Life Insurance Test

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Quizzes Created: 4 | Total Attempts: 7,596
Questions: 70 | Attempts: 625

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Life Insurance Quizzes & Trivia

The following Test is broken into 5 sections:

1. Life Insurance Basics (Questions 1-8)
2. Sun Life Financial Product (Questions 9-26)
3. Process (Questions 27-38)
4. Selling (Questions 39-55)
5. Illustrations (Questions 56-70)


Questions and Answers
  • 1. 

    What is insurance?

    • A.

      A system designed to protect people against financial hardship in the event of a loss.

    • B.

      An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets.

    • C.

      An instrument that signifies an ownership position in a corporation, and represents a claim on its proportional share in the corporation's assets and profits.

    • D.

      A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.

    Correct Answer
    A. A system designed to protect people against financial hardship in the event of a loss.
    Explanation
    Insurance is a system that provides financial protection to individuals or organizations in the event of a loss or damage. It is designed to safeguard against potential financial hardships that may arise due to unexpected events such as accidents, illnesses, natural disasters, or property damage. Insurance policies are purchased by individuals or companies, and in exchange for regular premium payments, the insurance company agrees to provide compensation or coverage for specified risks outlined in the policy. This helps individuals or organizations mitigate the financial burden that may arise from unexpected events, providing them with peace of mind and financial security.

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  • 2. 

    What type of protection does life insurance provide?

    • A.

      Protects a person and his/her family from the financial loss incurred by a disabling illness or accident.

    • B.

      Protects family members or business associates from the financial loss incurred by a person's death.

    • C.

      Protects a person from outliving his/her financial resources.

    • D.

      Insurance purchased by the owner of a vehicle to cover losses due to traffic accidents or theft.

    Correct Answer
    B. Protects family members or business associates from the financial loss incurred by a person's death.
    Explanation
    Life insurance provides protection to family members or business associates from the financial loss that occurs when a person dies. This type of insurance ensures that in the event of the policyholder's death, their loved ones or business partners will receive a payout to help cover expenses and replace any lost income. It serves as a safety net to provide financial stability and support during a difficult time.

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  • 3. 

    What is an insurance premium?

    • A.

      The difference between an insurance policies face amount and death benefit

    • B.

      A rider that can be added on to a policy to double the death benefit

    • C.

      The money paid by an insurance company to an insurance producer for selling a policy

    • D.

      The amount of money required by the insurer to put an insurance policy in force and to keep it in force.

    Correct Answer
    D. The amount of money required by the insurer to put an insurance policy in force and to keep it in force.
    Explanation
    The correct answer is the amount of money required by the insurer to put an insurance policy in force and to keep it in force. This refers to the regular payment made by the policyholder to the insurance company in exchange for coverage. It is necessary to pay the insurance premium to initiate the policy and to maintain it over time. The premium amount is determined based on various factors such as the type of insurance, coverage amount, risk factors, and the individual's profile.

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  • 4. 

    What is the definition of death benefit?

    • A.

      The accumulation of premiums paid, with interest added and deductions made in accordance with the terms of an interest sensitive contract.

    • B.

      The amount of insurance provided by the terms of an insurance contract usually found on the face page.

    • C.

      The amount payable to the beneficiary upon the death of the insured. This amount may be decreased by outstanding loans or increased by dividend accumulation, riders, or supplemental benefits.

    • D.

      The amount paid to the original producer upon the death of the insured.

    Correct Answer
    C. The amount payable to the beneficiary upon the death of the insured. This amount may be decreased by outstanding loans or increased by dividend accumulation, riders, or supplemental benefits.
    Explanation
    The death benefit refers to the amount that is paid to the beneficiary upon the death of the insured. This amount can be affected by factors such as outstanding loans or increased by dividend accumulation, riders, or supplemental benefits.

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  • 5. 

    What type of premium payments do Universal Life contracts allow?

    • A.

      Fixed

    • B.

      Face Amount

    • C.

      Rebate

    • D.

