Life Insurance Practice Exam C

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Life Insurance Quizzes & Trivia

Questions and Answers
  • 1. 

    A representation in an insurance contract qualifies as:

    • A.

      An opinion

    • B.

      An implied warranty

    • C.

      An express warranty

    • D.

      A policy provision

    Correct Answer
    B. An implied warranty
    Explanation
    A representation is a statement made that is believed to be true to the best of the knowledge of the person making the statement. A warranty is a statement made that is guaranteed to be true. In certain cases the law says that one party has given a warranty (a guarantee) to another even though the warranty is not in writing. Thus, a representation in an insurance contract may qualify as an implied (not in writing) warranty.

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  • 2. 

    An insurer owned by the parent company to provide insurance to cover the parent company’s loss exposure only is called a:

    • A.

      Reciprocal insurer

    • B.

      Captive insurer

    • C.

      Mutual insurer

    • D.

      Stock insurer

    Correct Answer
    B. Captive insurer
    Explanation
    This is a legally recognized insurance company organized and owned by a corporation or firm whose purpose is to use the captive to write its own insurance exclusively. Usually it is a non-admitted insurer that has the right, under special circumstances, to reinsure with an admitted insurer.

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  • 3. 

    Which of the following best represents what the phrase “life insurance creates an immediate estate” means?

    • A.

      The policy creates immediate cash value.

    • B.

      The death benefit will always be paid to the estate of the insured.

    • C.

      The death benefit will always be paid to the estate of the insured.

    • D.

      None of these represent what this phrase means.

    Correct Answer
    C. The death benefit will always be paid to the estate of the insured.
    Explanation
    Unlike a normal estate where the value of personal wealth is usually built up over time, a life insurance policy’s face value is available immediately in one lump-sum upon the death of the insured.

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  • 4. 

    When policy illustrations are used with senior citizen clients in California, which include non-guaranteed elements, a statement to that effect must be included with the illustration. Which of the following is true regarding this statement?

    • A.

      Non-guaranteed elements must be printed in bold type.

    • B.

      Guaranteed elements must be in bold print and the non-guaranteed elements must be in plain type.

    • C.

      Whether the print is in bold type or plain type is at the discretion of the insurer.

    • D.

      According to the code, all policy illustration statements must be uniform and in plain type.

    Correct Answer
    A. Non-guaranteed elements must be printed in bold type.
    Explanation
    The statement concerning non-guaranteed elements must be in bold or underlined capitalized print, or in any manner that makes it more prominent than the surrounding materials.

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  • 5. 

    In which of the following qualified plans are the benefits linked to the employee’s number of years of service and/or the amount of compensation they earned?

    • A.

      Tax Sheltered Account (TSA)

    • B.

      Defined benefit plan

    • C.

      Koegh plan

    • D.

      Defined contribution plan

    Correct Answer
    B. Defined benefit plan
    Explanation
    Defined benefit or pension plans are typically based on the number of years an employee works for an employer. The amount of compensation earned may factor into the benefit. For example, if the employee works a certain number of years and retires at a certain age they will receive so much a month for life. If they work longer and retire at an older age the benefit will increase.

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  • 6. 

    In a group life insurance plan, unmarried children may be covered as eligible dependants until they reach the age of:

    • A.

      18

    • B.

      20

    • C.

      21

    • D.

      25

    Correct Answer
    C. 21
    Explanation
    The CIC says that, “Dependent includes … all unmarried children from birth through 20 years of age, or through 24 years of age if the dependent child is attending an educational institution, …” Therefore, age 21 is the correct answer because the question asks “until they reach the age of:”

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  • 7. 

    What happens to the insurance license of a corporation when the corporation ceases to exist?

    • A.

      It becomes inactive

    • B.

      It terminates unless the corporation files an application to continue business within 30 days.

    • C.

      It is suspended temporarily by the DOI.

    • D.

      It terminates

    Correct Answer
    D. It terminates
    Explanation
    The corporation ceases to exist, it has permanently dissolved and, therefore, loses its ability as a person to hold a license.

