Life License Practice Test 01

Questions and Answers

Which of the following is true regarding the spendthrift clause in life insurance policies?

It is used to limit the amount a beneficiary can receive.

It allows beneficiaries to spend the proceeds freely.

It protects the policy proceeds from creditors of the beneficiary. (correct)

It requires the beneficiary to invest the proceeds.

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance

If an employer decides to change its life insurance policy to a similar one with a different insurer, which of the following describes the extent that replacement regulations will be exercised?

Regulations depend on the insurer.

Replacement regulations will not apply. (correct)

Replacement regulations will fully apply.

Only partial regulations will apply.

What is the maximum annual interest rate that insurers can charge during the policy grace period?

8% Signup and view all the answers

The insured may return the insurance policy for a full refund of premium within how many days?

14 Signup and view all the answers

Who is required to hold a producer license?

A person who negotiates insurance contracts Signup and view all the answers

In what way can an agent demonstrate a high standard of ethics?

Putting the client's best interest before their own Signup and view all the answers

Which of the following is an example of an agent's fiduciary responsibilities?

Promptly forwarding premiums to the insurance company Signup and view all the answers

It is ever legal to limit coverage based on marital status.

False Signup and view all the answers

What should an insurance agent do if found guilty of a felony?

Send a written notification to the Department of Insurance Signup and view all the answers

Under special circumstances, continuing education requirements may be extended beyond the 2-year period for a maximum period of how long?

12 months Signup and view all the answers

What is the term used when an agent needs to solicit additional coverage from another authorized insurer?

Excess Signup and view all the answers

What could a producer be found guilty of if they made maliciously critical remarks about another insurer?

Defamation Signup and view all the answers

What does a participating insurance policy do?

Pay dividends to the policyowner Signup and view all the answers

All of the following information about a customer must be used in determining annuity suitability EXCEPT:

Beneficiary's age Signup and view all the answers

What Florida insurance regulation should a customer consult if considering exchanging their existing life insurance contract?

The Florida Replacement Rule Signup and view all the answers

What is the minimum age for purchasing a life insurance policy in Florida?

15 Signup and view all the answers

A group formed solely for the purpose of obtaining group insurance can qualify for group coverage.

False Signup and view all the answers

Which of the following is NOT a responsibility of the Office of Insurance Regulation?

Enacting new insurance laws Signup and view all the answers

What provision allows an insured to return the policy for a full premium refund?

Free look Signup and view all the answers

What do nonforfeiture values guarantee for the policyowner?

Cash value will not be lost Signup and view all the answers

What will the insurance company do if a conditional receipt was issued and the applicant died before the policy was approved?

Issue the policy and pay the face value to the beneficiary. Signup and view all the answers

What type of policy can be changed from one that does not accumulate cash value to one that does?

Convertible Term Policy. Signup and view all the answers

What does the target premium in a universal life policy represent?

The recommended amount to keep the policy in force throughout its lifetime. Signup and view all the answers

The annuitant cannot be the same person as the annuity owner.

False Signup and view all the answers

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent. Signup and view all the answers

The interest credited under the accumulation at interest option is not taxable since it remains inside the policy.

False Signup and view all the answers

What is true about a spouse term rider?

The rider is usually level term insurance. Signup and view all the answers

What can the insurance company do if an insured concealed information during the application process?

Pay the death benefit. Signup and view all the answers

What dividend option applies when an insured applies dividends to increase the death benefit?

Paid-up additions. Signup and view all the answers

What document must be included in the insurance policy according to the entire contract provision?

Copy of the original application. Signup and view all the answers

What are the two elements necessary for a life insurance policy to have legal purpose?

Insurable interest and consent. Signup and view all the answers

Which type of policy is referred to as a 'second-to-die' policy?

Survivorship life. Signup and view all the answers

What is it called when an employer contributes to a retirement plan whenever a profit is realized?

Profit sharing plan. Signup and view all the answers

What does 'liquidity' refer to in a life insurance policy?

