Life Insurance Quiz MCQ Test!

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Quizzes Created: 1 | Total Attempts: 221
Questions: 25 | Attempts: 221

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Life Insurance Quiz MCQ Test! - Quiz

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Questions and Answers
  • 1. 

    Which of the following statements best describes an annuity payout period?

    • A.

      It guarantees income will be paid for any period the owner wants.

    • B.

      It guarantees that income will be paid for any period beginning at age 65.

    • C.

      This period is intended to provide income for the rest of the annuitant's life.

    • D.

      This period must be set for a specific number of years.

    Correct Answer
    A. It guarantees income will be paid for any period the owner wants.
    Explanation
    One of the unique features of an annuity is that it can guarantee income will be paid for any period the owner wants. This period can be a set number of years or for the length of ones life.

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  • 2. 

    Carol was 35 when she bought her deferred annuity. Now, at age 38, she needs to withdraw funds from the contract to meet a financial emergency. Carol is likely to encounter all of the following consequences in making the withdrawal EXCEPT:

    • A.

      Surrender charges

    • B.

      Statutory minimum withholding requirements

    • C.

      LIFO income tax treatment

    • D.

      A 10 percent premature distribution tax penalty

    Correct Answer
    B. Statutory minimum withholding requirements
    Explanation
    Carol is under age 59½, so the withdrawal will be subject to a 10 percent premature distribution penalty tax. The withdrawal is also subject to last-in-first-out (LIFO) income tax treatment and to surrender charges. There are no statutory minimum withholding requirements.

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  • 3. 

    Abby lives in Maryland, where she is licensed as an insurance agent. She wants to apply for a nonresident license in North Carolina. Which of the following conditions must she satisfy?

    • A.

      She must move to North Carolina.

    • B.

      She must surrender her Maryland license.

    • C.

      She must be sponsored by an agent licensed in North Carolina.

    • D.

      She must show her license to be in good standing in Maryland.

    Correct Answer
    D. She must show her license to be in good standing in Maryland.
    Explanation
    A person who is not a North Carolina resident may be licensed as an insurance agent in North Carolina if the person is a licensed agent in good standing in his or her home state.

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  • 4. 

    Under the spouse/another insured term rider, a person can buy a term life insurance rider to cover the life of a spouse (or another adult). This coverage usually ends sometime before the primary insured reaches which of the following ages?

    • A.

      21

    • B.

      40

    • C.

      75

    • D.

      100

    Correct Answer
    D. 100
    Explanation
    Under the spouse/another insured term rider, a person can buy a term life insurance rider to cover the life of a spouse (or another adult). This coverage usually ends sometime before the primary insured reaches the age of 100.

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  • 5. 

    Which of the following is NOT a factor in determining the tax treatment that applies to life insurance and annuity products?

    • A.

      Who owns or controls the product

    • B.

      How the product is designed

    • C.

      What the owner does for a living

    • D.

      When and how the product benefits are received

    Correct Answer
    C. What the owner does for a living
    Explanation
    The tax treatment of life insurance and annuity products is determined by various factors such as who owns or controls the product, how the product is designed, and when and how the product benefits are received. However, what the owner does for a living is not a factor in determining the tax treatment. The tax treatment is based on the characteristics and structure of the product, rather than the occupation of the owner.

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  • 6. 

    Who of the following may receive dividends on his life insurance policy?

    • A.

      David, who owns a participating whole life policy issued by ABC Mutual Insurance Company

    • B.

      Don, who is part of a fraternal benefit society

    • C.

      Daniel, who owns a universal life insurance policy issued by a stock insurance company.

    • D.

      Donald, who belongs to a reciprocal exchange group

    Correct Answer
    A. David, who owns a participating whole life policy issued by ABC Mutual Insurance Company
    Explanation
    Mutual companies are owned by their policyholders. Shares of mutual companies are not publicly traded, and when mutual companies declare dividends, they are paid to the policy owners.

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  • 7. 

    Level term insurance provides which of the following?

    • A.

      A level premium and a flexible death benefit

    • B.

      Both a level premium and a level death benefit

    • C.

      A flexible premium and a level death benefit

    • D.

      A increasing premiums and a decreasing death benefit

    Correct Answer
    B. Both a level premium and a level death benefit
    Explanation
    Level term insurance provides a level death benefit and charges a level premium for the duration of the coverage term. At the end of the term, the coverage expires and protection ends.

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  • 8. 

    Sally's $750,000 life insurance policy was payable to her son when she died. Her son receives the $750,000 in death proceeds income tax-free. How are those funds handled in Sally's estate?

    • A.

      Only $200,000 of the death benefit is includible in Sally's estate.

    • B.

      Those funds are exempt from Sally's estate.

    • C.

      Sally's estate must include $750,000 for the purpose of determining any estate tax liability.

    • D.

      The amount includible in Sally's estate cannot be determined from the information provided.

    Correct Answer
    C. Sally's estate must include $750,000 for the purpose of determining any estate tax liability.
    Explanation
    Sally's estate must include $750,000 for the purpose of determining any estate tax liability, although estates valued at less than a certain threshold amount are generally exempt from federal estate tax.

