Alabama Life & Health Insurance Exam Questions and Answers 2024 Update, Exams of Nursing

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Alabama Life & Health Insurance Exam Questions with Answers 2024 Update  Term Insurance - Correct answer Temporary protection because it only provides coverage for a specific period of time. Also known as pure life insurance  Term insurance provides what is known as _________________ - Correct answer pure death protection  Term insurance provides the greatest amount of coverage for the _______________ - Correct answer lowest premium  Term insurance has no ____________ - Correct answer cash value  Three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: - Correct answer 1. Level  2. Increasing  3. Decreasing

 Level term insurance - Correct answer Most common type of temporary protection purchased. The word level refers to the death benefit that does not change throughout the life of the policy.  Level in level term insurance refers to the ________________, which does NOT change - Correct answer death benefit  Annually Renewable Term (ART) - Correct answer the purest form of term insurance. The death benefit remains level, and the policy may be guaranteed to be renewable each year without proof of insurability, but the premium increases annually according to the attained age, as the probability of death increases.  Level Premium Term - Correct answer provides a level death benefit and a level premium during the policy term.  Increasing term - Correct answer features level premiums and a death benefit that increases each year over the duration of the policy term.

 Decreasing Term - Correct answer policies feature a level premium and a death benefit that decreases each year over the duration of the policy term. Nonrenewable  Renewable Provision - Correct answer allows the policyowner the right to renew the coverage at the expiration date without evidence of insurability  Convertible Provision - Correct answer provides the policyowner with the right to convert the policy to a permanent insurance policy without evidence of insurability  Re-entry Option - Correct answer An option that gives the insured the opportunity for a discounted premium rate with proof of insurability  Permanent Life Insurance - Correct answer A general term used to refer to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured as long as the premium is paid.  Most common type of permanent insurance: - Correct answer Whole Life

 Whole Life Insurance - Correct answer provides lifetime protection, and includes a savings element (or cash value)  Premiums for whole life policies usually are higher than for ___________ - Correct answer term insurance  Level Premium - Correct answer The premium for whole life policies is based on the issue age; therefore, it remains the same throughout the life of the policy.  Death Benefit - Correct answer the death benefit is guaranteed and also remains level for life  Cash Value - Correct answer created by the accumulation of premium, is scheduled to equal the face amount of the policy when the insured reaches age 100 (the policy maturity date), and is paid out to the policyowner.  Living Benefits - Correct answer The policyowner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered

 _______________ provides lifetime (permanent) protection and accumulates cash value. - Correct answer Whole life insurance  3 basic forms of whole life insurance: - Correct answer 1. Straight whole life  2. Limited-pay whole life  3. Single premium whole life  Straight Life, Ordinary Life, Continuous Premium Whole Life

• Correct answer basic whole life policy. Policyowner pays the premium from the time the policy is issued until the insured's death or age 100.  Of the common whole life policies, ____________ will have the lowest annual premium. - Correct answer straight life  Limited Pay Whole Life - Correct answer Designed so that the premiums for coverage will be completely paid up well before age 100.

 Single Premium Whole Life (SPWL) - Correct answer Designed to provide a level death benefit to the insured's age 100 for a one-time, lump-sum payment. The policy is completely paid-up after one premium and generates immediate cash.  Modified Whole Life - Correct answer type of whole life insurance that charges a lower premiums (similar to term rates) in the first few policy years, usually the first 3-5 years, and then a higher premium for the remainder of the insureds life. The higher subsequent premium is higher than a straight life premium would be for the same age and amount of coverage. For individuals that are just starting out with low fin. means but will eventually grow in future  Graded Premium Whole Life - Correct answer similar to modified life in that premiums start out relatively low and then level off at a point in the future. Typically starts with a premium that is around 50% or lower than the premium of a straight life policy. Premium then gradually increases each year for a period of usually 5 or 10 years, then remains level thereafter.

 Term Life Characteristics - Correct answer -Temporary  -Level Premiums  -Level, increasing, decreasing death benefits  -No living benefits  Whole Life Characteristics - Correct answer -Permanent until age 100  -Level Premiums  -Level Death Benefits  -Cash Values, Policy Loans, Nonforfeiture values  Premiums are not __________ - Correct answer tax deductible  Cash value exceeding premiums paid - Correct answer Taxable at surrender  Policy Loans are not ___________ - Correct answer income taxable  Policy Dividends are not _______ - Correct answer taxable

