Life Insurance License Exam Prep

Questions and Answers

Who regulates any entity selling insurance?

State Insurance Departments

What 2 types of insurance reports do underwriters use?

Consumer Reports (correct)

Market Analysis Reports

Investigative Consumer Reports (correct)

Financial Reports

Who is subject to the provisions of the Fraud and False Statements Act?

???

When should consumer rights report give notice?

Notice must be given at time of application Signup and view all the answers

All of the following statements are true regarding the guaranty association, EXCEPT:

All life and health insurance policies are covered by the guaranty association Signup and view all the answers

What is a written report about a consumer's character, general reputation, personal characteristics, or mode of living obtained through personal interviews called?

Investigative consumer report Signup and view all the answers

An example of an unfair claim settlement practice would include?

Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer Signup and view all the answers

The situation where a producer offers club membership as a bonus for a policy purchase is known as?

Rebating Signup and view all the answers

Which of the following is a personal use of annuities?

All of the above Signup and view all the answers

Which statement concerning the payment from a non-qualified annuity is correct?

Only a portion of the payment will be taxable Signup and view all the answers

What does aleatory mean?

There is not equal exchange of value; premiums are small in relation to what the insurance company will pay in the event of a loss Signup and view all the answers

In most cases, who pays premiums for a credit life insurance policy?

The debtor pays all the premiums Signup and view all the answers

All of the following are elements of insurable risks EXCEPT:

Exposure must not be chosen randomly Signup and view all the answers

All of the following are characteristics of whole life insurance, EXCEPT:

Cash value can be forfeited Signup and view all the answers

What does non-forfeiture mean?

A nonforfeiture clause stipulates benefits or refunds for lapsed policies Signup and view all the answers

What happens when the cash value of a life insurance policy equals the face value?

The policy endows Signup and view all the answers

Which of the following is not true regarding the cash value in an ordinary whole life policy?

It may be used as a policy loan without affecting the death benefit Signup and view all the answers

Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley's policy?

The death benefit Signup and view all the answers

All of the following statements regarding renewable term life insurance policies are false, EXCEPT:

Renewable term life insurance policies are renewable at the insured's option Signup and view all the answers

All of the following are false regarding the tax consequences of Roth IRAs, EXCEPT:

Contributions are made with taxed dollars; however, interest grows tax-free Signup and view all the answers

The annual renewable term (ART) policy is characterized by which of the following?

Has no requirement for proof of insurability at renewal and a maximum age Signup and view all the answers

Which of the following is not a factor in determining the amount of a life insurance policy dividend?

Morbidity Signup and view all the answers

Collin intentionally surrendered a right on his contract known as waiver. What prevented him from reclaiming the right?

Estoppel Signup and view all the answers

Which of the following is not a case in which life insurance proceeds would be included in the deceased's estate?

The deceased's wife was the beneficiary Signup and view all the answers

Which of the following is true about immediate annuities?

They do not have an accumulation period Signup and view all the answers

Does whole life insurance have a cash value?

Yes, and is considered permanent life insurance Signup and view all the answers

What are nonforfeiture options?

Guarantees required by law that are part of life insurance policies building cash value Signup and view all the answers

What is contained on Part III of an application for insurance?

Additional information about the applicant's financial condition, character, purpose of the sale, how long the agent has known the applicant Signup and view all the answers

What does 'apparent' authority mean in insurance?

The appearance of power on behalf of the insurer through the actions or use of materials by the agent Signup and view all the answers

What is 'implied authority'?

Authority given to an agent to solicit applications for life insurance on behalf of the insurer Signup and view all the answers

What is expressed authority in insurance?

Authority given to an agent to act on behalf of a principal Signup and view all the answers

What is a 1035 exchange?

1035 Exchanges Signup and view all the answers

What is SPIA?

A single premium immediate annuity Signup and view all the answers

What is a life insurance policy that has a face amount that cannot be changed?

Signup and view all the answers

Christopher surrendered his whole life policy with a cash value of $50,000. During the life of the policy, he paid $40,000 in premiums. What amount is subject to federal income tax?

$10,000 Signup and view all the answers

How will premiums be affected if annuity benefits start at 65 years of age rather than 60?

They will go down, because the benefits will be delayed Signup and view all the answers

A plan that allows a deceased stockholder's heirs to retain ownership while a portion of the deceased stockholder's shares are redeemed by the corporation is a:

Section 303 plan Signup and view all the answers

Study Notes

Regulation of Insurance

Entities selling insurance are regulated by State Insurance Departments.