      Flexible

    Correct Answer
    D. Flexible
    Explanation
    Universal Life contracts allow flexible premium payments, meaning that policyholders have the option to adjust the amount and frequency of their premium payments. This flexibility allows individuals to adapt their premium payments to their changing financial circumstances, making it easier to maintain the policy over the long term.

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  • 6. 

    What are the two times a policy is considered to reach its maturity?

    • A.

      1. At death of the contract owner 2. Insured survives past the maturity date in contract

    • B.

      1. At death of insured 2. Insured survives past the first contract anniversary

    • C.

      1. At death of insured 2. Insured survives past the maturity date in contract

    • D.

      1. At death of the contract owner 2. Insured survives past the first contract anniversary

    Correct Answer
    C. 1. At death of insured 2. Insured survives past the maturity date in contract
    Explanation
    The correct answer is 1. At death of insured and 2. Insured survives past the maturity date in contract. These two times indicate when a policy is considered to reach its maturity. The death of the insured signifies the end of the policy, while the insured surviving past the maturity date ensures that the policy has completed its full term.

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  • 7. 

    What is the definition of the basic insurance principle of chance?

    • A.

      For a loss to be insurable, it must have the potential to cause a financial hardship for most people

    • B.

      A potential loss is not considered insurable if a single occurrence is likely to cause or contribute to financial damage to the insurer.

    • C.

      An insurer must be able to guess the probably rate of loss, or loss rate to determine the proper premium amount to charge each policyowner

    • D.

      For a loss to be insurable, the loss should be caused by an unexpected event or an event not intentionally caused by the insured person.

    Correct Answer
    D. For a loss to be insurable, the loss should be caused by an unexpected event or an event not intentionally caused by the insured person.
    Explanation
    The basic insurance principle of chance states that for a loss to be insurable, it should be caused by an unexpected event or an event not intentionally caused by the insured person. This means that insurance is designed to protect against unforeseen circumstances and not intentional acts. By insuring against unexpected events, individuals can protect themselves financially from the potential losses that may arise.

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  • 8. 

    What are Cost of Insurance Charges are assessed on?

    • A.

      Cash Surrender Value

    • B.

      Account Value

    • C.

      Net Amount at Risk

    • D.

      Death Benefit

    Correct Answer
    C. Net Amount at Risk
    Explanation
    Cost of Insurance Charges are assessed on the Net Amount at Risk. This refers to the difference between the policy's death benefit and the cash value or account value. It represents the amount that the insurance company is exposed to in case of the insured's death. The cost of insurance charges is deducted from the policy's cash value or account value to cover the risk for the insurance company.

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  • 9. 

    Which of the following life insurance products has never been sold by Sun Life Financial?

    • A.

      Sun Universal Protector 2010

    • B.

      Futurity Survivorship II

    • C.

      Sun Survivorship Universal Life

    • D.

      Life Protect Plus

    Correct Answer
    D. Life Protect Plus
    Explanation
    Sun Life Financial has never sold the life insurance product called Life Protect Plus.

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  • 10. 

    Which products are available if a client wants to convert their term policy?

    • A.

      Sun Accumulator (only if there is no agent) and Sun Universal ProtectorPlus

    • B.

      Sun Universal ProtectorPlus and Sun Exec UL

    • C.

      Sun Accumulator and Futurity Accumulator II VUL

    • D.

      Sun Accumulator (only if there is an agent) and Sun Universal ProtectorPlus

    Correct Answer
    D. Sun Accumulator (only if there is an agent) and Sun Universal ProtectorPlus
    Explanation
    The available products for converting a term policy are Sun Accumulator (only if there is an agent) and Sun Universal ProtectorPlus.

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  • 11. 

    For an Economatic policy, what does "reaching the deferral year" mean and how does it impact the policies face amount?

    • A.

      The deferral means that the face amount will drop and the paid up additions on the policy are activated and usually make up the difference for the drop in face amount.

    • B.

      The deferral means that the client must end the contract and take the face amount as a lump sum payout.