 Dividend Interest are _________ - Correct answer taxable in the year earned  Lump-sum death benefit are _________ - Correct answer not income taxable  Taxes must be paid either upon contribution or upon distribution, _________ - Correct answer NOT both  Endowment Insurance - Correct answer a type of insurance that pays the face value of the policy to beneficiaries if the insured dies before the endowment period ends  Pure Endowments - Correct answer contracts that promise to pay a specific amount only if the contract-holder survives the endowment period  Pure endowment contracts have been ___________ under the laws of some states for many years. - Correct answer illegal  Endowment Period - Correct answer Period specified in an endowment policy during which, if the insured dies, the

beneficiary receives a death benefit. If the insured is still living at the end of the endowment period, the insured receives the endowment as a living benefit.  Endowment Policy is an ___________ - Correct answer investment instrument  What is the primary difference between a whole life policy and an endowment? - Correct answer An endowment matures at an earlier age.  7 Pay Test - Correct answer if premiums paid during the first 7 years exceed the net level premium that should have been paid, it is a MEC (Modified Endowment Contract) and loses the standard tax benefits of a life insurance contract.  Modified Endowment Contract (MEC) - Correct answer the cumulative premiums paid during the first 7 years of the policy exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest

 A MEC is an overfunded life insurance policy = __________

• Correct answer failed the 7-pay test  Once a MEC, ________ - Correct answer always a MEC  Whether from a life insurance policy or a MEC, the death benefit received by the beneficiary is _________. - Correct answer tax free  All life insurance policies are subject to the ___________ - Correct answer 7-pay test, and any time there is a material change to a policy, a new 7-pay test is required  Taxation rules that apply to MEC's cash value: - Correct answer -Tax-deferred accumulations  -Any distributions are taxable  -Taxed on LIFO basis  -Distrubutions before age 59.5 are subject to a 10% penalty.  Adjustable Life - Correct answer was developed in an effort to provide the policyowner with the best of both worlds (term and permanent coverage)

 In the case of converting from a whole life policy to a term policy, the insurer may ________________________ - Correct answer adjust the death benefit  Cash Value of an adjustable life policy only develops when the premiums paid are ______ than the cost of the policy - Correct answer more  Interest-sensitive whole life or Current Assumption Life - Correct answer a whole life policy that provides a guaranteed death benefit to age 100.  The policy also provides for a minimum guaranteed _________________ - Correct answer rate of interest  Interest-sensitive provides the same benefits as other traditional whole life policies with the added benefit of ______________________ - Correct answer current interest rates, which may allow for either greater cash value accumulation or a shorter premium-paying period.  Indexed Whole Life or Equity Index Whole Life - Correct answer main feature is that the cash value is dependent

upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. Policy's face value amount increases annually to keep pace with inflation  Universal Life Insurance or Flexible Premium Adjustable life

• Correct answer implies that the policyowner has the flexibility to increase the amount of premium paid into the policy and to later decrease it again.  The ________________ is the amount needed to keep the policy in force for the current year. Paying the minimum premium will make the policy perform as an annually renewable term product. - Correct answer minimum premium  The ____________________ is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime - Correct answer target premium  If an insured skips a premium payment on a universal life policy, the missing premium may be deducted from the

policy's _____________. The policy will NOT lapse. - Correct answer cash value  Universal Life is also an _________________ - Correct answer interest-sensitive policy.  Although the insurer guarantees a ________________________, there is also potential for the policyowner to get a ____________________-, which is not guaranteed in the contract but may be higher because of current market conditions. - Correct answer contract interest rate; current interest rate  A universal life policy has two components: - Correct answer 1. Insurance Component  2. Cash Account  The insurance component of a universal life policy is always ________________ - Correct answer annually renewable term insurance.  Variable Life Insurance - Correct answer Is a level, fixed premium, investment based product. Guaranteed minimum

death benefit. Cash value is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer.  Who bears the investment risk in variable contracts? - Correct answer Policyowner  Variable Universal Life Insurance - Correct answer Type of insurance that combines many features of the whole life with the flexible premium of universal life and the investment component of variable life, making it a securities version of the universal life insurance  Unlike universal life, most of the investment vehicles in variable universal life policies do not _____________________ - Correct answer guarantee return  Fixed Premiums - Correct answer payment that must be paid, or the contract will lapse.