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  • 8. 

    All of the following are true about the Social Security System except:

    • A.

      The majority of workers in the U.S. are required to pay into the system.

    • B.

      The system is fully funded.

    • C.

      Meant to supplement other retirement income, it provides a minimum floor of income.

    • D.

      Benefits are prescribed by law, not by contract.

    Correct Answer
    B. The system is fully funded.
    Explanation
    The system will shortly begin paying out more than it’s collecting in taxes.

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  • 9. 

    The insured buys a non-participating whole life policy. Many years later the insured is disabled and cannot afford the premiums anymore. She exercises the Extended Term Non-forfeiture option. Which statement is not true?

    • A.

      The policy will accrue cash value, but with a lower death benefit coverage.

    • B.

      No more premium payments are required.

    • C.

      The coverage amount will remain the same as the original policy.

    • D.

      The policy will remain in force a certain number of years, then expire.

    Correct Answer
    A. The policy will accrue cash value, but with a lower death benefit coverage.
    Explanation
    The Extended Term Non-Forfeiture results in the same death benefit, for a certain number of years, but naturally no cash value. It is now fully paid-up.

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  • 10. 

    Which of the following best describes the reduced paid-up non-forfeiture option?

    • A.

      The insured can no longer afford the policy so they receive the cash value minus the surrender charge.

    • B.

      The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required.

    • C.

      The insured receives a cheaper term policy with a reduced death benefit. No evidence of insurability required.

    • D.

      The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required.

    Correct Answer
    D. The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required.
    Explanation
    The insured exchanges the current whole life policy for another whole life policy with a lower death benefit. A reduced premium is charged. No additional premium is required.

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  • 11. 

    When determining life insurance premium rates an insurer may not legally use which of the following?

    • A.

      Age

    • B.

      Gender

    • C.

      Nationality

    • D.

      All of the above may be used.

    Correct Answer
    C. Nationality
    Explanation
    Using nationality would be an unfair discrimination.

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  • 12. 

    Group members that are covered by group life insurance policies are required to be issued which of the following?

    • A.

      A Master Policy

    • B.

      A Certificate of Insurance

    • C.

      An estimate of the sponsor's premiums

    • D.

      None of the above

    Correct Answer
    B. A Certificate of Insurance
    Explanation
    There is only one Master Policy and it is held by the head of the sponsoring group. Each eligible group member covered by the plan must be provided with a Certificate of Insurance / Coverage.

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  • 13. 

    Agent Bill has decided to use a new time management strategy while making sales presentations. To save time he decides to not answer a client’s question the first time it is asked. Instead he answers them only if they are asked a second time. This way he can make it to his next appointment on time. Professional insurance organizations would consider this to be:

    • A.

      A smart and ethical strategy

    • B.

      An unethical practice

    • C.

      Not in violation of their codes of conduct

    • D.

      None of the above

    Correct Answer
    B. An unethical practice
    Explanation
    Failing to answer a client’s question directly and promptly would be considered unethical behavior by most standards.

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  • 14. 

    Which of the following is a true statement about contributory group life insurance?

    • A.

      The employer must pay 100% of the premiums.

    • B.

      All eligible employees must be covered by the plan.

    • C.

      Participating employees will contribute towards the payment of premiums.

    • D.

      All of the above

    Correct Answer
    C. Participating employees will contribute towards the payment of premiums.
    Explanation
    Contributory group plans must be voluntary because the participating group members must pay for all or a part of the premiums.

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  • 15. 

    All of the following are not true about the Social Security program, except:

    • A.

      It is mandatory for most workers to pay FICA taxes.

    • B.

      All participants are provided with a copy of the contractual agreement.

    • C.

      The retirement benefit is the same for everyone.

    • D.

      The benefits received closely match the amount of the taxes paid in.

    Correct Answer
    A. It is mandatory for most workers to pay FICA taxes.
    Explanation
    Social Security is a compulsory program for most workers in the U.S. It is provided by law and not by individual contract. Benefits vary and are dependent on each person’s PIA.