Cash values can be borrowed at any time. Signup and view all the answers

What rider waives the premium if the insured is disabled?

Waiver of premium. Signup and view all the answers

A collateral assignment gives the creditor the rights of ownership of the life insurance policy.

False Signup and view all the answers

Estate liquidation is considered a personal use of life insurance.

False Signup and view all the answers

What should an insurer do if an application for life insurance is incomplete?

Return to the applicant for completion. Signup and view all the answers

Who does the life settlement broker represent?

The owner. Signup and view all the answers

In a noncontributory group plan, employees receive individual policies.

False Signup and view all the answers

What is an example of liquidity in a life insurance contract?

The cash value available to the policyowner. Signup and view all the answers

A signed waiver of premium is required upon policy delivery.

False Signup and view all the answers

What is correct about the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense. Signup and view all the answers

What rider maximizes the death benefit without increasing the face amount?

Return of premium rider. Signup and view all the answers

What will the beneficiary receive if an annuitant dies before the annuitization occurs?

Either the amount paid into the plan or the cash value of the plan, whichever is greater. Signup and view all the answers

What amount would a beneficiary receive if a policy with an accidental death rider resulted in a death?

$200,000. Signup and view all the answers

What type of settlement option pays throughout the lifetimes of two beneficiaries?

Joint and survivor. Signup and view all the answers

A competent party must have completed secondary education.

False Signup and view all the answers

Which portion will be taxed during a partial withdrawal from a universal life policy?

Interest. Signup and view all the answers

What determines the cash value of a variable life policy?

The performance of the policy portfolio. Signup and view all the answers

What does 'level' refer to in level term insurance?

Face amount. Signup and view all the answers

What type of contract is illustrated by an insured making a premium payment before approval?

Conditional. Signup and view all the answers

What period is defined as when accumulated money in an annuity is converted into income?

Annuitization period. Signup and view all the answers

What is true of a children's rider added to a permanent life insurance policy?

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Signup and view all the answers

Who receives the death benefit if both the insured and the primary beneficiary die in a common disaster?

The insured's contingent beneficiary. Signup and view all the answers

Who does the secondary notice provision protect?

Elderly insureds. Signup and view all the answers

What are licensed life insurance agents expected to be familiar with?

All of the insurance laws and regulations. Signup and view all the answers

What status will an employee have if accepted into a group insurance plan?

Certificate holder. Signup and view all the answers

Which insurance provider must be nonprofit and sell insurance mainly to its members?

Fraternal. Signup and view all the answers

From what type of insurer did an insured purchase a policy if she received a non-taxable dividend?

Mutual. Signup and view all the answers

A salaried employee who advertises and solicits insurance requires a license as an insurance producer.

True Signup and view all the answers

When does a free-look period begin on a life insurance policy?

When the policy is delivered to the insured. Signup and view all the answers

What term describes replacing insurance policies solely to earn commissions?

Churning. Signup and view all the answers

How many days must an agent notify the department of insurance after being convicted of a crime punishable by a year in prison?

30 days. Signup and view all the answers

Obtaining an insurance license is considered an insurance transaction.

False Signup and view all the answers

Study Notes

Nonforfeiture Values

Nonforfeiture values guarantee that cash value remains intact for the policyowner, even if the policy lapses or is surrendered.

Conditional Receipt

A conditional receipt issued upon application allows coverage to be effective before formal policy issuance, provided the applicant is considered insurable as a standard risk.

Convertible Term Policy

A convertible term policy allows the policyowner to convert to a permanent insurance policy.

Target Premium

In a universal life policy, the target premium is the suggested amount to maintain the policy's validity throughout its lifetime.

Annuitant and Owner

The annuitant can often be the same as the annuity owner but must be a natural person, and is the one receiving benefits from the annuity.

Policy Effectiveness

A policy can become effective immediately if the application is signed and the initial premium is paid at that time.