Underwriting Reports

Underwriters utilize Consumer Reports and Investigative Consumer Reports for evaluation.

Fraud and False Statements Act

All individuals and entities involved in insurance transactions are subject to the provisions of this act.

Consumer Rights Notification

Notice regarding consumer rights must be given at the time of application.

Guaranty Association Coverage

Not all life and health insurance policies are covered by the guaranty association.

Investigative Consumer Reports

These reports include character assessments based on personal interviews with acquaintances.

Unfair Claim Settlement Practices

Advising claimants of the possibility of receiving a lesser arbitration award if rejecting a settlement offer is deemed an unfair practice.

Rebating in Insurance Sales

Offering additional non-specified bonuses, such as country club membership, in insurance sales constitutes rebating.

Personal Uses of Annuities

Annuities serve personal purposes, including life income, IRAs, and tax-deferred growth.

Non-Qualified Annuity Taxation

Only a portion of payments from non-qualified annuities is taxable.

Aleatory Nature of Insurance

Aleatory indicates that there is unequal exchange of value; premiums are minimal relative to the potential payout.

Credit Life Insurance Premiums

Typically, the debtor is responsible for paying premiums for credit life insurance.

Elements of Insurable Risks

Insurable risks require definite and measurable loss, predictability, random loss exposure, and must not be catastrophic.

Whole Life Insurance Characteristics

Cash value in whole life policies is a nonforfeiture benefit; the statement regarding nonforfeiture value is true.

Non-Forfeiture Clause

Nonforfeiture clauses ensure policy owners can receive benefits or refunds if premiums lapse due to non-payment.

Policy Endowment

A life insurance policy endows when its cash value matches its face value, typically no earlier than the insured's 95th birthday.

Ordinary Whole Life Policy Cash Value

Cash value grows tax-deferred and serves as a nonforfeiture value but cannot be used as a policy loan without affecting the death benefit.

Increasing Term Life Insurance

In increasing term policies, the death benefit is the element that must increase over time.

Renewable Term Life Insurance

Insured individuals can renew renewable term life policies without evidence of insurability at their option.

Roth IRA Tax Consequences

Roth IRA contributions are made with taxed dollars, and interest grows tax-free; qualified distributions are tax-free after age 59½.

Annual Renewable Term (ART)

ART allows renewal every year without the need for proof of insurability.

Life Insurance Policy Dividend Factors

Factors like operating expenses, mortality, and assumed interest lie in dividend determination; morbidity is not a factor.

Waiver and Estoppel

Waiver refers to intentionally surrendering a right, while estoppel prevents reclaiming that right.

Life Insurance Proceeds and Estate Inclusion

Life insurance proceeds are included in the estate if the deceased was the policy owner, but not if the beneficiary was the deceased's spouse.

Immediate Annuities

Immediate annuities do not have an accumulation period and payouts must start within one year of purchase.

Whole Life Cash Value

Whole life insurance policies have a cash value, qualifying them as permanent insurance.

Nonforfeiture Options

Required by law, nonforfeiture options guarantee cash value availability when premium payments stop.

Insurance Application Part III

Part III of the application includes financial information, character assessments, and details about the agent-applicant relationship.

Apparent Authority in Insurance

Apparent authority arises when an agent acts on behalf of an insurer without explicit or implied permission based on their actions or materials.

Implied Authority in Insurance

Implied authority allows agents to solicit applications based on their representation of the insurance company.

Express Authority in Insurance

Express authority is granted to agents specifically to act on behalf of the insurance company.

1035 Exchanges

A 1035 Exchange allows policyholders to transfer benefits from one life insurance policy or annuity to another without tax penalties.

Single Premium Immediate Annuity (SPIA)

SPIA involves a single lump sum payment for guaranteed periodic payments for life or a specified duration.

Tax Implications of Whole Life Cash Surrender

Upon surrendering a whole life policy, the amount subject to federal income tax is calculated as the cash value minus the premiums paid.

Impact of Delaying Annuity Benefits

Starting annuity benefits later at age 65 will result in lower premiums, as benefits are paid for a shorter timeframe.

Section 303 Plan

A Section 303 plan allows the heirs of a deceased stockholder to retain ownership while redeeming some of the deceased's shares.

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Prepare for your Life Insurance License Exam with these flashcards covering essential terms and definitions. Each card helps you understand key concepts regulated by state departments and the reports used by underwriters. This interactive method makes studying efficient and effective.