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10 Cards in this Set
- Front
- Back
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Doreen is appointed by an insurance company to transact insurance on its behalf. She collects her clients premiums and has them sign paperwork. By what authority can she do so? * A) Express.* B) Fiduciary. * C) Apparent. * D) Implied. |
D Implied authority is not expressly granted but is assumed to have been given in order to transact the principal's business. It is incidental to express authority because not every detail of an agent's authority can be specifically noted. |
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A policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance. All of the following statements pertaining to this situation are correct EXCEPT: * A) there will be no accidental death benefit with the new policy.* B) the term policy has no cash value. * C) the policyowner will have continued protection for a limited period of time. * D) the term policy will have a reduced face value. |
D When a policyowner stops paying premiums on a whole life policy with an accidental death benefit and exchanges the policy for extended term insurance, a policy's cash surrender value is used to purchase an amount of term insurance equal to the original policy's face amount. The term insurance will last as long as the cash value is sufficient to pay premiums. An accidental death benefit would not be included. |
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Which of the following types of life insurance riders is NOT based on term life insurance? * A) Spousal.* B) Return of premium. * C) Cost of living. * D) Waiver of premium. |
D The waiver of premium rider is based more on the actuarial principles of disability insurance than life insurance. All other riders listed are based on some form of term life insurance. |
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All individual life insurance policies must include a reinstatement provision providing that the policy can be reinstated at any time within how many years from the date of premium default? * A) Four years.* B) Two years. * C) Three years. * D) One year. |
C A policy must provide for reinstatement at any time within three years from the date of premium default if satisfactory evidence of insurability is given, back premiums (with interest) are paid and any other indebtedness on the policy is paid. |
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Renee is the owner and insured of a $100,000 policy. She sells the policy to her business partner, Jill, for $35,000 and for the next ten years, Jill pays the $1,200 annual premium. Assuming Renee dies ten years after the transfer and the $100,000 is paid to Jill, how are the proceeds taxed under the transfer-for-value rule? * A) Jill will be taxed on $65,000, the difference between what she paid for the policy and the proceeds she received.* B) Jill receives the $100,000 tax free. * C) Jill will be taxed on the $100,000. The transfer-for-value rule makes policies sold for consideration fully taxable. * D) Jill will be taxed on $53,000, the difference between what she paid for the policy plus the premiums she paid, and the proceeds she received. |
B The transfer-for-value rule states that if a policy is transferred for consideration and the insured dies, the transferee will be taxed on the excess of the proceeds over the consideration, including any premiums. However, this rule does not apply to transfers to a partner of the insured. |
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Statements that a person makes in an application for life or health insurance are considered to be: * A) guarantees.* B) representations. * C) endorsements. * D) warranties. |
B All statements in an application for life or health insurance are treated as representations of the person applying for coverage. The applicant must act in good faith when making these representations because the insurer relies on them in determining whether to accept the application for coverage. |
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Which of the following settlement options produces benefits that are fully tax exempt to life insurance beneficiaries? * A) Lump-sum payments.* B) Fixed-period benefits. * C) Interest-only payments. * D) Fixed-amount benefits. |
A The lump-sum payment settlement option produces death benefits that are fully tax exempt to life insurance beneficiaries. The other options involve interest earned on the proceeds, which is not exempt from income tax. |
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Larry purchased a traditional IRA in 1985. Over the years he has contributed (and deducted from his taxes) $50,000 into the contract. Now age 62, Larry is retiring and plans to annuitize the contract. His life expectancy is 20 years, and he will receive $450 per month under a straight life annuity income option. Of the $5,400 he will receive annually from this annuity, how much will represent taxable income? * A) $2,484.00* B) $0.00 * C) $2,916.00 * D) $5,400.00 |
D The exclusion ratio calculation that is used to calculate the tax-free portion of nonqualified annuity payments is irrelevant with qualified contributions. Since this IRA was fully funded with tax-deducted contributions, the annuity income payment ($5,400 per year) is taxable as ordinary income. |
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Which of the following kinds of life insurance is most widely used for group plans? * A) Limited pay life.* B) Endowment. * C) Term. * D) Whole life. |
C Most group life insurance plans offer term insurance because of the lower cost to the employer. |
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Under what circumstances can a surplus lines agent sell a policy underwritten by an insurance company that is NOT licensed in New Jersey? * A) When the client is referred by a limited lines agent.* B) When it offers a higher sales commission than a similar policy from a domestic insurer. * C) When the coverage cannot be obtained from an authorized insurer. * D) When it offers a lower premium than a similar policy from a domestic insurer. |
C If no authorized insurers in New Jersey offer the kind of coverage needed, a surplus lines agent can obtain the insurance from an unauthorized insurer. |
