Life Iii

Front 1

Which of the following statements about participating and nonparticipating life insurance policies is NOT correct?

* A) Policy dividends are considered taxable income.
* B) Policy dividend payments cannot be guaranteed.
* C) An extra charge to cover unexpected contingencies is built into the premiums of participating policies.
* D) Participating policy premiums are normally slightly higher than nonparticipating policy premiums.

Back 1

A

The payment of policy dividends will vary from year to year and therefore cannot be guaranteed. Unlike corporate dividends, life insurance policy dividends are considered to a return of part of the premiums paid and are not taxable income. A slightly higher premium is typically charged for participating policies than for nonparticipating policies because an extra charge to cover unexpected contingencies is built into premiums for par policies.

Front 2

In writing group insurance, insurance companies use all of the following underwriting procedures to guard against adverse selection EXCEPT:

* A) benefits determined by formula.
* B) minimum participation rules.
* C) medical examinations for prospective insureds who are borderline risks.
* D) careful group selection.

Back 2

C

Medical examinations for borderline risks are not used in underwriting group insurance to guard against adverse selection.

Front 3

Which of the following statements pertaining to deferred compensation plans is CORRECT?

* A) A deferred compensation arrangement is a qualified plan funded by the employer.
* B) A deferred compensation arrangement is a non-qualified plan funded by the employee.
* C) A deferred compensation arrangement is a non-qualified plan funded by the employer.
* D) A deferred compensation arrangement is a qualified plan funded by the employee.

Back 3

B

Deferred compensation plans are agreements between employers and employees whereby the employee reduces current income by deferring the receipt of currently due salary, bonus, commission, or salary increase until a specified future date - typically at retirement. Funded by the employee, deferred compensation arrangements are non-qualified plans that typically favor highly paid executives. Basically a "promise" to pay future benefits to the employee, contributions to the plan are not deductible to the employer until the employee actually begins taking distributions, at which time the employee would begin paying taxes on those distributions.

Front 4

In general, replacement transactions are:

* A) illegal.
* B) legal if transacted in compliance with state regulations.
* C) legal if limited to the replacement of annuity contracts only.
* D) legal if limited to 20% of a producer's annual business.

Back 4

B

Policyowners have the right to replace their existing life insurance as they deem fit and to do so is not illegal. However, insurers and producers are prohibited from encouraging replacement unless it is for the policyowner's benefit. If the existing insurer is the same as the replacing insurer, the replacing insurer must give credit for the time that has passed under the replaced policy's incontestability or suicide period.

Front 5

When replacement is involved, a producer must do all of the following EXCEPT:

* A) notify the existing insurer when one of its subsidiaries will issue the replacing policy.
* B) obtain a signed statement from the applicant disclosing any existing insurance policies to be replaced.
* C) give the applicant a notice regarding replacement of life insurance signed by the applicant and producer.
* D) make a list of the applicant's existing life insurance policies.

Back 5

A

Replacement regulations do not apply to transactions where the replacing insurer and existing insurer are the same or subsidiaries under common ownership.

Front 6

An individual life insurance policy will become incontestable no later than how long after its effective date?

* A) 1 year.
* B) 18 months.
* C) 2 years.
* D) 3 years.

Back 6

C

All individual life insurance policies must contain certain mandatory provisions. For example, policies must contain an incontestability provision stating that the validity of the policy cannot be contested (except for nonpayment of premiums) after it has been in force for 2 years.

Front 7

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect:

* A) net single premium.
* B) net level premium.
* C) gross premium.
* D) gross single premium.

Back 7

C

The gross premium is what policyowners are required to pay. The net single premium can be defined as the single amount needed today to fund the future benefit. Basically, it is the amount of premium that, when combined with interest, will be sufficient to pay the future death benefit. However, only rarely do people purchase life insurance with a single premium because of the large cash outlay required. Most pay premiums over a number of years. Thus, the net single premium is converted into net annual level premiums, with some adjustments because of a lesser amount of interest these smaller premiums will earn. Finally, the gross premium is determined, which reflects the addition of the expense factor.

Front 8

Which of the following statements regarding Social Security benefits is CORRECT?

* A) Both employees and employers are taxed to pay for Social Security.
* B) Only individuals who have paid into the Social Security system are eligible to receive Social Security benefits.
* C) Social Security pays benefits in the event of retirement or death only.
* D) Social Security taxes are payable on all of an individual's income from any source.

Back 8

A

Social Security was designed to provide benefits to individuals and their families in the event of death, disability, or retirement. It can cover all members of an eligible worker's family, whether or not they themselves have paid into the system. Social Security is funded by a tax on a worker's pay, which is shared equally by the worker and the employer.

Front 9

Statements guaranteed to be true are called:

* A) representations.
* B) warranties.
* C) estoppels.
* D) waivers.

Back 9

Warranties are statements guaranteed to be true. Representations are statements believed to be true.

B

Front 10

Which of the following terms indicates the insured's right to change beneficiaries in a life insurance policy?

* A) Revocable.
* B) Per capita.
* C) Irrevocable.
* D) Per stirpes.

Back 10

A

Front 11

A group of individuals who agree to share each others' losses is known as:

* A) a reciprocal exchange.
* B) a mixed group.
* C) a reinsurer.
* D) a service organization.

Back 11

A

A reciprocal insurer or reciprocal exchange is a group of individuals (subscribers) who agree to indemnify each other for their losses. The exchange of these agreements is made through an attorney-in-fact common to all subscribers.

Front 12

The needs approach can be used to determine all of the following EXCEPT:

* A) amount of income needed if the breadwinner dies.
* B) amount needed to replace the breadwinner's projected increasing annual salary.
* C) amount needed to pay for a child's education.
* D) amount needed to provide income for the surviving spouse's retirement.

Back 12

B

The needs approach to determine how much life insurance is needed is not limited to fulfilling objectives in the event of death only, such as final expenses and immediate debts that need to be paid. It also considers a family's (or business's) living needs, such as maintenance income for the family, providing for a child's education, and planning for the surviving spouse's retirement income. Replacement of the breadwinner's projected increasing annual salary is a factor that is taken into account when using the human life value approach to determine how much life insurance is needed.

Front 13

Which of the following policy plans provides for payment of an income for a selected, fixed period of years beginning from the date of the insured's death?

* A) Family plan.
* B) Family maintenance.
* C) Family income.
* D) Joint and survivor plan.

Back 13

B

Family maintenance policies use level term insurance to provide for payment of an income for a selected, fixed period beginning at the insured's death.

Front 14

All of the following factors usually are included in a final expense fund when determining life insurance needs of a family EXCEPT:

* A) unpaid federal and state taxes.
* B) outstanding debts.
* C) funds to pay off a mortgage.
* D) last illness and funeral costs.

Back 14

C

The final expense fund is the amount of cash required at death to pay for a deceased breadwinner's last illness and funeral costs, outstanding debts, federal and state death taxes and any other unpaid taxes, legal fees, court costs, executor's fees, and the like.

Front 15

A life insurance policy provides for monthly income payments if the insured dies at any time during the first ten years. The income period begins when the policy is issued and ends ten years later. What kind of policy is this?

* A) Modified endowment.
* B) Family income.
* C) Modified whole life.
* D) Family maintenance.

Back 15

B

A family income policy is a combination of whole life and decreasing term covering a select period of years. If the insured dies within the specified period, the policy provides a certain monthly income from the date of death until the end of the specified period. This period is known as the "income period" and the monthly payments are accomplished by the term insurance. At the end of the specified period, the face amount of the whole life policy is payable to the beneficiary. If the insured lives beyond the specified income period, only the face amount of the whole life policy is payable.