Accumulation at Interest

Interest credited under the accumulation at interest option in a life insurance policy is taxable, regardless of whether the policyowner withdraws it.

Spouse Term Rider

A spouse term rider provides level term insurance for a spouse, usually expiring at age 65.

Incontestability Clause

After two years, insurers cannot deny claims based on misstatements in the application due to the incontestability clause.

Paid-up Additions

When dividends from a participating policy are used to increase the death benefit, this is known as paid-up additions.

Entire Contract Provision

An insurance policy must include a copy of the original application as part of the entire contract provision.

Legal Purpose of Insurance

A life insurance policy has legal significance if it contains both insurable interest and consent.

Survivorship Life

Survivorship life is referred to as a "second-to-die" policy, covering two or more lives for a premium based on a joint age.

In a profit sharing plan, employers contribute to employees' retirement plans when profits are generated.

Liquidity in Insurance

Liquidity refers to the ability to access cash values in a life insurance policy by borrowing against them at any time.

Waiver of Premium

The waiver of premium rider allows forgoing premium payments if the insured becomes totally disabled for a predetermined period.

Third-party Ownership

Collateral assignment of death benefits for loan security does not equate to third-party ownership as rights remain with the insured.

Personal Uses of Life Insurance

Personal uses include survivor protection, estate creation, cash accumulation, and liquidity; however, estate liquidation is not considered a personal use.

Incomplete Applications

An insurance application with unanswered questions should be returned to the applicant for completion before policy issuance.

Life Settlement Broker

A life settlement broker exclusively represents the policyowner in negotiating life settlement contracts.

Noncontributory Group Plans

In noncontributory group plans, employees receive certificates of insurance instead of individual policies.

Cash Value in Life Insurance

The cash value available to the policyowner demonstrates liquidity, allowing access to funds as needed.

Policy Delivery Requirements

Upon delivery of a policy, a signed waiver of premium is not required, but a Statement of Good Health may be needed if the premium was not collected earlier.

Key-person Life Insurance Taxation

Premiums for key-person life insurance are not tax-deductible, but benefits received upon the key employee's death are typically tax-free.

Return of Premium Rider

The return of premium rider provides additional payment equal to all premiums paid upon the insured's death, enhancing the death benefit.

Annuity Beneficiary

If an annuitant dies before annuitization, the beneficiary is entitled to either the total amount paid into the plan or its cash value, whichever is greater.

Accidental Death Claims

With an accidental death rider, a beneficiary receives double the face value if the insured dies from accident-related injuries within the stipulated timeframe.

Joint and Survivor Settlement Option

This option provides lifetime payments to both or any surviving beneficiaries.

Competent Parties in Contracts

Competent parties must be of legal age and mentally capable; educational background is not a criterion for competency.

Tax on Partial Withdrawals

During a partial withdrawal from a universal life policy, only the interest earned may be taxable.

Cash Value of Variable Life Policy

The cash value fluctuates based on the performance of the policy's investment portfolio, and is not guaranteed.

Level Term Insurance

Level term policies keep consistent face amounts and premiums throughout the term duration.

Conditional Contracts

Conditional contracts require actions from both insurer and policyowner, differing from other policy types.

Annuitization Period

The annuitization period is when accumulated funds in an annuity convert to an income stream.

Children's Rider

A children's rider provides term coverage for children, convertible to permanent insurance without evidence of insurability at a certain age.

Common Disaster Provision

Under the Uniform Simultaneous Death Law, contingent beneficiaries receive policy proceeds if the insured and primary beneficiary die simultaneously.

Secondary Notice Provision

This provision protects elderly insureds from policy lapsing due to unpaid premiums without prior notification.

Knowledge of Insurance Laws

Licensed life insurance agents must be familiar with all insurance laws and regulations.

Group Insurance Participation

Employees accepted into a group insurance plan hold the status of certificate holders, rather than receiving individual policies.

