Life and Health Insurance Exam Questions and Answers, Exams of Insurance Economics

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Life and Health Exam 461 Questions with Verified Answers

After a group life master policy has been issued, what action may the insurer take on future policy anniversaries? - CORRECT ANSWER The company may adjust the premium, and they often do, at anniversary time on a group policy. All types of life insurance provide a suitable base for a retirement plan except - CORRECT ANSWER level term Dividends are not taxable as income because - CORRECT ANSWER they are a return of part of the premium paid Is not usually offered as a dividend option - CORRECT ANSWER Policy loans (they have nothing to do with the dividend options) A characteristic of a universal life policy - CORRECT ANSWER Flexible premium and adjustable benefits What's the special class of retirement plan available to employees of certain nonprofit charitable organizations? - CORRECT ANSWER Tax-deferred annuity Combining the principles of waiver & estoppel results in: - CORRECT ANSWER a voluntary relinquishment of a known right The incontestable clause permits insurers to contest a death claim: - CORRECT ANSWER for material misrepresentations if 2 years or less nonforfeiture options include: - CORRECT ANSWER Cash surrender payment. Reduced paid-up insurance. Extended term insurance. benefits that can be included in a group health plan - CORRECT ANSWER Medical insurance Disability insurance Accidental death and dismemberment insurance

Individual health policies are usually written - CORRECT ANSWER nonparticipating Health Insurance Coverage Continuation Act - CORRECT ANSWER Setting requirements for insurers selling plans to employers with under 20 employees Must a health company return unearned premium on a cancelled policy? - CORRECT ANSWER Yes remember this sequence of numbers: 20 15 90 45 60...say it over and over so you can remember the string of numbers in the right order. Note one other thing: every time it is your turn, the number ends in 0, and every time it is the company's turn, their number ends in 5. The state exam will not ask the questions in the right order and it is very difficult to remember which is which unless you memorize this string. - CORRECT ANSWER it is the way things happen in claims. If you have an illness.... ...20 days for YOU to tell the company you are going to have a claim ...15 days for THEM to send you the forms to fill in and attach your receipts ...90 days for YOU to fill out the forms, attach the receipts, and send it to the company ...45 days in which the company has to pay you ...60 days YOU have to wait before you can sue the company if they don't pay. Which policies are required to coordinate benefits? - CORRECT ANSWER GROUP POLICIES How do HMOs emphasize preventive care? - CORRECT ANSWER encouraging routine physical exams & diagnostic screening Under a typical HMO plan, each member pays: - CORRECT ANSWER a fixed premium whether or not he/she uses the health plan. Under the uniform provisions law, which of the following provisions is optional for a health policy? - CORRECT ANSWER change of occupation

Under the uniform provisions law, which provisions are mandatory for a health policy? - CORRECT ANSWER entire contract physical exam & autopsy time limit on certain defenses To be an association allowed to purchase insurance in Florida, which factors must apply? - CORRECT ANSWER must be a natural group & been in existence at least 2 years What is the length of the grace period (how long to pay) on a life insurance? - CORRECT ANSWER 30 days is the minimum grace period, 4 weeks if it's an industrial policy What are three forms of term insurance? - CORRECT ANSWER Level, Decreasing, and Increasing What's it called when you have a small premium and a big benefit? - CORRECT ANSWER Aleatory Under social security, when does the black-out period begin for a surviving spouse? - CORRECT ANSWER when the youngest child becomes 16 In Medicare supplement policies, the free look provision is: - CORRECT ANSWER extended to 30 days What's included in an Outline of Coverage? - CORRECT ANSWER A brief description of the benefits and coverages A summary of the renewal and cancellation provisions A summary of the exclusions Under individual and group health insurance sold in Florida, coverage for a newborn child of the insured begins how soon after birth? - CORRECT ANSWER immediately Premiums for industrial health policies are: - CORRECT ANSWER high because premiums are paid more frequently and company has less money to invest.