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  • 9. 

    At what point must an insurable interest exist to own a life insurance policy on someone else's life?

    • A.

      When a claim is made

    • B.

      For the duration of the contract's contestable period

    • C.

      During the entire length of the contract

    • D.

      When the policy is purchased

    Correct Answer
    D. When the policy is purchased
    Explanation
    With life insurance, an insurable interest need exist only at the time the life insurance contract is purchased. It does not have to continue throughout the length of the policy contract, nor does it have to exist at the time of claim.

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  • 10. 

    A married couple is insured under a joint life policy. The first spouse dies. What can the surviving spouse do with the policy?

    • A.

      The surviving spouse can renew the policy.

    • B.

      .The surviving spouse can convert the policy if he or she proves insurability.

    • C.

      The surviving spouse may convert the policy without proving insurability.

    • D.

      The surviving spouse cannot convert the policy.

    Correct Answer
    C. The surviving spouse may convert the policy without proving insurability.
    Explanation
    When the first spouse dies in a joint life policy, the surviving spouse has a conversion right that allows him or her to buy an individual policy with the same or lesser face amount. The surviving insured does not have to prove insurability.

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  • 11. 

    Under the fixed amount life settlement option, the payee receives a fixed income for an unspecified period of time. All of the following statements about the fixed amount settlement option are correct EXCEPT

    • A.

      The insurer holds the proceeds under this option. The insurer then pays out the proceeds (including interest) on a schedule until the principal is exhausted.

    • B.

      The insurer may only pay out the proceeds annually.

    • C.

      The policyowner or beneficiary selects the payment amount. This payment amount determines how long the payments continue.

    • D.

      If the payee dies before the principal reaches zero, the insurer pays the contingent payee until the account is depleted. The contingent payee can also choose to receive the present value of the final payments in a lump sum.

    Correct Answer
    B. The insurer may only pay out the proceeds annually.
    Explanation
    If the payee dies before the principal reaches zero, the insurer pays the contingent payee until the account is depleted. The contingent payee can also choose to receive the present value of the final payments in a lump sum.

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  • 12. 

    Dividend options apply to which of the following?

    • A.

      Term life insurance

    • B.

      Non-participating life insurance policies

    • C.

      Participating life insurance contractual dividend distributions

    • D.

      Participating life insurance policies when dividends are declared by the insurer

    Correct Answer
    D. Participating life insurance policies when dividends are declared by the insurer
    Explanation
    Dividend options are ways policyowners of participating policies can use any dividends the insurer has declare.

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  • 13. 

    John has chosen to receive his life insurance policy's dividends under the accumulate-at-interest option. Which of the following statements regarding the accumulate-at-interest option is most accurate?

    • A.

      The insurer pays dividends to John at the rate the insurer declares

    • B.

      All states use the same regulations specifying how insurers must pay interest-only settlement options in their jurisdictions.

    • C.

      The insurer holds the policy dividends until a future date and credits interest to those proceeds while they remain on deposit with the insurer.

    • D.

      A policy guarantees a minimum interest rate. If the proceeds earn more interest than the guaranteed minimum, the insurer pays the lower amount

    Correct Answer
    C. The insurer holds the policy dividends until a future date and credits interest to those proceeds while they remain on deposit with the insurer.
    Explanation
    When a policy owner selects the interest-only option, the insurer holds the policy proceeds until a future date and pays the interest that those proceeds earn.

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  • 14. 

    A viatical settlement provider buys a life insurance policy from a policyholder who most likely is which of the following?

    • A.

      Terminally ill

    • B.

      A nonprofit organization or church employee

    • C.

      A small business owner

    • D.

      A candidate for policy replacement

    Correct Answer
    A. Terminally ill
    Explanation
    The viatical settlement provider is the organization that acquires the life insurance policy from the policyholder or Viator. The Viator can then use the money from the policy sale to fund health expenses or end of life care.

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  • 15. 

    Johnson Industries has nearly 1,000 workers and has chosen to create a reserve fund with its own assets to fund its workers' compensation program. If any losses occur, it will use these funds to pay workers' claims. What type of insurer is Johnson Industries?

    • A.

      Reciprocal insurer

    • B.

      Risk retention group

    • C.

      Self-insurer

    • D.

      Mutual insurer

    Correct Answer
    C. Self-insurer
    Explanation
    Johnson Industries is a self-insurer because it has chosen to retain certain risks and to self-fund to pay any future workers' compensation claims.

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  • 16. 

    Which of the following requirements applies to a life insurance policy issued to a creditor-debtor group?

    • A.

      All eligible debtors or classes of debtors are eligible for insurance.

    • B.

      At least 50 new persons must enter the group each year.

    • C.

      The amount of insurance may not exceed $50,000.

    • D.

      Proceeds must be paid to the debtors.

    Correct Answer
    A. All eligible debtors or classes of debtors are eligible for insurance.
    Explanation
    A group policy may be issued to a creditor to insure debtors, provided all of the creditor's debtors (or classes of debtors) are eligible for insurance.

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  • 17. 

    Blackstone Insurers is incorporated in New York, where it has also received a certificate of authority to transact insurance. What type of insurer is Blackstone in New York?

