Traditional Life Insurance Mock Exam 1

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Questions and Answers

What happens to the amount of insurance if there is a misstatement of age?

The amount changes to what the premium at the correct age would have bought. (correct)

The insurance remains the same regardless of age.

The policy is rendered void.

The policyholder is required to pay an additional premium.

Which statement best describes a participating endowment policy?

It has no cash value component.

It only provides guaranteed cash values.

It does not pay out unless the insured dies.

It provides guaranteed cash values plus extra annual distributions. (correct)

In group insurance, what is assumed about the insurability of group members?

Only members working part-time can be insured.

Every member is eligible for the maximum coverage.

Every member is insurable if they work a minimum number of hours weekly. (correct)

Members above a certain age cannot be insured.

How does an endowment at age 65 policy function?

It pays the full amount after a limited premium payment period. Signup and view all the answers

What type of information is most commonly requested in life insurance applications?

Data identifying the applicant. Signup and view all the answers

What factors determine the extent of medical evidence required for life insurance?

The age of the applicant and the proposed sum to be insured Signup and view all the answers

Which of the following does NOT contribute to the conservation of a life insurance policy?

Pressure selling Signup and view all the answers

What right does the insurance company have according to the policy provisions?

To rescind the policy at any time Signup and view all the answers

Which source of information is least relevant to an insurance company when assessing an applicant's insurability?

The applicant’s personal appearance Signup and view all the answers

What happens when a beneficiary presents proof of death for a claim?

The claim is processed without delay Signup and view all the answers

If an applicant fails to disclose or misrepresents a material fact, the insurance contract is classified as which of the following?

Voidable by the insurer if it has been in force less than 2 years Signup and view all the answers

Which of the following is NOT a potential settlement option provision for life insurance proceeds?

Payment of proceeds over an indefinite period Signup and view all the answers

What is true regarding the designation of beneficiaries in a life insurance policy?

The insured can modify beneficiaries at any time Signup and view all the answers

What is guaranteed to the policyholder under non-forfeiture provisions in a whole life policy?

Any guaranteed policy values will belong to the policy owner even with unpaid premiums Signup and view all the answers

What amount will the insurer pay if there has been a misstatement of age on the policy?

The face amount adjusted for misstatement of age Signup and view all the answers

What advantage does a continuous-premium whole life policy provide over a limited payment whole life policy?

More insurance protection for the same annual premium outlay Signup and view all the answers

What occurs if the interest on a policy loan is unpaid at the anniversary?

The loan amount will increase by the unpaid interest Signup and view all the answers

What is a characteristic of a yearly renewable term life insurance policy?

It includes increasing premiums with each renewal Signup and view all the answers

Which statement about the grace period and cash values is accurate?

The grace period is applicable even after cash values are exhausted Signup and view all the answers

What describes the law of large numbers in insurance?

It shows that patterns emerge from random events when observed in large numbers Signup and view all the answers

What is the purpose of an interpleader action filed by a company?

Decide conflicting claims on the same insurance proceeds Signup and view all the answers

Which statement about cash values in insurance policies is false?

The cash value of a yearly renewable term policy grows very fast Signup and view all the answers

Which scenario does not represent a legitimate insurable interest?

An individual insuring the life of his mistress Signup and view all the answers

What are the provisions that supplement basic life insurance coverage known as?

Riders Signup and view all the answers

Which statement regarding insurance premiums is false?

Quarterly or semi-annual premiums are always cheaper than annual premiums Signup and view all the answers

When does a policyowner typically select a non-forfeiture option?

When discontinuing premium payments for a whole life or endowment policy Signup and view all the answers

What action may an insurance company take if the interest on a policy loan is not paid at the policy anniversary?

Increase the present loan by the interest Signup and view all the answers

Which of the following accurately describes the function of the incontestability clause?

Prevents the insurer from contesting a claim after a specified period Signup and view all the answers

Which statement accurately describes the coverage provided by both endowment and term life policies?

Renewal and conversion privileges are typically included. Signup and view all the answers

Which of the following options is not a purpose of the application for a life insurance policy?

To provide details on non-forfeiture options. Signup and view all the answers

To pass his life insurance policy to his son and protect against estate tax liability, what must the father appoint?

An absolute assignee. Signup and view all the answers

What action can be taken regarding a policy with an irrevocable beneficiary without the beneficiary's consent?

Borrow against the cash value of the policy. Signup and view all the answers

Which of the following represents valid settlement options for life insurance policies?

Fixed amount, fixed period, life income options. Signup and view all the answers

Under what circumstance can an insurance company typically rescind a life insurance policy?

If the application includes a material misstatement revealed during the contestable period. Signup and view all the answers

What type of beneficiary designation allows the beneficiary's rights to be protected from changes by the insured?

Irrevocable beneficiary. Signup and view all the answers

What is a primary function of an insurance application besides indicating insurability?

To gather details necessary for underwriting the insurance contract. Signup and view all the answers

What does a binding receipt from an agent imply for the insurance company?