In the state of Florida, coverage for services provided by ambulatory surgical centers is provided by: - CORRECT ANSWER both individual and group health insurance On a reinstated health policy, how long after the policy is reinstated will coverage for sickness become effective? - CORRECT ANSWER 10 days Name 3 categories of health care policies: - CORRECT ANSWER medical expense accidental death disability income Name a reimbursement contract - CORRECT ANSWER Medical expense Coinsurance helps control over-utilization of benefits - CORRECT ANSWER TRUE Which provision establishes one of a health insurance policyowner's rights of ownership? - CORRECT ANSWER Change of Beneficiary A chef receiving Disability Income is unable to return to work full time but continues his occupation on a part-time basis. Which clause would allow the chef to continue to receive benefits long-term? - CORRECT ANSWER Residual Disability Benefit clause What is a cancellable policy? - CORRECT ANSWER A policy the insurer may cancel at any time by returning the unearned premium. The Health Maintenance Organization concept that service providers are paid a fixed monthly fee for each member is called: - CORRECT ANSWER capitation Give 3 statements about Blue Cross and Blue Shield - CORRECT ANSWER Blue Cross & Blue Shield are voluntary not-for-profit organizations. Blue Cross is designed to cover hospital expenses. Blue Shield is designed to cover doctor expenses. Give 3 statements about HMOs (Health Maintenance Organization) - CORRECT ANSWER HMOs stress preventive care. HMOs rarely assess deductibles.

HMOs provide coverage for routine doctor visits and hospital care If an agent accepts a premium for a lapsed disability policy, coverage for ACCIDENTS becomes effective in how many days after the acceptance of the premium? - CORRECT ANSWER Immediately If an agent accepts a premium for a lapsed disability policy, coverage for ILLNESS becomes effective in how many days after the acceptance of the premium? - CORRECT ANSWER 10 Days What is an Open-Panel HMO - CORRECT ANSWER A network of physicians who work out of their own offices and participate in the HMO on a part-time basis. HMOs rarely have deductibles, but PPOs normally function with deductibles. - CORRECT ANSWER TRUE What's a Lump Sum Benefit? - CORRECT ANSWER $255, only surviving spouses or eligible children may receive this benefit. After a group life master policy has been issued, what action may the insurer take on future policy anniversaries? - CORRECT ANSWER The company may adjust the premium, and they often do. If each partner purchases policies on the other partners, it is what type of plan? - CORRECT ANSWER Cross purchase plan When does a tertiary beneficiary collect? - CORRECT ANSWER When the primary and secondary pre-decease the insured. The primary insurance amount (PIA) is equal to: - CORRECT ANSWER Full worker's retirement at 65 An annuitant receives $1200 a month, the value of each annuity unit is $6, How many annuity units did he receive? - CORRECT ANSWER 1200 divided by 6 = 200 An annuity contract provides? - CORRECT ANSWER Income for life

An annuity is purchased for $10,000, the expected return is $20,000 what amount is taxable if it pays $300 month? - CORRECT ANSWER $ Taking all the funds available to a family and planning for their financial obligations is an example of: - CORRECT ANSWER Needs approach A variable annuity separate account will be invested in: - CORRECT ANSWER equity investments An agent who writes controlled business must write how much business to the public? - CORRECT ANSWER Equal amount Most business assignments of life insurance policies are made in order to protect the: - CORRECT ANSWER lenders financial interest in the insured. What factors determine the amount an annuitant receives at retirement? - CORRECT ANSWER Total capital Interest rate Payout option selected The purpose of an annuity is the systematic distribution of an estate. The manner of distribution is selected by the owner. - CORRECT ANSWER It may or may not involve "life expectancy" calculations The annuity period may also be described as the benefit period The MIB's main purpose is: - CORRECT ANSWER Prevent misrepresentation and fraud Under a payor provision, what happens if the child covered under the policy becomes disabled? - CORRECT ANSWER Nothing...The payor provision is for the protection of the payor - the adult paying for the policy, not the child. Mr. Roberts assigns a $100,000 policy and has a $50,000 mortgage. Mortgagee and assignee receive a check payable jointly. What type of agreement is this? - CORRECT ANSWER Collateral assignment...The key word here is "jointly."

Which employees would likely be excluded from group term life insurance? - CORRECT ANSWER I. Those with less than 3-months service II. Those who work fewer than 20 hours a week III. Those who work fewer than 4 months per year In other words those who only work part time or seasonal A divorced spouse and her minor children have what rights under a group policy?