    • A.

      Licensed insurer

    • B.

      Alien insurer

    • C.

      Foreign insurer

    • D.

      Admitted insurer

    Correct Answer
    D. Admitted insurer
    Explanation
    An admitted insurer is a company that has received a certificate of authority, which allows the company to transact insurance within the state. It certifies that the company has met the state's requirements for conducting the business of insurance. A company not holding a certificate of authority is an unauthorized insurer in that state.

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  • 18. 

    Monica wants to access her insurance policy's cash value for the second time. She has not repaid the first loan. Which of the following describes what Monica will find when she attempts to take another loan against the policy?

    • A.

      She will not be able to take another loan until the first loan has been repaid.

    • B.

      She can borrow up to the cash surrender value, less her outstanding obligation.

    • C.

      She can borrow against the policy, but she will pay a higher rate of interest on the second loan.

    • D.

      Because she has taken out one policy loan, she will never again be allowed to borrow from the policy.

    Correct Answer
    B. She can borrow up to the cash surrender value, less her outstanding obligation.
    Explanation
    The policyowner can borrow the entire cash surrender value less any prior debt against the policy. However, the death benefit is reduced on a dollar-for-dollar basis for the full unpaid loan at the insured's death.

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  • 19. 

    Section 529 plans are used to pay for which of the following?

    • A.

      Retirement expenses

    • B.

      College tuition and related expenses

    • C.

      Any child-related expenses

    • D.

      Medical expenses

    Correct Answer
    B. College tuition and related expenses
    Explanation
    A Section 529 plan is a savings vehicle use to fund future college tuition costs. Although contributions are not tax deductible, the earnings on the investment are tax deferred.

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  • 20. 

    Chris is a licensed life insurance agent. If he wants to sell variable life products, what other license must he have?

    • A.

      Health agent license

    • B.

      Casualty agent license

    • C.

      Limited lines agent license

    • D.

      Series 6 or 7 license

    Correct Answer
    D. Series 6 or 7 license
    Explanation
    Agents who sell variable products must pass a FINRA Series 6 or 7 exam. Both the insurance company and the agent must also register with FINRa.

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  • 21. 

    A married couple is insured under a joint life policy. The first spouse dies. What can the surviving spouse do with the policy?

    • A.

      The surviving spouse can renew the policy.

    • B.

      The surviving spouse can convert the policy if he or she proves insurability.

    • C.

      The surviving spouse may convert the policy without proving insurability.

    • D.

      The surviving spouse cannot convert the policy.

    Correct Answer
    C. The surviving spouse may convert the policy without proving insurability.
    Explanation
    When the first spouse dies in a joint life policy, the surviving spouse has a conversion right that allows him or her to buy an individual policy with the same or lesser face amount. The surviving insured does not have to prove insurability.

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  • 22. 

    In classifying insurance risks, which method is used most often by insurance underwriters?

    • A.

      Numerical rating system

    • B.

      Judgment method

    • C.

      Adverse factoring system

    • D.

      Risk grading scale

    Correct Answer
    A. Numerical rating system
    Explanation
    Under the numerical rating system, credits are added for favorable risk factors. Debits are subtracted for adverse or unfavorable factors. This system has largely replaced the judgment method.

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  • 23. 

    All of the following are true regarding buy-sell agreements EXCEPT:

    • A.

      If a partner dies, the other owners agree to buy the deceased's interest in the business.

    • B.

      Either the business or the other partners can be an entity in the agreement.

    • C.

      All buy-sell plans require that a surviving partner must bring the deceased partner's heirs into the partnership.

    • D.

      Entity buy-sell agreements are more commonly used than cross-purchase plans in businesses with many owners.

    Correct Answer
    C. All buy-sell plans require that a surviving partner must bring the deceased partner's heirs into the partnership.
    Explanation
    Buy-sell agreements are typically designed to enable existing business owners to continue owning the business when the owner dies. The agreements involve the owners, or the business itself, not the owner or partner heirs.

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  • 24. 

    Sandra is a single mom and takes out a life insurance policy on newborn Deandra. Sandra dies unexpectedly, but the premiums on the policy insuring Deandra's life continue to be paid. Which of the following riders did Sandra purchase?

    • A.

      Payor benefit rider

    • B.

      Payee benefit rider

    • C.

      Newborn rider

    • D.

      Waiver of premium

    Correct Answer
    A. Payor benefit rider
    Explanation
    If a person who pays life insurance premiums on a child's life becomes disabled or dies, a payor benefit rider ensures that the insurance stays in force by waiving the premium payment, typically until the payor recovers (in the case of disability) or until the child reaches a certain age (in the case of the payor's death).

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  • 25. 

    Which of the following is not an example of a qualified retirement plan?

    • A.

      Defined benefit pension plan

    • B.

      IRA

    • C.

      Keogh plan

    • D.

      Key employee retirement plan

    Correct Answer
    D. Key employee retirement plan
    Explanation
    For a plan to be deemed qualified and receive favorable tax treatment, it cannot discriminate in coverage or exist mainly for the benefit of key employees or executives.

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