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  • 16. 

    Keith has purchased a variable annuity. He has not waived his rights during the free-look period. Where will the premiums be initially invested during the free-look period?

    • A.

      The policy’s separate account

    • B.

      A fixed income or money market account

    • C.

      A stock portfolio chosen by the insured

    • D.

      The insurer’s general account for preservation of fund value

    Correct Answer
    B. A fixed income or money market account
    Explanation
    While separate accounts are associated with variable policies, during the freelook period, a fixed income or money market fund is used to keep the value stable. This will ensure a full refund of the entire premium should if be cancelled.

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  • 17. 

    A variable annuity applicant invests his premiums immediately into the stock portfolio chosen for his annuity. He then returns his annuity during the free look period when the stock market drops significantly. What will the client receive?

    • A.

      His entire premium

    • B.

      The policy account value on the date the returned policy is received by the insured

    • C.

      The policy account value on the date the returned policy is received by the insurer

    • D.

      The full premium minus the surrender charge

    Correct Answer
    C. The policy account value on the date the returned policy is received by the insurer
    Explanation
    Cancelled annuities should be returned to the insurer, or its agent. In this situation, the applicant will get the value on the date the annuity is returned to the insurance company, or its agent. Since he waived his right to use a fixed account or money market during the free-look he will not necessarily get his entire premium.

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  • 18. 

    Which statement about federal income taxation of life insurance settlement payments is true?

    • A.

      Upon surrender of a whole life policy no part of the cash value is taxable because it is paid in a lump sum.

    • B.

      Choosing the “life income” settlement option saves the beneficiary from paying any income taxes.

    • C.

      The “interest only” option results in no taxation until the beneficiary selects one of the other options.

    • D.

      A lump sum settlement is paid out tax free when paid to a natural person.

    Correct Answer
    D. A lump sum settlement is paid out tax free when paid to a natural person.
    Explanation
    Currently, no part of the face amount of a life insurance settlement is taxable when paid to a natural person. Only interest earned, if any, would be taxable as income.

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  • 19. 

    Concerning federal tax treatment of life insurance payments, which of the following statements is/are correct?

    • A.

      Death benefits paid to the beneficiary are generally tax exempt.

    • B.

      Ordinary life premiums are tax deductible for the owner.

    • C.

      Employer paid premiums for their group life insurance plan are not tax deductible as a business expense.

    • D.

      None of the above is incorrect.

    Correct Answer
    A. Death benefits paid to the beneficiary are generally tax exempt.
    Explanation
    This is true according to current federal tax laws.

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  • 20. 

    All of the following are true regarding the taxation of life insurance products, except:

    • A.

      Annuity death benefits are paid out totally tax free.

    • B.

      When an individual pays their own life insurance premiums they can not deduct them on their personal income taxes.

    • C.

      Premiums paid by an employer on a non-contributory group plan are tax deductible as a business expense.

    • D.

      All of the above are true

    Correct Answer
    A. Annuity death benefits are paid out totally tax free.
    Explanation
    Annuity death benefits are paid out tax free up to the amount of premium paid in. Anything above that is interest earnings and is taxable upon death.

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  • 21. 

    Which department or division of an insurance company is responsible for the selection, evaluation, and distribution of risks?

    • A.

      Marketing and sales

    • B.

      Underwriting

    • C.

      Claims

    • D.

      Actuarial

    Correct Answer
    B. Underwriting
    Explanation
    The underwriter’s primary purpose is to evaluate risk to determine which applicants to insure and what coverage to offer (selection). It is the underwriter’s responsibility to protect the insurer against adverse selection (too many high risks on the books) by eliminating the highest risks.

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  • 22. 

    Which of the following are members of and financially supports the Medical Information Bureau?

    • A.

      Insurance companies

    • B.

      National Association of Insurance Commissioners

    • C.

      Licensed insurance agents

    • D.

