Primerica Life Insurance Exam

Questions and Answers

For how long are all of the premiums necessary under a 20-pay life policy paid?

20 years or until death, whichever occurs first

What does a man discover about his $100,000 Annually Renewable Term Life policy?

Built cash value

Decreased death benefit each renewal

Required a premium increase each renewal (correct)

Required proof of insurability every year

Both Universal Life and Variable Universal Life have a?

Decreasing premium

Level fixed premium

Increasing premium

Flexible premium (correct)

What would the premium be like in a survivorship life policy compared to a joint life policy?

Lower Signup and view all the answers

What policy is classified as a traditional level premium contract?

Straight whole life Signup and view all the answers

The ownership provision entitles the policyowner to do all of the following EXCEPT?

Set premium rates Signup and view all the answers

What rider adjusts the face amount based on a specific index, such as the Consumer Price Index?

Cost of living rider Signup and view all the answers

Under which nonforfeiture option does the company pay the surrender value and have no further obligations?

Cash surrender Signup and view all the answers

Which statement is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy Signup and view all the answers

When is the automatic premium loan provision activated?

Grace period Signup and view all the answers

Which explains the policyowner's rights to change beneficiaries and receive proceeds?

Owner's Rights Signup and view all the answers

What will the insurance producer say about naming two beneficiaries?

The policyowner can specify the way the proceeds are split in the policy Signup and view all the answers

What will the company do if an insured misrepresents their age?

Pay a reduced death benefit Signup and view all the answers

What benefits will an insured with a disability income death benefit rider receive?

Monthly premium waiver and monthly income Signup and view all the answers

What provision states that the policy and application form the contract?

Entire Contract Signup and view all the answers

How does withdrawing a portion of the accelerated benefits affect death benefits?

The death benefit will be smaller Signup and view all the answers

When does the 10-day free-look period begin?

February 28th, or 10 days after the time the policy is delivered Signup and view all the answers

What limits the amount a policyowner may borrow from a whole life insurance policy?

Cash value Signup and view all the answers

What term describes an insured receiving an annual life insurance dividend check?

Cash option Signup and view all the answers

What amount would a beneficiary receive if the insured had an accidental death rider?

$200,000 Signup and view all the answers

Whose life expectancy is taken into account when an annuity is written?

Annuitant Signup and view all the answers

Which statement is true regarding a comparison between annuities and life insurance?

Both use mortality tables Signup and view all the answers

Annuities can be used to fund which of the following?

Retirement plans Signup and view all the answers

What is a feature of a single premium immediate annuity?

Income payments start within one year Signup and view all the answers

Which factor most directly affects the purchasing power of death benefits paid on a fixed annuity?

Economic inflation Signup and view all the answers

Which statement is NOT true regarding the annuitant?

The annuitant cannot be the same person as the annuity owner Signup and view all the answers

When a fixed annuity owner pays a monthly annuity premium, where is the money placed?

The insurance company's general account Signup and view all the answers

What would a beneficiary receive if the annuitant dies 5 years into a 20 year period certain?

Payments for 15 years Signup and view all the answers

What type of life annuity guarantees payment for a minimum number of years?

Life income with period certain Signup and view all the answers

Which type of annuity is purchased with multiple payments and benefits are paid more than one year after purchase?

Flexible premium deferred annuity Signup and view all the answers

Which of the following will NOT be an appropriate use of a deferred annuity?

Creating an estate Signup and view all the answers

Which product requires a securities license?

Variable annuity Signup and view all the answers

Which statement is NOT true regarding installments for a fixed period?

It is a life contingency option Signup and view all the answers

What type of annuity can be purchased with a single premium for immediate payments?

Immediate Signup and view all the answers

Which of the following are NOT fundable by annuities?

Death benefits Signup and view all the answers

From what type of insurer did the insured purchase the policy?

Mutual Signup and view all the answers

Annuities provide death benefits.

False Signup and view all the answers

Which method of dealing with risk does this scenario describe?

Reduction Signup and view all the answers

Which of the following is TRUE of a qualified plan? (Select all that apply)

It has a tax benefit for both employer and employee Signup and view all the answers

In insurance, an offer is usually made when?

An applicant submits an application to the insurer Signup and view all the answers

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary?

Income tax on distributions and no penalty Signup and view all the answers

Death benefits payable to a beneficiary under a life insurance policy are generally:

Not subject to income taxation by the federal government Signup and view all the answers

The causes of loss insured against in an insurance policy are known as?