Fraternal Insurance Providers

Fraternal benefit societies must be nonprofit and can only sell insurance to their members.

Mutual Insurance Providers

Mutual insurers return surplus funds to policyowners in the form of dividends based on operating costs.

Insurance Producer Licensing

An individual who solicits insurance requires a producer license; mere advertisement without solicitation does not.

Free-Look Period

The free-look period begins upon policy delivery, allowing a full refund of premium within a specified timeframe.

Churning Definition

Churning refers to the unethical practice of replacing insurance policies solely to generate commissions.

Reporting Criminal Convictions

Insurance agents must report felony convictions within 30 days to the Department of Insurance.

Insurance Transaction Definitions

Insurance transactions encompass actions involving the solicitation, negotiation, or advising in relation to insurance coverage.

Spendthrift Clause

The spendthrift clause safeguards policy proceeds from creditors, preventing beneficiaries from mismanaging funds.

Reinsurance

Insurers use reinsurance as a strategy to mitigate risks associated with catastrophic losses.

Replacement Regulations

Replacement regulations do not apply if an employer changes its group life insurance policy to a similar one with a different insurer.

Grace Period Interest Rate

Insurers can charge a maximum interest rate of 8% annually during the grace period for paid premiums.

Free-Look Provision Duration

In Florida, insured individuals can return a life policy within 14 days of delivery for a full premium refund if dissatisfied.### Producer License Requirements
A producer license is required for individuals negotiating insurance contracts.
Clerical tasks unrelated to soliciting or negotiating insurance do not require a license.

Ethics in Agency

A high standard of ethics is demonstrated by prioritizing the client's best interests.
Ethical agents place client needs above their own.

Fiduciary Responsibilities

Agents have a fiduciary duty to promptly forward premiums to insurance companies.
Fiduciary relationships involve positions of trust, especially regarding clients' premiums.

Marital Status and Coverage

It is illegal to limit insurance coverage based on marital status.
While sex or marital status cannot restrict benefits, marital status may define eligibility for dependent benefits.

Felony Conviction Notification

Agents found guilty of a felony must notify the Department of Insurance in writing within 30 days.
Felonies resulting in one year or more of imprisonment trigger this requirement.

Continuing Education Extensions

Continuing education requirements can be extended for up to 12 months under special circumstances.
Excess classroom hours can be carried over to the next two-year period.

Excess Insurance Coverage

When an agent's insurer cannot provide additional coverage, the agent can seek it from another authorized insurer, termed as "excess."
Excess business refers to risks exceeding limits accepted by the agent's own insurer.

Defamation

A producer making harmful remarks about another insurer can be charged with defamation.
Defamation is classified as an unfair trade practice.

Participating Insurance Policies

Participating policies are eligible to pay dividends to policyowners based on mortality costs, interest, and expenses.

Annuity Suitability Factors

Key factors for determining annuity suitability include the consumer's age, income, financial status, tax status, experience, and objectives.
Beneficiary's age is not considered a suitability factor.

Florida Replacement Rule

The Florida Replacement Rule governs the procedures when replacing an existing life insurance contract with a new one.

Minimum Age for Life Insurance in Florida

The legal minimum age to purchase a life insurance policy in Florida is 15.

Group Insurance Eligibility

Groups formed solely for obtaining group insurance do not qualify for coverage.
Eligible groups must be established for purposes other than just securing insurance and can include employer-sponsored or association-sponsored groups.

Responsibilities of the Office of Insurance Regulation

The Office of Insurance Regulation is not responsible for enacting new insurance laws; this is the role of the state legislature.

Free Look Provision

The free-look provision allows insured individuals to return their life insurance policy within a specified period for a full premium refund.
In Florida, this period extends to 14 days for life insurance policies and annuities.

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Description

Prepare for your life insurance exam with this comprehensive practice test focusing on nonforfeiture values and other key concepts. Each flashcard offers clear definitions and essential information to help you succeed in understanding permanent life insurance policies.