 Flexible Premiums - Correct answer payment policies allow the policyowner to choose how much premium to pay (within a range)  Due to the element of investment risk, the federal government has declared that variable contracts are _____________, and are thus regulated by the SEC and FINRA. - Correct answer securities  Variable Life insurance is also regulated by the ______________ as an insurance product. - Correct answer Insurance Department  Agents selling variable life insurance products must: - Correct answer -Be registered with FINRA  -Be licensed by the state to sell life insurance  -Have received a securities license  Adjustable Life Policy - Correct answer -Term or Whole life; can convert  -Premium: Can be increased or decreased by policyowners  -Face Amount-Flexible; set by policyowner with proof of insurability

 -Cash Value: Fixed rate of return; general account  -Policy Loans: Can borrow cash value  Universal Life Policy - Correct answer -Permanent insurance with renewable term protection component  -Premium: Flexible; minimum or target  -Face Amount: Flexible; same as adjustable.  -Cash Value: Guaranteed at a minimum level; general account  -Policy Loans: Can borrow cash value  Variable Life Policy - Correct answer -Permanent insurance  -Premium: Fixed (if whole life); flexible (if universal life)  -Face Amount: Can increase or decrease to a stated minimum  Cash Value: Not guaranteed; separate account  Policy Loans: Can borrow cash value  Joint Life Policy - Correct answer designed to insure two or more lives. Can be either term or permanent insurance.

 The Premium for joint life would be _____________ for the same type and amount of coverage on the same individuals.

• Correct answer less than  Joint Whole Life - Correct answer -Premium is based on a joint average age that is between the ages of the insureds  -Death benefit is paid upon the first death only  ___________ on a joint life policy are determined by averaging the ages of both insureds. - Correct answer Premium rates  Survivorship Life Policy - Correct answer Premium based on a joint age; it pays on the last death of the 2 people. Often used to offset the liability of the estate tax.  Joint life = ______________  Survivorship life = _____________ - Correct answer First to die  Second to die  Juvenile Life (Jumping Juvenile) - Correct answer any life insurance written on the life of a minor. Face amount

increases at a predetermined age, often 21. Premium remains level.  Group Life Insurance - Correct answer issued to the sponsoring organization, and covers the lives of more than one individual member of that group. Usually written as annually renewable term insurance.  Two features that differs group insurance from individual insurance: - Correct answer 1. Evidence of insurability is usually not required (unless an applicant is enrolling for coverage outside the normal enrollment period)  2. Participants (insureds) under the plan do not receive a policy because they do not own or control the policy.  The group sponsor is the ____________ and is the one that exercises control over the policy. - Correct answer policyholder  Group insurance is written as __________________________________ - Correct answer annuity renewable term insurance

 In ________________, the master contract is for the employer, and certificates of insurance are for individual insureds. - Correct answer group insurance  Purpose of the group - Correct answer The group must be created for a purpose other than to obtain group insurance  Size of the group - Correct answer the larger the number of people in the group, the more accurate the projections of future loss experience will be. based on the Law of Large Numbers of similar risks.  Turnover of the group - Correct answer From the underwriting perspective, a group should have a steady turnover: younger, lower-risk employees enter the group, and older, higher-risk employees leave.  Financial Strength of the group - Correct answer Because group insurance is costly to administer, the underwriter should consider whether or not the group has the financial resources to pay the policy premiums, and whether or not it will be able to renew the coverage.

 If an employee of the insured group terminates the policy, they have the right to ______________________ - Correct answer convert to an individual policy without proving insurabiliity at a standard rate, based on the individual's attained age. Any policy except term insurance. Face amount/death benefit will be equal to the group term, but premium will be higher.  The employee usually has a period of _____ days after terminating from the group in order to exercise the conversion option. - Correct answer 31  If the master contract is ___________, every individual who has been on the plan for at least ________ will be allowed to convert to individual permanent insurance of the same coverage. - Correct answer terminated; 5 years  When converting from group life to individual life insurance, evidence of insurability is ________________ - Correct answer not required

 Noncontributory Plan - Correct answer employer pays all the premiums, and the insurer will require that 100% of the eligible employees be included in the plan.  Contributory Plan - Correct answer Premiums are shared between the employer and employees and the insurer will require that 75% of eligible employees be included in the plan.  Buy-Sell Agreement or Business Continuation Agreement - Correct answer A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.  Types of Buy-Sell Agreements - Correct answer -Cross Purchase  -Entity Purchase  -Stock Purchase  -Stock Redemption  Cross Purchase - Correct answer used in partnerships when each partner buys a policy on the other

 Entity Purchase - Correct answer used when the partnership buys the policies on the partners  Stock Purchase - Correct answer used by privately owned corporations when each stockholder buys a policy on each of the others  Stock Redemption - Correct answer used when the corporation buys one policy on each shareholder  Key person insurance - Correct answer protects against the loss of a key employee or key executive. The Business becomes: Applicant, Policyowner, Premium payer, and Beneficiary  Executive Bonuses - Correct answer an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee. Tax deductible for employer and income taxable for employee.