Perils Signup and view all the answers

What is the main purpose of the Seven-pay test?

It determines if the insurance policy is an MEC Signup and view all the answers

What documentation grants express authority to an agent?

Agent's contract with the principal Signup and view all the answers

If a company has a simplified employee pension plan, what type of plan is it?

A qualified plan for a small business Signup and view all the answers

Which of the following best describes an insurance company that has been formed under the laws of this state?

Domestic Signup and view all the answers

If taken as a lump sum, life insurance proceeds to beneficiaries are passed:

Free of federal income taxation Signup and view all the answers

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?

Race Signup and view all the answers

In insurance transactions, fiduciary responsibility means?

Handling insurer funds in a trust capacity Signup and view all the answers

When must an IRA be completely distributed when a beneficiary is not named?

December 31 of the year that contains the 5th anniversary of the owner's death Signup and view all the answers

In life insurance policies, cash value increases:

Grow tax deferred Signup and view all the answers

The authority granted to an agent through the agent's contract is referred to as?

Express authority Signup and view all the answers

According to agency law, the producer always represents the:

Insurance company Signup and view all the answers

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

Adhesion Signup and view all the answers

What is it called when Louisiana extends the licensing privileges to a prospective producer of another state?

Reciprocity Signup and view all the answers

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting?

Stock Signup and view all the answers

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory Signup and view all the answers

How many days does a producer have to change an unapproved trade name before facing a fine?

10 days Signup and view all the answers

When could an insurance company discard the file on an advertisement used for 4 years?

June 2012 Signup and view all the answers

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration Signup and view all the answers

Insurers are required to keep copies of all summaries, notices, and statements used in sales transactions for at least:

5 years Signup and view all the answers

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction Signup and view all the answers

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration Signup and view all the answers

If a company wants to appoint a producer, which entity must it notify?

The commissioner Signup and view all the answers

Which of the following is a primary source of information used for insurance underwriting?

Application Signup and view all the answers

Which of the following best describes the practice of using intimidation to corner a large portion of the insurance market?

Illegal Signup and view all the answers

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate Signup and view all the answers

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?

The fair credit reporting act Signup and view all the answers

Before ABC Insurance Company can begin transacting business in Louisiana, it must obtain:

A certificate of authority Signup and view all the answers

A producer is helping a married couple determine the financial needs of their children in the event of one or both should die prematurely. This is a personal use of life insurance known as?

Survivorship protection Signup and view all the answers

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT?

Disclose commissions earned from the sale of the policy Signup and view all the answers

How long is a temporary license valid?

180 days Signup and view all the answers

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about?

Whether an insurable interest exists between the individuals Signup and view all the answers

A temporary license may be issued without examination to all of the following EXCEPT:

The spouse of a retired producer Signup and view all the answers

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by?

A paramedic or examining physician at the insurer's expense Signup and view all the answers

Which applies if an agent knows an applicant is cashing in an old policy to purchase new insurance?

Replacement rule Signup and view all the answers

The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called?

Expenses Signup and view all the answers

If authorized to write life and property and casualty insurance, how many hours of continuing education must producers complete every 2 years?

24 Signup and view all the answers

What is the main justification for the existence of the State Insurance Department?

To protect the public Signup and view all the answers

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?

Human life value approach Signup and view all the answers

Which of the following is NOT required for a producer to tell a prospect?

What requirements the producer needed to meet to obtain the insurance license Signup and view all the answers

Any payment to a producer from an insurer that is contingent on the sale of an insurance policy is called a:

Commission Signup and view all the answers

Which type of assignment would be used for a loan?

Collateral Signup and view all the answers

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with life insurance expectancy Signup and view all the answers

Who may complete a paramedical report?

A registered nurse Signup and view all the answers

If a policyowner returns a policy 7 days after delivery, what will the insurer do?

Refund the full premium paid Signup and view all the answers

The term 'illustrations' in a life insurance policy refers to?

A presentation of non-guaranteed elements of a policy Signup and view all the answers

If an insured dies during the grace period, the insurer will pay:

The face amount minus premium due Signup and view all the answers

Which of the following is NOT a requirement of the reinstatement provision?

Pay back premiums at current attained age Signup and view all the answers

Which is generally true regarding insureds who have been classified as preferred risks?

Their premiums are lower Signup and view all the answers

If an insured dies 3 years after the policy was issued and understated his age on the application, what will the insurer do?