• CORRECT ANSWER I. Spouse has 31 days to convert II. Minor children can convert policies at age 19 or if they are in school full time, as late as 23 A Universal Life Insurance policy has all the following features: - CORRECT ANSWER I. It is considered a form of Permanent Life Insurance. II. Contributions (premiums) may be increased or decreased by the policy payor. III. The face amount may be increased (subject to evidence of insurability), or decreased (subject to the I.R.S. corridor). Who regulates the separate account in a Variable Annuity? - CORRECT ANSWER It's the S.E.C. Twisting is defined as the practice by which policy values from an existing life insurance policy are used to purchase another policy from a different company where the change is not beneficial for the policy holder. - CORRECT ANSWER TRUE Both life and health insurance use the same factors determining premiums except: - CORRECT ANSWER Morbidity Can an agent write business with a company they are not appointed with? - CORRECT ANSWER If it is considered excess or rejected business The value of a separate account in an annuity during payout is determined by: - CORRECT ANSWER Annuity units When a variable annuity purchaser reaches retirement, what percent of the total value of all accumulation units credited to her account is converted to annuity units? - CORRECT ANSWER This is a little bit of a strange question, just to get you

thinking. All that happens when an annuity goes from the accumulation period to the annuity period is that 100% of the accumulation units get converted to annuity units. Which of the following is provided by the payor (applicant) waiver of premium rider on a policy with a minor child as the insured? - CORRECT ANSWER If the premium payor dies, premiums are waived until the insured child reaches age 25. Premiums for nonpar policies are usually lower than for participating policies. - CORRECT ANSWER TRUE The benefit paying period of an annuity is called: - CORRECT ANSWER the annuity period. Which retirement plans are deemed qualified? - CORRECT ANSWER I. Defined contribution plans II. Defined benefit plans A waiver of premium rider cannot be added to a term policy. - CORRECT ANSWER FALSE How is a policyowner's cost basis determined for accumulated cash values in a life insurance policy? - CORRECT ANSWER Total premiums paid less-dividends, and loans received, less premiums paid for supplementary benefits What is the type of insurance that would not make a good retirement vehicle? - CORRECT ANSWER Term An old man stops payment on his policy, but wants coverage for the remainder of his life. Which would provide this? - CORRECT ANSWER Reduced paid up...means it covers for the remainder of a lifetime, but at a reduced face value, and without any further payments of premium. What are some examples of what is considered to be a needs approach? - CORRECT ANSWER Final expense fund Disability income Monthly income

When is a statement of good health required regarding a life insurance policy? - CORRECT ANSWER When there is no premium with application What type of insurance is most frequently used in group life plans? - CORRECT ANSWER Annual renewable term A currently insured worker covered under social security is entitled to what? - CORRECT ANSWER Limited death benefits Who regulates retirement plans in Florida? - CORRECT ANSWER ERISA Legal reserves show on the balance sheet as: - CORRECT ANSWER future liabilities The code of ethics of the National Association of Insurance and Financial Advisors is incorporated into Florida Law. - CORRECT ANSWER TRUE Which is found on the front page of all insurance policies? - CORRECT ANSWER Insuring clause...this is the clause where the company states what they are going to do and the particulars, when there is a claim. Name three facts about the Fair Credit Reporting Act except: - CORRECT ANSWER I. Insurers must identify the source of information only II. Enacted in 1970 III. It is a federal law Insurable interest must exist at what time? - CORRECT ANSWER In life insurance, ONLY at the time of application Life insurance that is characterized by comparatively small issue amounts, and frequent premium payments is called: - CORRECT ANSWER Industrial insurance When does the 14-day free look begin? - CORRECT ANSWER Time the policy is physically delivered How are interest rates for a whole life policy's cash values determined? - CORRECT ANSWER A formula determined by the company

How soon must the cash surrender values become available to the insured? - CORRECT ANSWER 6 months Which clause protects proceeds from creditors of the beneficiary? - CORRECT ANSWER Spendthrift Trust Clause...This clause protects the beneficiary from him/herself. Where would information about a prospective insured's lifestyle be found? - CORRECT ANSWER Inspection report Which life insurance proceeds option provides equal payments for a specific time to a named beneficiary? - CORRECT ANSWER Fixed period What does the conversion clause provide a terminated employee under a group plan? - CORRECT ANSWER Coverage for 31 days At what age must owners of Traditional IRAs begin to receive payments from their retirement funds? - CORRECT ANSWER April 1 of the year following the year they become 70 1/ All of the following are non-forfeiture options: - CORRECT ANSWER I. cash values II. extended term III. reduced paid up How are pension plans benefits payable? - CORRECT ANSWER I. Expressed as fixed dollar amount II. Based on a percentage of compensation before retirement III. Based on years of service Which are the most important aspects of qualified retirement plans to employers? - CORRECT ANSWER I. Attracting & retaining key employees II. Increased productivity III. Retiring employees humanely All of the following are annuity benefit factors: - CORRECT ANSWER I. Age of annuitant

II. Amount of proceeds III. Interest rate Which one is the policy that is paid up early and endows at age 100? - CORRECT ANSWER 20-pay life...The premiums are only paid for 20 years and then it sits... And endows at 100. A dually licensed agent, who knows an existing insurance policy will lapse, and based on his recommendation, will be invested in a security, must notify who in 15-days? - CORRECT ANSWER Policyowner A Roth IRA participant must start taking distribution by what point in his/her life?