      All of the above

    Correct Answer
    A. Insurance companies
    Explanation
    The MIB was set up by and for the use of life and disability insurers and their subscriber or membership fees pay for its operation.

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  • 23. 

    Cliff, who is 44 years old, falls while mountain climbing on vacation. He is left paralyzed. After a year, doctors feel he will never recover from his injuries. Which of the following programs will he be able to collect disability income?

    • A.

      Medi-Cal

    • B.

      Worker's Compensation

    • C.

      Social Security

    • D.

      Medicare

    Correct Answer
    C. Social Security
    Explanation
    Social Security has, as one of its four main components, a disability income section for long term disability.

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  • 24. 

    The Social Security system has four main benefit programs. Disability, Retirement, & Medicare are three of them. The fourth program is:

    • A.

      Rehabilitation

    • B.

      Medical

    • C.

      Hospice

    • D.

      Survivors

    Correct Answer
    D. Survivors
    Explanation
    DRuMS can be used to remember the four parts of Social Security. Disability, Retirement, Medicare, and Survivors.

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  • 25. 

    Which of the following benefits is never included in a LTC policy?

    • A.

      Hospice

    • B.

      Hospice Acute Care

    • C.

      Adult Day Care

    • D.

      Respite Care

    Correct Answer
    B. Hospice Acute Care
    Explanation
    Medical and health insurances provide acute care. LTC does not provide coverage for intensive medical procedures, but does provide for recuperation and personal care issues.

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  • 26. 

    Which of the following statements about contingent beneficiaries is false?

    • A.

      The contingent beneficiary receives benefits equally with the primary beneficiary

    • B.

      More than one contingent may be named

    • C.

      They will receive the death benefit if the primary predeceases the insured

    • D.

      They receive remaining installment or income payments to be made under a settlement agreement if the primary were to decease prematurely

    Correct Answer
    A. The contingent beneficiary receives benefits equally with the primary beneficiary
    Explanation
    The contingent would not share the death benefits with the primary as they only receive them if the primary dies before the insured dies.

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  • 27. 

    In reinsurance, the insurance company who transfers its loss exposure to another insurer is the:

    • A.

      Reciprocal insurer

    • B.

      Reinsurer

    • C.

      Primary Insurer

    • D.

      Secondary Insurer

    Correct Answer
    C. Primary Insurer
    Explanation
    In reinsurance, the reinsurer accepts risks from the primary (ceding) insurer.

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  • 28. 

    In group insurance, to avoid proving insurability an employee usually needs to join the group insurance plan:

    • A.

      During the probationary period

    • B.

      During the enrollment period

    • C.

      After the elimination period

    • D.

      At anytime with group insurance

    Correct Answer
    B. During the enrollment period
    Explanation
    Sometimes called the eligibility period, the enrollment period is the time for employees to enroll without having to provide evidence of insurability.

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  • 29. 

    Which of the following statements is false regarding the application for life insurance?

    • A.

      When bound to the policy, applications become part of the entire contract.

    • B.

      The name of the insured person must be indicated on the application.

    • C.

      Answers to application questions are considered to be representations and not warranties.

    • D.

      Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval.

    Correct Answer
    D. Before a policy can be issued or changed, the beneficiary must initial the application to indicate their approval.
    Explanation
    The policy owner has the right to name the beneficiary and may do so without their knowledge. The beneficiary, as the beneficiary, is not a party to the contract and therefore does not sign or initial anything.

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  • 30. 

    The owner chooses the annual mode to pay their life insurance premium. For the year, they will pay _________________

    • A.

      More as compared to the other payment modes.

    • B.

      The same as compared to the other payment modes.

    • C.

      Less as compared to the other payment modes.

    • D.

      None of the above

    Correct Answer
    C. Less as compared to the other payment modes.
    Explanation
    Premium is calculated on an annualized basis. The more payments (semiannual, quarterly, monthly) the premium is broken into the more expensive for the year. One annual payment allows the insurer to work with all of the money up front and cuts down on their expenses.

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  • 31. 