Adjust the death benefit Signup and view all the answers

All of the following are requirements for life insurance illustrations EXCEPT?

They must be part of the contract Signup and view all the answers

What is the name of the first beneficiary listed in a policy?

Primary Signup and view all the answers

Partners in a business enter into a buy-sell agreement to purchase life insurance. What type of insurance policy may be used to fund this agreement?

Any form of life insurance Signup and view all the answers

An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured and matures at the insured's age 100 is called?

Single premium whole life Signup and view all the answers

Twin brothers are starting a new business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

Joint life Signup and view all the answers

An individual has just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?

Decreasing term Signup and view all the answers

Which of the following are generally NOT considered when underwriting group insurance?

The insured's medical history Signup and view all the answers

What are the 2 components of a universal policy?

Insurance and cash account Signup and view all the answers

An adjustable life policy owner can change which of the following features?

The coverage period Signup and view all the answers

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid?

For 20 years or until death, whichever occurs first Signup and view all the answers

Study Notes

Life Insurance Fundamentals

Mutual Insurers: Provide dividends based on excess funds; if no funds are available, dividends are not paid.
Risk Management Strategies: Risk reduction involves lifestyle changes to lessen health problem likelihood.
Offer in Insurance: Made by an applicant through their application; acceptance occurs once the insurer approves it.
Perils: Defined as the causes of loss covered by an insurance policy.

Insurance Authority and Classifications

Agent Authority: Express authority is granted through a contract with the principal, specifying agents' powers.
Domestic Insurers: Defined as companies doing business in the state where they are incorporated.
Underwriter Considerations: Factors like medical history, sex, and age affect insurance premium rates; race should not be considered due to discrimination laws.

Fiduciary Responsibility and Insurance Contracts

Fiduciary Responsibility: Agents manage insurer funds in a trust capacity.
Characteristics of Contracts: Adhesion contracts are unilaterally prepared by insurers, allowing the insured minimal negotiation power.

Insurance Types and Concepts

Stock Companies: Owned by stockholders who hold ownership rights, including voting.
Aleatory Contracts: Require a small premium for significant risk coverage.
Legal Consideration: In life insurance, it includes the premium payment and application representations.

Insurable Interest and Competent Parties

Insurable Interest: Essential at the policy's issuance; particularly important in relationships like spousal and parental.
Competent Parties: Both parties must be of legal age and mentally competent; past felony convictions do not disqualify individuals.

Claims and Underwriting

Consideration Principle: Essential for binding contracts; insurers must honor claims when premiums are paid and terms adhered to.
Primary Underwriting Source: The application provides most of the pertinent underwriting information.

Life Insurance Needs and Financial Planning

Purpose of Life Insurance: Primarily to create an estate that offers financial security upon the insured's death.
Survivorship Protection: Life insurance can ensure adequate funds for dependents in the insured's absence.

Policy Delivery and Regulations

Policy Delivery Requirements: Agents must explain policy features, collect premiums, and clarify any discrepancies in ratings.
Illustrations in Policies: Serve as presentations of non-guaranteed elements and cannot be altered by agents.

Insurance Types Explained

Buy-Sell Agreements: Usually funded by life insurance policies; provide financial means for surviving partners or owners.
Paramedical Reports: Completed by registered nurses or paramedics; critical for assessments in life insurance applications.

Policy Structures and Features

Universal Life Policies: Feature both insurance protection and an investment cash account.
Joint Life Policies: Cost-effective for insuring two lives but only pay out upon the first death.
Decreasing Term Insurance: Best suited for decreasing debts, as the benefit decreases with the amount owed.

Insurance Premium and Coverage

Premium Structures: Generally lower for preferred risks; premiums adjust annually based on the insured's age, particularly for term policies.
Survivorship Life Policies: Offer lower premiums compared to joint life, as benefits are paid upon the last insured's death.

Policy Variants and Coverage Details

Single Premium Whole Life: Requires one-time premium payment, ensuring coverage until maturity at age 100.
Annually Renewable Term Life: Increases premiums with the insured's age at each renewal.
Flexible Premiums: Found in universal and variable universal life policies allowing modifications based on the policyowner's decisions.### Life Insurance and Riders
Death benefit for joint life policies is delayed until the last death, resulting in lower premiums compared to traditional policies.
A straight whole life policy is deemed a traditional level premium contract.
Ownership provisions grant policyowners rights to assign the policy, receive loans, and designate beneficiaries, but do not allow setting premium rates.
A cost of living rider adjusts the face amount of a policy based on the Consumer Price Index.
Cash surrender is a nonforfeiture option where the insurer pays the surrender value and has no further obligations to the policyowner.