    • C.

      When the contract reaches the defferal year, the face amount automatically doubles

    • D.

      When the contract reaches the defferal year, any outstanding loans on the contract must be repaid

    Correct Answer
    A. The deferral means that the face amount will drop and the paid up additions on the policy are activated and usually make up the difference for the drop in face amount.
    Explanation
    When the policy reaches the deferral year, the face amount of the policy will decrease. However, the activated paid up additions on the policy will typically compensate for the drop in face amount. This means that the policyholder will still receive the expected benefits, even though the initial face amount has decreased.

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  • 12. 

    What happens to a policy that has a loan on it if the client does not pay the loan? 

    • A.

      No interest accrues on the loan and the value of the loan is subtracted from the death benefit.

    • B.

      Interest accrues on the policy and is added to the loan as of the anniversary date and if not paid back the policy could overloan and lapse.

    • C.

      If the loan is not repaid wihin one year, the client automatically forfiets the contract.

    • D.

      Upon death of the insured, the amount of the loan is added to the death benefit amount.

    Correct Answer
    B. Interest accrues on the policy and is added to the loan as of the anniversary date and if not paid back the policy could overloan and lapse.
    Explanation
    If the client does not pay the loan, interest will accrue on the policy and be added to the loan as of the anniversary date. If the loan is not paid back, the policy could overloan and lapse. This means that the policy could become invalid and no longer provide coverage.

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  • 13. 

    If a term policy lapses and is within 60 days of the paid to date, what must be done to reinstate the policy?

    • A.

      The policyowner must pay back premiums

    • B.

      The policyowner must pay back premiums and submit evidence of insurability

    • C.

      The policyowner must pay back premiums, submit evidence of insurability and sign a new contract

    • D.

      The policyowner must pay back premiums, submit evidence of insurability, sign a new contract and go through full underwriting

    Correct Answer
    A. The policyowner must pay back premiums
    Explanation
    The correct answer is that the policyowner must pay back premiums. This means that in order to reinstate the policy, the policyowner must repay any missed premium payments. This is a common requirement for reinstating a lapsed term policy.

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  • 14. 

    The interest rate bonus on Sun Accumulator UL in excess of the current interest rate is guaranteed in all policy years:

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because the interest rate bonus on Sun Accumulator UL is guaranteed in all policy years, regardless of the current interest rate. This means that policyholders will receive an additional bonus on top of the current interest rate, providing them with a higher return on their investment.

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  • 15. 

    The loan rate on Sun Executive UL is 4% years 1-10 and 3% years 11+. The loan rate is guaranteed at 3% years 11 and beyond:

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The loan rate on Sun Executive UL is 4% for the first 10 years and 3% for years 11 and beyond. This means that the loan rate is guaranteed to be 3% starting from year 11 and will remain at that rate for subsequent years. Therefore, the answer "True" is correct.

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  • 16. 

    Does the Sun Executive product have wash loans and if so what are the parameters?

    • A.

      Yes, wash loans are available immediately

    • B.

      Yes, wash loans are available after the 10th anniversary

    • C.

      No the product doesn’t have any wash loans

    • D.

      Yes, wash loans are available after the 15th anniversary or when the client turns age 65

    Correct Answer
    B. Yes, wash loans are available after the 10th anniversary
    Explanation
    The Sun Executive product does have wash loans available, but they are only available after the 10th anniversary of the product.

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  • 17. 

    If a client surrenders a Sun Executive policy, in what scenario would the client not receive the enhancement benefit?

    • A.

      Full surrender within the first anniversary year

    • B.

      Full surrender or an IRC 1035 exchange

    • C.

      1035 exchange

    • D.

      The client always receives the enhancement benefit

    Correct Answer
    C. 1035 exchange
    Explanation
    If a client surrenders a Sun Executive policy through a 1035 exchange, they would not receive the enhancement benefit. This means that if the client chooses to exchange their policy for another insurance policy or annuity contract, they will not be eligible for any enhancements or additional benefits that may have been available under the original policy.