• CORRECT ANSWER He/she is not required to take the distribution...because there will not be any tax due since it was paid for with after tax dollars originally. No tax due. Thus the IRS doesn't care when or if it is withdrawn. Insurer can delay payment of a cash surrender for: - CORRECT ANSWER 6 months When could a war clause exclusion be enforced in a policy? - CORRECT ANSWER Only during wartime The moral hazard is characterized by: - CORRECT ANSWER laws and rules Mass marketing of insurance is best described as: - CORRECT ANSWER Uses print, TV and radio, e-mail What is the period of time specified in the suicide clause? - CORRECT ANSWER 1 or 2 years What type of permanent plan has a "corridor?" - CORRECT ANSWER Universal life option I The Fair Credit Reporting Act provides: - CORRECT ANSWER that the applicant for insurance be informed that a consumer report may be requested.

When an applicant applies for insurance by completing an application and paying the initial premium, this constitutes: - CORRECT ANSWER consideration and an offer to buy A Standard Risk applicant is considered covered when: - CORRECT ANSWER the insurance company mails the policy (which had at least one months premium submitted with the application) for delivery. When insuring substandard life insurance risks, provision is usually made for the expected higher death rate by: - CORRECT ANSWER charging an additional premium An insurable interest must exist between the policyowner and the insured at the time of the claim. - CORRECT ANSWER FALSE Which policy provides the greatest amount of death protection for an insured's periodic premium dollar as well as some cash accumulation? - CORRECT ANSWER Straight Whole Life In what respect do limited pay life policies differ from straight whole life policies?

• CORRECT ANSWER Limited pay life policies have a shorter premium-paying period Vesting for the employee from the employee's contribution will occur: - CORRECT ANSWER immediately Group credit life programs include: - CORRECT ANSWER I. Premium paid by borrower II. Limit on amount of insurance per borrower Drug addiction is an example of? - CORRECT ANSWER Moral hazard...Drug addiction is a legality issue and that makes it a moral hazard. Laws and rules. Which category of authority is the one which gives the agent the right to operate in a business manner doing the things typical of any business? - CORRECT ANSWER Implied

Which requirements apply to a defined benefit pension plan? - CORRECT ANSWER I. Definite determinable benefits II. Systematic payment of benefits III. Primarily retirement benefits An agent who holds a life insurance license and a securities license is required to wait how many days after giving a notice (proposal) to the policyowner that a replacement of cash value is taking place? - CORRECT ANSWER 15 Days Eduardo gets fired May 16th and dies May 27th. Under his group policy what would the insurer pay? - CORRECT ANSWER Full Face Amount...Eduardo's beneficiaries would receive the full face value because he has coverage for 31 days after leaving his employer. The disadvantage of naming an estate as the beneficiary is that the proceeds will be included in the insured's gross estate. - CORRECT ANSWER TRUE The rejected business rule is: - CORRECT ANSWER where the agent's company refuses to sell the policy. An annuitant selects a life with period certain as his annuity option, what will he receive? - CORRECT ANSWER Payout for life or fixed number of years whichever is last The benefit amount an annuitant receives from a variable annuity is determined by: - CORRECT ANSWER I. Number of annuity units II. Value of annuity units The operating objective of a stock insurance company is: - CORRECT ANSWER profit for stockholders A man stated he was age 43 at the time of application. He died 6 years later, at the time of death the company found out he was 47 at issue. What is the insurance company's obligation in regards to paying this claim? - CORRECT ANSWER The company just adjusts the benefits to be what the premium should have purchased.