    There are four basic classes of life insurance. All of the following may be regarded as ordinary insurance, except:

    • A.

      Term life insurance policy.

    • B.

      A whole life paid-up at 65 policy.

    • C.

      A group life insurance policy.

    • D.

      An 18-year endowment policy.

    Correct Answer
    C. A group life insurance policy.
    Explanation
    Ordinary is the same as “individual” insurance. Term, whole life, and endowments may be purchased on an individual basis. Group life is always issued on a group (not individual) basis.

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  • 32. 

    Bob, the owner and insured has a non-participating whole life policy for $50,000. He never misses a payment and has never borrowed from the cash value. Bob turned 100 years old today. How much of the cash value is he entitled to?

    • A.

      All of it, $50,000

    • B.

      About $25,000 – it depends on the actuarial tables.

    • C.

      None of it –Bob did not die, yet.

    • D.

      None of the above

    Correct Answer
    A. All of it, $50,000
    Explanation
    Whole life policies mature or endow at age 100. If the insured has not died by that age they are guaranteed the face amount of the policy (minus any outstanding policy loans).

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  • 33. 

    A beneficiary is set to receive $2,500 a month until the lump sum amount and interest are exhausted. Which settlement option was chosen?

    • A.

      Fixed period option

    • B.

      Interest (only) option

    • C.

      Life income option

    • D.

      Fixed amount option

    Correct Answer
    D. Fixed amount option
    Explanation
    This option stresses that the beneficiary will receive a defined / set amount of money monthly until all funds are exhausted or depleted. Since it doesn’t define the length of time it can’t be fixed period, or life income.

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  • 34. 

    Concerning the “Family Protection Policy” all of the following statements are true, except:

    • A.

      This type of policy consists of whole life on the base insured and riders on the others.

    • B.

      Convertible term riders cover both the spouse and all children.

    • C.

      Additional children born after the policy is issued are covered automatically at no extra cost.

    • D.

      Children, upon reaching the age of majority are permitted to convert to an individual policy with proof of insurability.

    Correct Answer
    D. Children, upon reaching the age of majority are permitted to convert to an individual policy with proof of insurability.
    Explanation
    Children’s coverage is converted without evidence of insurability.

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  • 35. 

    The additional amount of premium paid for an accidental death benefit rider on a whole life policy does not:

    • A.

      Cover the cost of the added protection.

    • B.

      Increase the cash values

    • C.

      Both

    • D.

      Neither

    Correct Answer
    B. Increase the cash values
    Explanation
    The additional premium is used only to compensate the insurer for the added risk of the rider.

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  • 36. 

    When the insured becomes disabled under the requirements of the policy, which of the following provisions keeps the policy in force even though the owner stops making the premium payments?

    • A.

      The guaranteed insurability provision

    • B.

      The accelerated living benefit provision

    • C.

      The waiver of premium provision

    • D.

      The spendthrift trust provision

    Correct Answer
    C. The waiver of premium provision
    Explanation
    This is a type of an insurance protection on an insurance policy. WP results in the insurance company giving up their right to premium payments during the period of the disability. The policy remains in force, in all respects, until the insured is no longer disabled or they die.

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  • 37. 

    With a waiver of premium rider attached to a whole life policy issued by a mutual insurer, all of the following are true, except:

    • A.

      Dividends will continue to be paid, if earned.

    • B.

      Cash values will continue to grow.

    • C.

      All features of the policy will remain in force.

    • D.

      The insurer will waive the premium payment while the policy owner will continue to pay the cost of the WP rider.

    Correct Answer
    D. The insurer will waive the premium payment while the policy owner will continue to pay the cost of the WP rider.
    Explanation
    The waiver of premium provision exempts the owner from paying any of the premium once the rider is triggered (usually after six months).

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  • 38. 

    Which of the following policy riders is/are frequently found in life insurance policies?

    • A.

      Cost of Living rider

    • B.

      AD&D

    • C.

      Waiver of Premium

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    These are all frequently found in life insurance policies.