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  • 18. 

    What is the minimum premium for the Sun Accumulator product?

    • A.

      $10,000

    • B.

      $5,000

    • C.

      It varies by age and risk class

    • D.

      There are no premium restrictions

    Correct Answer
    D. There are no premium restrictions
    Explanation
    The given answer states that there are no premium restrictions for the Sun Accumulator product. This means that individuals can choose any premium amount they desire, without any minimum requirement.

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  • 19. 

    Is there a bonus interest rate on the Sun Accumulator product? If so when does it start and is it guaranteed?

    • A.

      There is no bonus interest rate on the product

    • B.

      Yes. It starts in the 11th year and is not guaranteed

    • C.

      Yes. It starts in the 11th year and is guaranteed

    • D.

      Yes. It starts in the 15th year and is guaranteed

    Correct Answer
    C. Yes. It starts in the 11th year and is guaranteed
    Explanation
    The correct answer states that there is a bonus interest rate on the Sun Accumulator product. It further explains that the bonus interest rate starts in the 11th year and is guaranteed. This means that after the 11th year, customers will receive an additional interest rate on their investment, and this additional interest rate is assured.

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  • 20. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus  Which product(s) has/have a guaranteed interest rate of 3%?

    • A.

      A only

    • B.

      C only

    • C.

      A, C & D

    • D.

      A, B, C & D

    Correct Answer
    D. A, B, C & D
    Explanation
    All of the products listed (A, B, C, and D) have a guaranteed interest rate of 3%.

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  • 21. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have a current interest rate of 5.05%?

    • A.

      A only

    • B.

      A & B

    • C.

      C only

    • D.

      A, B & C

    Correct Answer
    B. A & B
    Explanation
    Products A and B, which are Sun Executive UL and Sun Executive VUL, have a current interest rate of 5.05%.

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  • 22. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have supplemental insurance rider available?

    • A.

      A, B, C & D

    • B.

      A & B

    • C.

      A, B & C

    • D.

      A only

    Correct Answer
    A. A, B, C & D
    Explanation
    The correct answer is A, B, C & D. This means that all of the products listed (Sun Executive UL, Sun Executive VUL, Sun Accumulator, and Sun Protector Plus) have supplemental insurance rider available.

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  • 23. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have both definitions of life insurance, GPT and CVAT?

    • A.

      A & B

    • B.

      A, B & C

    • C.

      A, B, C & D

    • D.

      A only

    Correct Answer
    B. A, B & C
    Explanation
    The correct answer is A, B & C. This means that products A (Sun Executive UL), B (Sun Executive VUL), and C (Sun Accumulator) all have both definitions of life insurance, GPT (Guaranteed Protection) and CVAT (Cash Value Accumulation Test). This indicates that these products provide both protection coverage and a cash value component.

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  • 24. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have an enhancement benefit that is actuarially priced into the product, refunding a portion of fee’s to the cash surrender value?

    • A.

      A & B

    • B.

      A, B, C & D

    • C.

      A only

    • D.

      A, B & C

    Correct Answer
    D. A, B & C
    Explanation
    The products A, B, and C have an enhancement benefit that is actuarially priced into the product, refunding a portion of fees to the cash surrender value. This means that these products have a feature where a portion of the fees paid by the policyholder is returned to the cash surrender value, providing some financial benefit.

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  • 25. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have an interest rate bonus available?

    • A.

      C only

    • B.

      C & D

    • C.

      A, B, C & D

    • D.

      A, C & D

    Correct Answer
    B. C & D
    Explanation
    The products that have an interest rate bonus available are C and D.

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  • 26. 

    For the following question, use this key to choose the applicable product(s): a) Sun Executive ULb) Sun Executive VULc) Sun Accumulatord) Sun Protector Plus Which product(s) has/have quarterly premium mode available?

    • A.

      A, B & C

    • B.

      None

    • C.

      A & B

    • D.

      A, B, C & D

    Correct Answer
    C. A & B
    Explanation
    Products A and B have quarterly premium mode available.