During the annuity period, the interest rates rise. What happens to the payout on a fixed annuity? - CORRECT ANSWER Payout stays the same for life Which of the following promises full income for the lifetime of two annuitants? - CORRECT ANSWER A joint and full survivor life annuity...these are the right words as used in the text to describe a joint annuity for two people. Grouping small businesses together to obtain insurance as one large group is characteristic of which: - CORRECT ANSWER an M.E.T. (multiple employer trust) Which mandated once and for all that insurance would be regulated by the states, and made possible the application of anti-trust laws? - CORRECT ANSWER McCarran-Ferguson (1945) How is the divisible surplus received by a recipient? - CORRECT ANSWER Tax free because the funds are effectively an overpayment of premium... A policy owner commits suicide 2 1/2 years after the policy is issued. What will the company pay? - CORRECT ANSWER the company will pay THE FACE AMOUNT because the owner had the policy longer than the "1 or 2 years" stipulated by the suicide clause. The policyowner has only a limited period of time after discontinuing premiums in which to reinstate a lapsed policy. Other requirements that may be requested are: - CORRECT ANSWER I. Pay all back premiums II. Pay interest on past-due premium III. Prove insurability IV. Pay any outstanding loans back Mary wishes to have her annuity pay her until her death, with no further payments to anyone. What type of annuity should she get? - CORRECT ANSWER Straight life annuity How long can companies postpone payment of cash surrender values? - CORRECT ANSWER 6 months..The companies have that right. Surprise.

What is sliding? - CORRECT ANSWER Selling a policy by stating that it is required by state law Blue Cross is considered a service organization - CORRECT ANSWER TRUE...You need to know that service providers function differently than health insurance companies. Blue Cross is a service organization. The gross premium for a life insurance policy is made up of all the following elements: - CORRECT ANSWER I. Expense loading II. Interest III. Mortality costs Adjustable life policies are constructed using which of the following as their base policy? - CORRECT ANSWER Whole life Which best describes the difference between career general agents and PPGA's? - CORRECT ANSWER Career GA's primarily recruit & train, PPGA's primarily sell A money purchase plan provides for: - CORRECT ANSWER Fixed contributions/undefined benefits When is the greatest need for income? - CORRECT ANSWER When the children are growing up. A life insurance agent is often referred to as a field underwriter primarily because he/she is generally the one who: - CORRECT ANSWER sees the applicant In a group plan, what conversion rights belong to a surviving spouse? - CORRECT ANSWER The same conversion rights that belonged to employee A deferred annuity does not pay any benefits until: - CORRECT ANSWER a delay of longer than 1 year occurs. For a risk to be insurable, it must have: - CORRECT ANSWER A definite loss & A reasonably predictable loss

A 30 year limited pay life policy: - CORRECT ANSWER requires 30 yrs to complete payment & endows at age 100. Annuities are used primarily as a protection against: - CORRECT ANSWER the risk of outliving one's income. An association must: - CORRECT ANSWER I. Be a natural group II. Have been in existence for 2 yrs Which would not be covered under business overhead expense insurance? - CORRECT ANSWER Owners salary Hernando has a policy in which the cash values increased to a point where the corridor was utilized. What type of policy does he have? - CORRECT ANSWER Universal life option 1 Pure risk involves only the chance of loss, therefore only pure risks are insurable. - CORRECT ANSWER TRUE For tax purposes which would be considered a key person? - CORRECT ANSWER An officer of the company The type of hazard that arises from an attitude or state of mind that causes indifference to loss is called: - CORRECT ANSWER morale...attitude is morale. Moral is legal areas. Physical is health and other visible attributes. Accidental death or double indemnity provisions will usually pay an additional amount equal to the face amount if the insured dies from? - CORRECT ANSWER Accident...If a person dies as a result of an accident, the face value is doubled as in "double indemnity." What is the plan called if the employer pays the whole premium on a group policy? - CORRECT ANSWER Non-contributory How soon are employee's contributions to a retirement plan available to employee? - CORRECT ANSWER Immediately

Accidental death or double indemnity provisions will usually pay an additional amount equal to the face amount if the insured dies from? - CORRECT ANSWER Accident What is the plan called if the employer pays the whole premium on a group policy? - CORRECT ANSWER Non-contributory In Florida, how many people are needed to qualify for group insurance? - CORRECT ANSWER no minimum A cost involved in determining premium rates is called the loading charge. This is also known as: - CORRECT ANSWER Expense factor Premiums for group term life insurance paid by an employer on behalf of his employees are: - CORRECT ANSWER Tax deductible under certain conditions Whitmore is 44 years old and decides to start receiving payments from his annuity, how can he avoid paying a penalty for early withdrawal? - CORRECT ANSWER Chooses life income option What are some Defined Contribution plans? - CORRECT ANSWER I. Profit sharing plans II. Money purchase plans III. Stock bonus plans The Waiver of Premium: - CORRECT ANSWER is an option that may be rated or denied. The insuring clause includes all the following: - CORRECT ANSWER A. the name of the insured. B. the face amount of the policy. C. the name of the insurer Which of the following is a Nonforfeiture Option that provides continuing cash value buildup? - CORRECT ANSWER Reduced paid-Up...The cash value will continue to grow (build up) even though the policyholder is not contributing any more money to it.