Interim insurance is provided until the policy is either issued or declined. Signup and view all the answers

In renewable term insurance, what is a potential action for a policy owner at renewal?

Renew the policy based on a higher premium. Signup and view all the answers

What is the primary similarity between endowment life insurance and term life insurance?

Both policies offer life insurance protection during specifically defined periods. Signup and view all the answers

What does 'extended term insurance' refer to in a permanent life insurance policy context?

A provision that allows coverage to continue for a certain period without further premiums. Signup and view all the answers

What selling approach involves assessing a prospect's complete financial needs before recommending a policy?

Total needs selling Signup and view all the answers

Which option provides a method for the owner of an endowment policy at age 65 to donate to a church?

Fixed income option Signup and view all the answers

What does a higher premium in renewable term insurance typically reflect?

An increased risk assessment due to the policy owner's age. Signup and view all the answers

What is NOT a characteristic of term life insurance compared to endowment insurance?

Builds cash value over the life of the policy. Signup and view all the answers

Study Notes

Traditional Life Mock Exam 1

Endowment and Term Life Policies
- No cash value is available to the policy owner during the policy term.
- Renewal and conversation privileges are available.
- Insurance protection is limited to a specified period.
- A benefit is paid at the end of coverage if the person is alive.
Life Insurance Policy Application
- Provides details pertaining to non-forfeiture options.
- Furnishes information used to write the insurance contract.
- Furnishes initial information about insurability.
- Conveys the applicant's desire to obtain insurance.
Life Insurance Payable to Son
- A father can pass his life insurance policy to his son, who will assume premium payments.
- An irrevocable primary beneficiary or irrevocable secondary beneficiary is needed to achieve the father's desired outcome and protect the son from Estate Tax Liability.
Irrevocable Beneficiary
- An irrevocable beneficiary is the person designated to receive benefits from the policy.
- No permission from the beneficiary is needed for the insured (policy holder) to use the policy in certain cases.
Life Insurance Settlement Options
- Policy loan, guaranteed insurability,
- Cash surrender value, automatic premium loan,
- Fixed amount, fixed period,
- Life income, interest on deposit
- Double indemnity, total and permanent disability waiver.
Insurance Company Rescission Right
- An insurance company may rescind a life insurance policy if the company discovers that the policy owner was a minor at the time of application.
- The company may rescind if the insured person intentionally commits suicide during the contestability period.
- The company may rescind if the insured is killed in military action during the contestability period.
Insurance Agent Licensing
- The main reason for requiring insurance agents to be licensed is to establish and maintain high ethical standards.
- Licensing protects the public
Paid-Up Insurance Option
- Premiums stop and the basic amount of insurance is maintained until age 65.
Policy Change to Lower Premium
- The policy owner can change to lower premium if the company is satisfied with the condition of the current insured.
- A copy of the policy is needed for the policy change.
Participating Whole Life Policy
- Policyholder can change the policy payout amount depending on the interest earned.
- The premium paid will help in earning interest.
Disability Waiver of Premium Rider
- Disability must happen before a specific date.
- The insured must die while disabled.
- A waiting period is possible.
- It must be attached to a life insurance policy
Life Insurance Application Information
- The largest amount of requested information in insurance applications is data related to the insurability of the applicant.
- Information includes the applicant's identity, the insurance type sought, and the applicant's health.
Cash Value and Paid-up Additions
- Paid-up additions don't affect the cash value.
- Paid-up additions don't affect life coverage.
Life Insurance Probability
- Life insurance companies use probability to estimate death rates.
- Past data on deaths is collected as statistic information and is used to determine premium amount.
Renewable Term Insurance
- The insurance can be renewed at the same premium.
Whole Life Policy
- Paid initially during the early years of the policy with an option to vary premiums
- Premiums can be paid over a certain period to maintain the policy coverage
Interpleader Actions
- The court can resolve conflicting claims on insurance proceeds.
- The court can help with settling conflicting party claims over a certain amount of money.
Misstatement of Material Facts Impact on Insurance
- Life insurance contracts are voidable if the applicant misrepresents a fact materially relevant to eligibility.
- The contract is likely valid until a court determines otherwise.
Settlement Options
- Policy proceeds can be paid at different times (a fixed term or for the life of the insured).
Non-forfeiture Values
- Non-forfeiture values guarantee minimum benefits to the policyowner to protect from changes.
Premium Payment Grace Period
- Policy holder still has a grace period to pay if the premium was not paid and the cash values of the policy has been exhausted.
Misstatement of Age
- The insurance amount is adjusted to the amount that the corresponding premium would have paid at the actual age.
Policy Loan Interest
- If the policy loan interest is not paid at the anniversary, the company may demand the full amount of the loan and refuse future financing until the loan is paid.

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Description

Test your knowledge on key concepts of traditional life insurance policies, including endowment and term life policies, applications, and beneficiary designations. This mock exam covers various aspects of life insurance that are crucial for insurance professionals. Prepare yourself for real-world scenarios and enhance your understanding.