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  • 27. 

    What paperwork is needed to complete a 1035 transfer?

    • A.

      Agent letter, 1035 transfer form, illustration, absolute assignment

    • B.

      Notice of replacement, 1035 transfer form, illustration, absolute assignment

    • C.

      Notice of replacement, 1035 transfer form, policy summary, absolute assignment

    • D.

      Notice of replacement, 1035 transfer form, illustration, conservation form

    Correct Answer
    B. Notice of replacement, 1035 transfer form, illustration, absolute assignment
    Explanation
    The correct answer is "Notice of replacement, 1035 transfer form, illustration, absolute assignment." A 1035 transfer is a tax-free transfer of funds from one life insurance or annuity policy to another. The notice of replacement is required to inform the insurance company of the intent to replace the existing policy. The 1035 transfer form is the official document that initiates the transfer process. An illustration is needed to provide a projection of the policy's performance. And an absolute assignment is required to transfer ownership rights from one policy to another.

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  • 28. 

    Who is the main point of contact on pending cases in New Business?

    • A.

      New Business Operations

    • B.

      New Business Case Coordinator

    • C.

      Underwriter

    • D.

      Inforce Customer Service

    Correct Answer
    B. New Business Case Coordinator
    Explanation
    The main point of contact on pending cases in New Business is the New Business Case Coordinator. This individual is responsible for coordinating and managing the new business cases, ensuring that all necessary documents and information are collected and processed in a timely manner. They serve as the primary contact for any inquiries or updates regarding the status of the pending cases.

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  • 29. 

    What is the average life cycle of a new application?

    • A.

      5 days

    • B.

      7 days

    • C.

      9 days

    • D.

      11 days

    Correct Answer
    C. 9 days
    Explanation
    The average life cycle of a new application is 9 days. This means that from the time the application is developed and released to the time it becomes outdated or replaced, it takes approximately 9 days. This could be due to various factors such as technological advancements, market demands, and competition. It is important for developers to constantly update and improve their applications to stay relevant in the fast-paced tech industry.

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  • 30. 

    Which of the following is not one of New Buisness' 4 tips for offices submitting new applications?

    • A.

      Email new application and trailing requirements to designated team email box or fax

    • B.

      Call internal wholesaler to notify them that an application has been submitted

    • C.

      Ensure all attachments are submitted with all pages right side up

    • D.

      Include a cover transmittal that provides key case information (full client name, dob, gender, face amount, product, contact information)

    Correct Answer
    B. Call internal wholesaler to notify them that an application has been submitted
    Explanation
    The correct answer is "Call internal wholesaler to notify them that an application has been submitted." This option is not mentioned as one of New Business' 4 tips for offices submitting new applications. The other options are mentioned as tips, such as emailing the application and requirements, ensuring all attachments are submitted correctly, and including a cover transmittal with key case information.

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  • 31. 

    What is the the most common reason for delays in 1035 exchanges?

    • A.

      Conservation efforts

    • B.

      Paperwork not in good order

    • C.

      Additional Requirements

    • D.

      Medical evidence is outdated

    Correct Answer
    B. Paperwork not in good order
    Explanation
    The most common reason for delays in 1035 exchanges is when the paperwork is not in good order. This means that there may be missing or incomplete documents, errors in the information provided, or failure to meet the necessary requirements for the exchange. When the paperwork is not in good order, it can cause delays in processing the exchange and may require additional time and effort to correct the issues before the exchange can proceed.

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  • 32. 

    Which of the following is NOT required for proper completion of 1035 exchange paperwork?

    • A.

      Surrender paperwork must be signed at the time the new app is taken

    • B.

      Oustanding loans must be paid off

    • C.

      Complete name and Tax ID of the owner must be included

    • D.

      The document must be witnessed.

    Correct Answer
    B. Oustanding loans must be paid off
    Explanation
    For proper completion of 1035 exchange paperwork, surrender paperwork must be signed at the time the new app is taken, the complete name and Tax ID of the owner must be included, and the document must be witnessed. However, outstanding loans do not need to be paid off for the proper completion of 1035 exchange paperwork.