A policy that is sold in proportioned units to cover an insured, spouse and children is called a: - CORRECT ANSWER family plan...the key to this is the fact that there are more people than one in the policy, and the second thing is that it is in units. The purpose of the grace period is to: - CORRECT ANSWER protect the policy holder against unintentional lapses...The policyowner is given the chance to get back in the good "graces" with the insurance company. How is the policy loan repaid if the policy pays a death claim? - CORRECT ANSWER The loan, plus any interest due, is deducted from the death benefit. Which feature of an insurance contract states that only one party has any further obligation? - CORRECT ANSWER Unilateral...Unilaterial is one of the words which describes the unusual relationships in life insurance contracts. The company is obligated until the end of the period, which in the case of permanent insurance, it is a lifetime. The policyowner is only obligated on a day by day basis. Only one party is making an enforceable promise and that party is the insurance company. This is why a 15 year old can buy a policy without an adult co-signing. The 15 year old is not bound to continue the payments, but the company must continue the coverage until the contract is cancelled by the client, in the case of a permanent policy, or until the end of the term agreement with a term policy. Which of the following statements about the reinstatement provision is true? - CORRECT ANSWER It requires the policyowner to pay, with interest, all premiums that are in arrears in order for the policy to be reinstated...Yes, it gives the policy owner a chance to restart the policy. All of the following are purposes of the entire contract provision of an insurance policy: - CORRECT ANSWER A. Describes the contract cannot be changed after it has been issued B. Prohibits the insurance agent from altering any of the terms or conditions of the contract C. Protects the insured against any attempts by the insurance company to alter the agreement by referring to other documents, such as the company underwriting manual

An Annuitant receives monthly payments from a variable annuity under a joint and 2/3rds to the survivor option. If the primary annuitant dies, what will the surviving annuitant receive? - CORRECT ANSWER Monthly payments for life of a dollar value of two thirds of the annuity units that were previously being distributed. If the insured overstated his age and the error is discovered after the insured's death, the insurance company will: - CORRECT ANSWER pay an amount equivalent to that which the premium would have purchased at the correct age. Millicent wants to name her husband as the beneficiary of her life policy; however, she wishes to retain all of the rights of ownership. Millicent should have her husband named as: - CORRECT ANSWER revocable beneficiary The grace period for life insurance policies is: - CORRECT ANSWER 30 days...Yes, one month, but no less than 30 (February doesn't count). Ways in which dividends may be used by the policyowner include the following: - CORRECT ANSWER A. applied to reduce the premium. B. left to accumulate with interest. C. used to buy additional paid-up insurance. All the following are available settlement options: - CORRECT ANSWER A. life income without a refund. B. lump sum distribution of the face value. C. life income with 10 years certain. Ways in which employees may be classified for group life insurance include all of the following: - CORRECT ANSWER by department by Union or Nonunion status. by duties. Explain the difference between what a general agent does as compared to a PPGA? - CORRECT ANSWER PPGA's primarily sell, general agents recruit, train, etc. This association works for the best interest of all policyowners and for ways in broadening the opportunity and advancement of the individual agent: - CORRECT