Premium and Coverage Details

The premium on a children's rider remains constant regardless of the number of children added.
An automatic premium loan provision is triggered at the end of the grace period if there is sufficient cash value.
The owner’s rights allow for changes to beneficiaries and policy options, as outlined in the policy.

Benefit Distribution and Claims

In a scenario involving misrepresentation of age, the insurer pays a reduced death benefit if the actual age is discovered after a claim.
A disability income death benefit rider waives premiums and provides monthly income during the disability period.
The entire contract provision includes the policy and application, defining it as the complete agreement between policyowner and insurer.

Annuities and Their Features

Accelerated benefits from a terminal illness reduce the death benefit payable.
A single premium immediate annuity provides income payments starting within a year, funded by a one-time premium.
Fixed annuity payments are based on the general account of the insurance company, which guarantees a minimum interest rate.

Retirement Plans and Taxes

Annuities are commonly used to fund retirement plans, accumulating funds over time.
Qualified plans offer tax benefits for both employers and employees and are regulated by the IRS.
Traditional IRA distributions are subject to income tax but do not incur penalties if left in the tax-deferred account.

Taxation of Life Insurance Proceeds

Life insurance death benefits are generally not subject to federal income tax when received in a lump sum.
The Seven-pay test determines if a policy is a modified endowment contract (MEC) based on premium contributions over the first seven years.

Simplified Employee Pension (SEP)

A Simplified Employee Pension is a qualified plan suited for small businesses, allowing for higher contribution limits compared to traditional IRAs.### Tax Return Due Date
The deceased owner's first tax return is due on December 31 of the year containing the 5th anniversary of their death.
If the owner dies before distributions begin, the entire interest must be fully distributed by the same due date unless a beneficiary is named.

Life Insurance Cash Value Growth

Cash values in life insurance policies grow tax-deferred.
Income tax applies only if the policy is completely or partially surrendered and the cash value exceeds the premiums paid.

Agency Law Representation

Under agency law, producers legally represent the insurance company they are contracted with.

Reciprocity in Licensing

Reciprocity allows states to extend licensing privileges to producers from other states with similar privileges granted to their own producers.

Unapproved Trade Name Compliance

Producers have 10 days to cease the use of an unapproved trade name after notification by the Commissioner, or face fines up to $5,000.

Advertisement Record Keeping

Louisiana insurance companies must retain advertisement files for a minimum of 4 years or until the next examination, whichever is longer.

Record Retention for Insurance Transactions

Insurers must keep copies of summaries, notices, and statements from sales transactions for at least 5 years or until the conclusion of the next examination.

Producer Appointment Notification

Companies looking to appoint a producer must notify the Commissioner and have 30 days for their decision on the producer's fit to transact insurance.

Intimidation Practices

Intimidation strategies in insurance practices are illegal if they aim to restrict trade or create monopolies.

Consumer Protection Legislation

The Fair Credit Reporting Act protects consumers from the dissemination of inaccurate or outdated personal and financial information.

Conducting Business in Louisiana

To begin operations in Louisiana, insurance companies must secure a certificate of authority from the state's insurance department.

Temporary License Validity

A temporary license is valid for 180 days.

Temporary License Issuance Exceptions

Temporary licenses cannot be issued to the spouse of a retired producer for conducting business.

Replacement Rule in Insurance

The replacement rule requires a replacement form when a new policy is issued to replace or modify existing insurance.

Continuing Education Requirements

Louisiana producers must complete 24 hours of continuing education every two years, irrespective of licensing lines.

Purpose of State Insurance Department

The primary function of the state insurance department is consumer protection.

Producer Compensation

Commissions are payments to producers contingent upon the sale of insurance policies or contracts.

Assignment Types

A collateral assignment is typically used for loans.

Policy Return and Refund

If a policy is returned within 7 days of delivery, the insurer must refund the full premium paid.

Death During Grace Period

If an insured dies during the grace period, the insurer pays the face amount minus any premium due.

Reinstatement Provision Requirements

The reinstatement provision does not require repayment of premiums at current attained age.

Impact of Age Misstatement

If an insured who understated their age dies three years post-issue, the insurer will adjust the death benefit accordingly.

Beneficiary Classification

The first beneficiary listed in a policy is referred to as the primary beneficiary.

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