a formal risk-sharing arrangement.

Front 29

Settlement options can be based on the length of the joint lives of which of the following?

Back 29

two or more annuitants

If a settlement option were based on two or more lives, it wouldn't be based on the owner's life alone.

Front 30

Gina owns a $200,000 five-year renewable term insurance policy and wants to renew the policy at the end of the term. In this case, all the following statements are correct, EXCEPT:

Back 30

Gina must prove insurability before the insurer can renew the policy.

-The insurer will base the premium for the renewal coverage on Gina's age at the time of renewal.

-Gina will be able to renew the policy any time up to age 65 or 70 (as defined in the policy).

-The premium for the renewal coverage will be higher than for the initial coverage.

Explanation:Most term policies set upper age limits on renewing policies. Thus, if Gina is over age 65 or 70, she will probably not be able to renew the policy.

Front 31

Which of the following would be the best choice of insurance to fund a buy-sell agreement in a two-person partnership?

Back 31

one joint life policy

A joint life policy provides funds for the surviving partner to buy out the deceased partner's share of the business. A primary appeal is cost - the premium is less than it would be for two separate policies with the same death benefit.

Front 32

Which statement about variable life insurance is NOT correct?

Back 32

Variable life insurance offers guaranteed cash values.

Variable life insurance offers fixed, permanent premiums and a minimum guaranteed death benefit. However, it differs from traditional whole life in that it is a securities-based insurance product that does not have guaranteed cash values.

Front 33

Tom bought a $100,000 adjustable life insurance policy. With respect to that policy, all the following statements are correct EXCEPT

Back 33

If Tom wants to increase the amount of the death benefit by more than $50,000, he will have to buy a new policy.

-Tom can increase the death benefit under his policy if he proves insurability.

-If Tom wants to change the premium, both he and the insurer must agree to the change.

- If Tom increases the amount of death benefit but does not increase his premium, the cash value growth slows or stops.

If Tom increases the death benefit but does not also increase the premium, the cash value growth slows or stops. This impact on the cash value can also reduce the term of coverage.

Front 34

Which of the following generally has no rights in third-party ownership of a life insurance policy?

Back 34

the insured

In third-party ownership, the beneficiary of the life insurance policy may have legally enforceable rights.

Front 35

Julia owns a $250,000 whole life policy that she plans to cancel. If she elects to exercise the extended term nonforfeiture option with the policy's $25,000 cash value, Julia will receive a term policy with a face value equal to what amount?

Back 35

$250,000

If Julia chose the extended term nonforfeiture option, the insurer will apply the cash value of the lapsed policy to buy a term insurance policy. The term insurance is bought in an amount equal to the face amount of the lapsed policy, or $250,000. The term coverage lasts for whatever period the cash value buys.

Front 36

An applicant for an insurance policy submits an application without the first premium. Which of the following is correct?

Back 36

The applicant has invited the insurer to make an offer.

When an applicant submits an application with the first premium, the applicant has made an offer that the insurer may or may not accept.

Front 37

With respect to term life insurance, all of the following statements are true EXCEPT:

Back 37

It provides a cash value when the policyowner dies.

-It offers three variations: level, increasing, and decreasing.

-Coverage provides protection for a specific, limited time.

-Policies can be defined in years or by the age of the insured.

Temporary or term insurance offers coverage for a specific time period or to a certain age, but it does not accrue any cash value.

Front 38

The ABC Company offers a fixed annuity, guaranteeing a minimum rate of 3 percent, which Jim buys with a $10,000 premium payment. At the time Jim bought his contract, ABC had declared a "crediting rate" of 6 percent for two years. For how long will Jim receive a 6 percent interest rate?

Back 38

two years

Jim's contract is guaranteed to earn 6 percent for the first two years.