ANSWER National Association of Insurance and Financial Advisors - Florida (NAIFA) A non-profit entity that has a lodge system, includes ritualistic work and maintains a representative form of government is called: - CORRECT ANSWER Fraternal benefit society Mr. Ed cashes in his policy. He had paid $6,000 in premium and received $9,400 in cash surrender. How much is taxable? - CORRECT ANSWER $3,400...It is the difference between the principal and the total value. Subtract the two. The remainder is taxable at the ordinary income rate. Which law requires an insurance company to notify an applicant in writing that an investigative consumer report may be made on him? - CORRECT ANSWER the Fair Credit Reporting Act of 1970 which is for the protection and privacy of the applicant/insured. What is a standard provision in all life insurance policies? - CORRECT ANSWER Grace period "Preliminary term for interim coverage" policies have a maximum benefit period of ________? - CORRECT ANSWER 11 months...Here's what you need to know. There are two kinds of situations which are close to the same place in the book and both sound similar. This is one, and the answer is 11 months maximum time, without specifying any $$$ amount. The other is called a temporary insurance agreement within the category of binding receipts. The limits of a temporary insurance agreement are $100,000 coverage for no longer than 60 days. Keep the two straight. In a variable annuity who regulates the separate account? - CORRECT ANSWER Securities and Exchange Commission. They said so in 1956. The Supreme Court of the US agreed in 1959. A policy will not be reinstated if it has been: - CORRECT ANSWER Surrendered for its cash value...surrendering means cashing in which means over and done with!

When an agent is provided materials from his/her company, which category of authority is the one which allows those items to be used? - CORRECT ANSWER Apparent...Apparent authority is that which gives the agent the right to do things as a result of material supplied... a price book, brochures, etc. "Subject to the provisions on the following pages of this contract, the insurance company will pay the death benefit to the named beneficiary. The death benefit will be paid on receipt of due proof of death of the insured and surrender of this policy." The provision quoted above is an example of: - CORRECT ANSWER Insuring clause...A good example. What the company is going to do for the client. If all else is equal, what characteristics does a participating policy have as compared to a non-par policy? - CORRECT ANSWER Higher premiums A life insurance policy becomes incontestable, even in cases of fraud after? - CORRECT ANSWER 2 years...ATTENTION: watch out for a problem here. Notice this question said "after" which is correct. The state exam has also been known to say "when" rather than "after." If that is how the question is stated, your answer is: TWO YEARS AND ONE DAY FROM THE INCEPTION OF THE POLICY. The amount an employee can contribute to a SEP is: - CORRECT ANSWER Up to a maximum of $49,000 The termination clause in a group life plan states that the employee: - CORRECT ANSWER is guaranteed at least 31 days of protection. If the only difference in life insurance premiums for men and women is based on the fact that women are expected to live longer, then the premium for men's life insurance should be: - CORRECT ANSWER HIGHER because the policy, in effect, won't last as long and therefore, needs a little more premium to balance the scale. Calculating the tax-free portion of each annuity payment utilizes the: - CORRECT ANSWER exclusion ratio In which cases would the purchase of new life insurance be considered replacement? - CORRECT ANSWER I. When existing life insurance is surrendered

II. When existing life insurance is reduced in face amount III. When existing life insurance is continued as extended term Dollar cost averaging is: - CORRECT ANSWER averaging the cost of the units purchased over a period of accumulation. The NASD regulates personnel selling variable annuities as: - CORRECT ANSWER Broker/dealers...The newer term is FINRA which is the merging of the NASD and the regulatory committee of the NY Stock Exchange. Wilson had a waiver of premium clause in his life insurance policy. He became disabled 8 months before turning 65. He was disabled for 48 months; how long will the company waive the premiums? - CORRECT ANSWER Waived for 42 months...With a 6 months waiting period, that leaves 42 months from the total. The book mentions a waiting period of 90 days or 6 months, but this is the only answer which fits that definition. An agent has fiduciary responsibility both to his client as well as his company. - CORRECT ANSWER TRUE... fiduciary responsibility is the care needed in offering financial advice. Which of the following best describes self insurance? - CORRECT ANSWER risk retention Which feature in a life insurance policy allows an insured to stop paying premiums and take a paid-up policy with a face amount less than that of the original policy?

• CORRECT ANSWER Non forfeiture option Sales personnel selling whole life are regulated as: - CORRECT ANSWER Insurance agents...We are agents. That is not the same as "salesperson".... there is added responsibility to an agent as per the agent's authority: expressed, implied, and apparent. An individual accidental death and dismemberment policy will pay benefits if an insured dies from: - CORRECT ANSWER A head injury resulting from an auto accident...a little misleading. The head injury has nothing to do with it. It was a death due to an auto accident.