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  • 33. 

    What must a client do in order to withdraw cash as part of a 1035 exchange?

    • A.

      The client must request that the cash be sent directly to the address on record

    • B.

      The cash withdrawal can only be delivered to the agent of record

    • C.

      The cash withdrawal must be less than 10% of the 1035 exchange amount

    • D.

      Cash withdrawals from 1035 proceeds can not be made and sent to the client under any circumstances

    Correct Answer
    D. Cash withdrawals from 1035 proceeds can not be made and sent to the client under any circumstances
  • 34. 

    How is a collateral assigment handled as part of a 1035 exchange?

    • A.

      The assignment must be released before the exchange can take place

    • B.

      The assignment automatically transfers with the contract as part of the 1035 exchange

    • C.

      The client must sign an acknowledgement of assignment form to be processed witht he 1035 paperwork

    • D.

      The assignee must sign an acknowledgement of assignment form to be processed witht he 1035 paperwork

    Correct Answer
    A. The assignment must be released before the exchange can take place
  • 35. 

    How often are 1035 follow up calls scheduled as part of normal processing?

    • A.

      Every 5 business days

    • B.

      Every 7 business days

    • C.

      Every 9 business days

    • D.

      Every 11 business days

    Correct Answer
    A. Every 5 business days
    Explanation
    The correct answer is "Every 5 business days" because it is the only option that indicates a shorter time interval between follow-up calls. The other options suggest longer intervals, which would not be considered "often" in the context of normal processing.

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  • 36. 

    Which of the following is NOT an option if a contract has an outstanding loan as part of the 1035 process?

    • A.

      The client can pay off the loan at the existing company prior to inititiating a 1035 request

    • B.

      The exiting company can pay the loan off from the 1035 proceeds and send the new carrier the balance of the 1035 proceeds

    • C.

      The client may take a cash withdrawal as part of the 1035 exchange and use those funds to pay off the loan at the existing company once the 1035 exchange has been completed

    • D.

      The client may opt to carry the outstanding loan over to the new contract, provided the exiting carrier will participate in surrendering the policy with a loan carryover

    Correct Answer
    C. The client may take a cash withdrawal as part of the 1035 exchange and use those funds to pay off the loan at the existing company once the 1035 exchange has been completed
    Explanation
    The client may take a cash withdrawal as part of the 1035 exchange and use those funds to pay off the loan at the existing company once the 1035 exchange has been completed. This option is not available if a contract has an outstanding loan as part of the 1035 process.

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  • 37. 

    Which of the following pieces of information would you need to provide to Commissions when researching a case?

    • A.

      Social of Agent

    • B.

      Agent Name

    • C.

      Policy Number

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    When researching a case, it is necessary to provide all of the mentioned pieces of information to Commissions. The social of the agent helps in identifying the specific agent involved in the case, while the agent name provides further clarification. The policy number is crucial for locating the specific policy related to the case. Therefore, all of the mentioned information is required for effective research and investigation.

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  • 38. 

    Which of the following functions is handled by the individual insurance commissions team?

    • A.

      Policy Agent Changes

    • B.

      EFT set-ups

    • C.

      Agent address changes

    • D.

      None of the above

    Correct Answer
    D. None of the above
    Explanation
    The individual insurance commissions team does not handle any of the functions mentioned in the options.

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  • 39. 

    Who manages the Life Insurance Sales Desk?

    • A.

      Steve Zimmerman

    • B.

      Jeff Grant

    • C.

      Liz Stott

    • D.

      Dawn Foye

    Correct Answer
    D. Dawn Foye
    Explanation
    Dawn Foye manages the Life Insurance Sales Desk.

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  • 40. 

    Where is the Sun Life Financial Life Insurance Sales Desk located?

    • A.

      Toronto

    • B.

      Boston

    • C.

      Wellesley

    • D.