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  • 39. 

    Which of the following would an insured use to protect against the negative effect of inflation on the future purchasing power of their life or disability income policy?

    • A.

      Guaranteed Insurability rider

    • B.

      Inflation offset rider

    • C.

      Cost of Living rider

    • D.

      Increased Benefits rider

    Correct Answer
    C. Cost of Living rider
    Explanation
    The Cost of Living (COLA) rider is used to keep pace with inflation. The amount of increase is tied to an increase in an inflation index, such as the Consumer Price Index (CPI).

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  • 40. 

    Larry is age 50, has been paying premiums on his whole life policy for more than 15 years, and now has a need to use about 1/3 of his available cash value for a short period of time. He does not want to give up his insurance, and can afford to continue paying premiums. What advice would you give Larry?

    • A.

      Look for other available funds. Policy cash value is unavailable for loans before 59½ due to IRS tax penalties.

    • B.

      Tell Larry he should have purchased term insurance because whole life has no cash value.

    • C.

      The only way to access the cash value is through a surrender of the policy. He can have up to 90% of the cash value to purchase other insurance.

    • D.

      Tell Larry to take the policy loan, continue paying premiums to prevent a lapse, and also recommend that he repay the principal and interest on the loan.

    Correct Answer
    D. Tell Larry to take the policy loan, continue paying premiums to prevent a lapse, and also recommend that he repay the principal and interest on the loan.
    Explanation
    It would not be good advice to tell Larry to surrender his policy for the full amount of cash value and then purchase other insurance. First, he doesn’t need the full amount and secondly he will be older and his insurability may have changed. By taking a policy loan and paying it back he will ultimately maintain the full face amount of coverage and the full cash value will be restored.

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  • 41. 

    All of the following statements are true about the free look provision in life insurance policies in California, except:

    • A.

      A full refund of the premium paid is required if the policy is returned within 10 days of delivery.

    • B.

      The contract is in force during the 10 day period and any claims must be paid even though the owner has returned the contract.

    • C.

      Senior citizens must be given a minimum of 30 days free look.

    • D.

      Death during the free look period results in a full death benefit.

    Correct Answer
    B. The contract is in force during the 10 day period and any claims must be paid even though the owner has returned the contract.
    Explanation
    If the policy is returned during the free look period it is treated as though it never existed. If a claim is submitted during the free look period but after the policy was returned the insurer has no contractual obligation to pay the claim.

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  • 42. 

    Which of the following beneficiary designations would meet the policyowner’s wish to have his children receive equal shares of his life insurance. And if any of his children should die before he does, he wants the surviving children to receive the deceased child’s share equally divided among them.

    • A.

      Per capita designation

    • B.

      Per stripes designation

    • C.

      Each named as contingent with equal shares.

    • D.

      Any of these would produce the desired results.

    Correct Answer
    A. Per capita designation
    Explanation
    Per capita, or per “heads,” by definition provides for the survivor(s) to share equally the deceased beneficiary’s portion.

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  • 43. 

    Life insurance settlement options provide the beneficiary several choices as to how the insurer will pay them the death benefits of the policy. Which of the following is not true about these options?

    • A.

      The choice can be made by the policy owner at the time of application.

    • B.

      The policy owner can change to another option any time before the death of the insured.

    • C.

      If no pre-selection is in effect at the time the insured dies, the insurer allows the beneficiary to choose the option.

    • D.

      The beneficiary can change to a second option if made within 6 months of the initial payout.

    Correct Answer
    D. The beneficiary can change to a second option if made within 6 months of the initial payout.
    Explanation
    The policyowner has the right to pre-select the settlement option, if they so desire. Otherwise, it will be left to the beneficiary. However, once the choice is made and the insurer makes payment the option cannot be changed with the exception of the “interest only” option.

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  • 44. 

    An insurance commissioner is unable to finish their 4 year term due to death or for some reason leaves office. How will a new commissioner be chosen?

    • A.

      A special election must be held within 120 days.

    • B.