The estimation of life insurance needed as a dollar valuation by discounting net future earnings at a reasonable rate of interest is known as: - CORRECT ANSWER Human life value approach...This question makes it sound a bit complicated, but it is just saying that we will determine the "human Life Value" of how earnings dollars need to be replaced if a death should occur. Under a family plan policy, the child rider is usually what type of insurance? - CORRECT ANSWER Term A joint and full survivor income option on an annuity will pay until when? - CORRECT ANSWER the second annuitant dies All of the following statements are true about universal life policies: - CORRECT ANSWER A. Premiums can be increased or decreased B. The death benefit can be changed C. Cash values can be allowed to pay premiums Who regulates variable annuities? - CORRECT ANSWER SEC and the state insurance department...SEC and the State of Florida. Both because the SEC regulates the investment portion and the state regulates the "insurance" part of the contract. All of the following are defined contribution plans: - CORRECT ANSWER A. Money purchase plans B. Profit sharing plans C. Stock bonus plan An agent can sell variable annuities as long as they hold a valid life insurance license in the state of Florida. - CORRECT ANSWER FALSE...It is necessary to also have a Series 6 or Series 7 securities license in the State of Florida in order to sell variable annuities. Before replacing insurance, an agent must give a copy of a comparison and summary statement to the policyowner upon the request of: - CORRECT ANSWER Policyholder...Correct. Upon the request of the policyholder. This is a form that

has two boxes on it.... YES and NO. If the policy owner indicates YES, that's when this requirement applies. A deferred compensation plan is: - CORRECT ANSWER A salary reduction...This is a tough question with powerful answers. I'm quite pleased with my question! Here's why: You need to see that an employee is not receiving all of their salary at the time... some is deferred to the future, and therefore, in effect, their salary is reduced from what it would have been... but they will get it later. Less taxes now. Mutual companies usually sell: - CORRECT ANSWER Participating policies...The reason is that this is the mechanism that allows a mutual company to lower the cost to the policyholder. Remember, that's the goal of a mutual company. Par (participating) policies make that work. Industrial life insurance permits conversion: - CORRECT ANSWER of two or more policies into a single ordinary policy...Yes, that is a requirement of industrial policies.... if the policies total more than $3000 face value, the industrial insurance company is required to convert them into one ordinary life policy if requested by the policy holder. Insurance involves only: - CORRECT ANSWER Chance of loss A joint & full survivor annuity pays a fixed income to two or more annuitants at the same time & ceases on the: - CORRECT ANSWER death of the last annuitant The uniform simultaneous death act governs situations in which the insured and primary beneficiary dies in the same accident and there is no evidence as to who died first. Under the act, what presumption is made in this case? - CORRECT ANSWER Beneficiary died first...Notice how this is worded differently than the usual way of looking at this situation. Normally, we would say that it is designed so that the insured died last. Here, that isn't one of the answers. Logically, it would be necessary for the beneficiary to die first, thus the insured died last. What provision in industrial life policies allows the insured to exchange several policies for one policy? - CORRECT ANSWER Conversion rule

Mr. Whistle buys an immediate annuity at the age of 63. When he turns 65, he decides to stop the annuity, get a refund of the remaining amount, and move to Guatemala. What is the response of the annuity company? - CORRECT ANSWER Continue sending the monthly checks as before...They will explain and be as polite as possible, but they will advise that nothing is going to change. The agreed upon sum will continue to arrive in his mailbox until his death. Under what rule are endowment policies taxable after 60 days of maturation date? - CORRECT ANSWER Rule of constructive receipt...It means that the owner of the endowment policy has 60 days from the date the contract matures, to make arrangements for a payout (such as an annuity). If that isn't done, the IRS will determine that the owner "received" it... "THE RULE OF CONSTRUCTIVE RECEIPT," and any and all taxes are due immediately on an ordinary income basis. When a plan meets requirements for the federal government in order to receive favorable tax treatment it is called a _________ plan. - CORRECT ANSWER qualified Other uses of life insurance can include? - CORRECT ANSWER I. Investment II. Charitable contributions III. Provide gifts to minors IV. Investment management If a company's limit of risk on a single life is $500,000, any application in excess of $500,000 would be: - CORRECT ANSWER Considered excess Samantha bought a policy at age 30 and was told that she had to pay premiums for 20 years. At the end of 20 years she received an amount equal to the face amount. What type of policy is this? - CORRECT ANSWER Endowment...This is a little bit tricky so let's work through it. Notice that the question says "equal to the face amount." That means this endowment contract has a set face amount but only pays if the owner is living at the end of the endowment period. (Unbelieveable, but true.) With a universal life policy, reserves are usually invested in: - CORRECT ANSWER Long term securities because of the requirements of the reserve system.... stable and conservative investments.