      New York

    Correct Answer
    B. Boston
    Explanation
    The Sun Life Financial Life Insurance Sales Desk is located in Boston.

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  • 41. 

    A non-qualified deferred compensation agreement between a company and select key employees in which the company agrees to provide a specified benefit amount at retirement, or should the employee die, become disabled or terminate employment is known as a:

    • A.

      Roth 401(k)

    • B.

      Supplemental Executive Retirement Plan (SERP)

    • C.

      Lifetime Coverage Plan (LCP)

    • D.

      Employee Insurance Coverage (EIC)

    Correct Answer
    B. Supplemental Executive Retirement Plan (SERP)
    Explanation
    A Supplemental Executive Retirement Plan (SERP) is a non-qualified deferred compensation agreement between a company and select key employees. It provides a specified benefit amount at retirement, or in the event of the employee's death, disability, or termination of employment. This plan is designed to supplement the employee's existing retirement plan and provide additional benefits for top executives. It is commonly used to attract and retain key talent by offering enhanced retirement benefits beyond what is provided by traditional retirement plans like a 401(k).

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  • 42. 

    A type of incentive plan where the business provides an executive with funds that are used to purchase a life insurance policy owned by the employee is known as a:

    • A.

      Executive Life Agreement

    • B.

      Section 162 Executive Bonus Plan

    • C.

      Keogh Plan

    • D.

      Life Purchase Plan

    Correct Answer
    B. Section 162 Executive Bonus Plan
    Explanation
    A Section 162 Executive Bonus Plan is a type of incentive plan where a business provides an executive with funds to purchase a life insurance policy owned by the employee. This plan allows the executive to receive additional compensation in the form of life insurance coverage, while also providing tax advantages for the business. The executive pays the premiums for the policy, and the business reimburses the executive for the cost. This arrangement helps the executive secure life insurance coverage and provides a tax-efficient way for the business to compensate the executive.

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  • 43. 

    Assume each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business. This is known as a:

    • A.

      Cross-purchase plan

    • B.

      Buisness redistribution plan

    • C.

      Entity purchase or stock redemption plan

    • D.

      Section 162 Executive Bonus Plan

    Correct Answer
    A. Cross-purchase plan
    Explanation
    A cross-purchase plan is a type of business succession plan where each business owner purchases a life insurance policy on each of the other owners. In the event of an owner's death, the surviving owners use the death benefit from the life insurance policy to buy the deceased owner's share of the business. This plan ensures a smooth transition of ownership and allows the surviving owners to maintain control of the business.

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  • 44. 

    Assume each buisness owner enters into an agreement with the business for the sale of their respective interests to the business. As a part of this agreement, the business purchases separate life insurance contracts on the lives of the owners. The business will pay the premiums and will be the owner and beneficiary. When an owner-employee dies, his or her share of the company will pass to the heirs of his or her estate. The business may use the proceeds from the policy to purchase the interest from the estate. This is known as a:

    • A.

      Cross-purchase plan

    • B.

      Buisness redistribution plan

    • C.

      Entity purchase or stock redemption plan

    • D.

      Section 162 Executive Bonus Plan

    Correct Answer
    C. Entity purchase or stock redemption plan
    Explanation
    The correct answer is entity purchase or stock redemption plan. In this type of plan, the business itself purchases life insurance policies on the lives of the owners. When an owner-employee dies, the business uses the proceeds from the policy to buy the deceased owner's interest from their estate. This allows the business to maintain control and ownership by redeeming the stock or interest of the deceased owner. It is an effective way to ensure a smooth transition of ownership and provide financial security for the heirs of the deceased owner.

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  • 45. 

    What is the major advantage of a Trusteed Cross-Purchase Plan?

    • A.

      Automatically incurs the alternative minimum tax (AMT)

    • B.

      Eliminates the need for multiple policies on each stockholders life

    • C.

      Does not provide the remaining stockholders with a stepped-up basis

    • D.