      The NAIC appoints an interim commissioner.

    • C.

      A deputy officer within the DOI is promoted.

    • D.

      The governor appoints a replacement commissioner.

    Correct Answer
    D. The governor appoints a replacement commissioner.
    Explanation
    While the Commissioner must be elected by the people, replacements are appointed by the Governor to fill out the remainder of the term, if there is a vacancy.

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  • 45. 

    A contract or policy, which is considered a savings or investment vehicle used for the purpose of accumulating investment funds to be paid out some time in the future through a withdrawal provision, describes which of the following?

    • A.

      An annuity

    • B.

      A term life insurance policy

    • C.

      A long term care policy

    • D.

      All of the above

    Correct Answer
    A. An annuity
    Explanation
    Of the three, only an annuity would be considered a savings or investment vehicle.

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  • 46. 

    One of the reasons that a person would purchase an annuity is that they are concerned with the risk of:

    • A.

      Dying too soon.

    • B.

      Becoming too old to qualify for ordinary life insurance.

    • C.

      Having to pay taxes on their retirement savings.

    • D.

      Outliving their retirement income.

    Correct Answer
    D. Outliving their retirement income.
    Explanation
    An annuity, issued by an insurance company, is the only investment in the world that can guarantee a life-time income no matter how long the annuitant lives. Therefore, an annuity would protect a person from the risk of outliving all of their financial resources.

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  • 47. 

    An annuity, issued by an insurance company, is the only investment in the world that can guarantee a life-time income no matter how long the annuitant lives. Therefore, an annuity would protect a person from the risk of outliving all of their financial resources.

    • A.

      They will be made for 120 months assuming the annuitant lives that long.

    • B.

      They will be made for 120 months and then will decrease and be paid for life.

    • C.

      They will be paid for at least 120 months or the remainder of the annuitant’s life.

    • D.

      They will be paid up to the annuitant’s death and thereafter to his named beneficiary.

    Correct Answer
    C. They will be paid for at least 120 months or the remainder of the annuitant’s life.
    Explanation
    This is the requirement of the “life income with 10 years certain” option.

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  • 48. 

    An individual investor is trying to decide between a bank C.D. and an insurance company annuity. They both pay the same interest rate on an equal principal amount invested over the same period of time. Which one will be worth the most total dollars at the end of that period of time?

    • A.

      The C.D. and the annuity will both be the same, even after considering the taxes paid over the years.

    • B.

      The C.D. will be worth more because of the FDIC.

    • C.

      The annuity will be worth more because of its tax deferred characteristics.

    • D.

      The C.D. will be worth more because the insurer issuing the annuity will have paid commissions to the writing agent that must be deducted.

    Correct Answer
    C. The annuity will be worth more because of its tax deferred characteristics.
    Explanation
    The investor would have had to pay taxes annually on the C.D. These tax dollars, paid out of the C.D., would have decrease the compounding effect on the C.D. over the years.

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  • 49. 

    Ron is paying into an annuity that will be used to help supplement his retirement in a few years. His premium payments go into the insurer’s “separate account” and they purchase “accumulation units.” What type of annuity did Ron buy?

    • A.

      Periodic premium immediate annuity

    • B.

      Fixed annuity

    • C.

      Guaranteed qualified plan annuity

    • D.

      Variable annuity

    Correct Answer
    D. Variable annuity
    Explanation
    All insurers must maintain a “separate account” for their variable products. During the accumulation phase of a variable annuity, premium payments purchase “accumulation units.”

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  • 50. 

    Any transaction in which new life insurance or a new annuity is to be purchased, and it is known or should be known that existing life insurance or annuity will be lapsed, forfeited, surrendered, or otherwise terminated is known as what type of transaction?

    • A.

      Absolute assignment

    • B.

      Replacement

    • C.

      Reinsurance

    • D.

      Unethical

    Correct Answer
    B. Replacement
    Explanation
    According to the CIC this is a description of a replacement transaction.

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 21, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 14, 2012
    Quiz Created by
    Selidron
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