      Can be funded by either mutual funds or life insurance

    Correct Answer
    B. Eliminates the need for multiple policies on each stockholders life
    Explanation
    A Trusteed Cross-Purchase Plan eliminates the need for multiple policies on each stockholder's life. This means that instead of each stockholder having their own individual life insurance policy, the trust purchases a single policy for each stockholder. This simplifies the process and reduces administrative burdens. Additionally, having a single policy for each stockholder may also result in cost savings compared to having multiple policies.

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  • 46. 

    Which of the following is NOT an advantage of a Non-Qualified Deferred Compensation Plan?

    • A.

      Non-qualified deferred compensation is never taxed

    • B.

      An employer can be selective of which employees are offered to participate in any non-qualified deferred compensation plans

    • C.

      Non-qualified deferred compensation plans can be set up to fit whatever criteria an employer thinks are important

    • D.

      Non-qualified deferred compensation plans have no government-set deferral limits

    Correct Answer
    A. Non-qualified deferred compensation is never taxed
  • 47. 

    Life insurance purchased by a business on a key-employee, owner, or partner whose continued participation in the business is crucial to the company's financial success is called what?

    • A.

      Business insurance

    • B.

      Key-person insurance

    • C.

      Financial loss coverage

    • D.

      Continuation insurance

    Correct Answer
    B. Key-person insurance
    Explanation
    Key-person insurance is the correct answer because it refers to life insurance purchased by a business on a key-employee, owner, or partner who plays a crucial role in the company's financial success. This type of insurance is designed to provide financial protection to the business in the event of the key person's death or disability, helping to cover expenses and potential losses that may arise from their absence.

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  • 48. 

    Insurance policy ownership for Keyperson and Deferred Compensation Plans would be best described as:

    • A.

      Both Corporate Owned

    • B.

      Keyperson is Individually Owned; Deferred Compensation is Corporate Owned

    • C.

      Keyperson is Corporate Owned; Deferred Compensation is Individually Owned

    • D.

      Both are Individually Owned

    Correct Answer
    A. Both Corporate Owned
    Explanation
    The correct answer is Both Corporate Owned. This means that both the Keyperson and Deferred Compensation Plans are owned by the corporation. In a Keyperson Plan, the corporation purchases and owns the life insurance policy on a key employee to protect against financial loss in the event of their death. Similarly, in a Deferred Compensation Plan, the corporation owns the policy that provides benefits to key employees in the form of deferred compensation.

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  • 49. 

    Which of the following are true regarding Modified Endowment Contacts (MEC)?

    • A.

      Individually Owned MEC policies are no longer subject to the 10% penalty on distributions after age 59 1/2

    • B.

      Corporate Owned and Trust Owned MEC policies are always subject to the 10% distribution penalty

    • C.

      Distributions from MEC policies are taxed on a LIFO basis

    • D.

      All of the above

    Correct Answer
    D. All of the above
    Explanation
    Individually Owned MEC policies are no longer subject to the 10% penalty on distributions after age 59 1/2. Corporate Owned and Trust Owned MEC policies are always subject to the 10% distribution penalty. Distributions from MEC policies are taxed on a LIFO (Last-In, First-Out) basis. Therefore, all of the statements regarding Modified Endowment Contracts (MEC) are true.

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  • 50. 

    An executive benefit plan in which a company provides a bonus to the executive that is sufficient to pay the insurance premium as well as the tax on the bonus is best described as what?

    • A.

      Single Bonus

    • B.

      Double Bonus

    • C.

      Triple Bonus

    • D.

      Restricted Bonus

    Correct Answer
    B. Double Bonus
    Explanation
    A double bonus executive benefit plan is one in which a company not only provides a bonus to the executive but also covers the cost of the insurance premium and the tax on the bonus. This means that the executive receives a bonus that is sufficient to cover these additional expenses, resulting in a higher net benefit for the executive. This type of plan is considered advantageous for the executive as it provides additional financial support and reduces the burden of paying for insurance and taxes out of pocket.

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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 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 14, 2010
    Quiz Created by
    Monahan
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