Life Insurance Policy Provisions and Regulations, Exams of Insurance Economics

Download Life Insurance Policy Provisions and Regulations and more Exams Insurance Economics in PDF only on Docsity! WV State Life Insurance Exam/ 175 Quizzes & Correct Ans Insurance contracts are known as _____ because certain future conditions or acts must occur before any claims can be paid. - Answer: Conditional A life insurance arrangement which circumvents insurable interest statutes is called: - Answer: Investor-Originated Life Insurance In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this? - Answer: Unilateral When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have: - Answer: Insurable interest in the proposed insured Which of these arrangements allows one to bypass insurable interest laws? - Answer: Investor- Originated Life Insurance Page 1 of 20 When must insurable interest exist for a life insurance contract to be valid? - Answer: Inception of the contract If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of? - Answer: Insured Which of these is an element of a Variable Life policy? - Answer: A fixed, level premium A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision? - Answer: Payor provision Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies? - Answer: Policyowner Which of the following actions is NOT possible with a Universal Life policy? - Answer: Premiums may be applied as a credit against income tax Which of the following policies is characterized by a flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan? - Answer: Variable universal life A term life insurance policy matures: - Answer: upon the insured's death during the term of the policy A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a: - Answer: Risk retention group Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated? - Answer: 1970-Fair Credit Reporting Act Page 2 of 20 Which provision allows the policy owner to change a term life policy to a permanent one without providing proof of good health? - Answer: Conversion Which of the following statements is CORRECT about accelerated death benefits? - Answer: Must have a terminal illness to qualify K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - Answer: $20,000 death benefit A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - Answer: 20-pay life accumulates cash value faster than straight life Which of the following provisions guarantees that premiums will be waived if a juvenile life policy owner becomes disabled? - Answer: Payor clause When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take? - Answer: Void the policy only if it's discovered during the contestable period and proven to be material How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? - Answer: Claims are denied under the suicide clause of the policy Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE? - Answer: It is taxed as ordinary income Page 5 of 20 Which of these life insurance riders allows the applicant to have excess coverage? - Answer: Term rider Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? - Answer: Decreasing term Which provision prevents an insurer from changing the terms of the contract with the policy owner by referring to documents not found within the policy itself? - Answer: Entire contract provision Quarterly premium payments increase the annual cost of insurance because: - Answer: Interest to the insurer is decreased while the administrative costs are increased D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to? - Answer: Ex-wife S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT: - Answer: Beneficiary's age What action can a policy owner take if an application for a bank loan requires collateral? - Answer: Assign policy ownership to the bank If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act? - Answer: Insured's contingent beneficiary Page 6 of 20 Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? - Answer: Variable universal life A policy loan is made possible by which of these life insurance policy features? - Answer: Cash value provision J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? - Answer: Reinstatement provision A policy owner is allowed to pay premiums more than once a year under which provision? - Answer: Mode of premium When can a policyowner change a revocable beneficiary? - Answer: Anytime Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary? - Answer: All proceeds are income tax in the year they are received Which statement regarding the Change of Beneficiary provision is true? - Answer: The beneficiary can only be charged with the consent of the insurer A policy owner's rights are limited under which beneficiary designation? - Answer: Irrevocable The common disaster clause provides that if both the insured and the sole name beneficiary were to die in a common accident, which of the following is true? - Answer: this clause provides the payment of proceeds to the insured's estate Page 7 of 20 One definition of replacement is "the act of replacing an existing insurance policy with another." Replacement is - Answer: Closely regulated and requires full disclosure A life policy loan in WV cannot charge a fixed rate of interest higher than - Answer: 8% What must be signed by both the producer and applicant when an existing life insurance policy is being reissued with a reduction in cash value? - Answer: Notice regarding replacement What does the West Virginia Life and Health Insurance Guaranty Association provide? - Answer: claim payments of admitted, insolvent insurance companies When recommending a purchase or exchange of an annuity, the producer or insurer must have a reasonable basis for believing that a recommendation is suitable based on all the following facts disclosed by an applicant EXCEPT the applicant's - Answer: county of residence When an employee is terminated, how long does this employee have to convert group life coverage to an individual plan? - Answer: 31 days Which of these contracts fall under replacement regulations? - Answer: Ordinary life ABC Insurance company failed to accept a valid proof of loss statement. This is considered to be a(n) - Answer: Unfair claims practice B the producer is scheduled for a pretrial hearing in a criminal prosecution. Which of the following does NOT need to be submitted to the insurance commissioner prior to B's hearing? - Answer: The posted bond Which of the following is NOT a situation that involves life insurance policy replacement? - Answer: Converting a term policy to a permanent policy with the same insurer Page 10 of 20 An example of an unfair claims settlement practice is: - Answer: Making it mandatory that proof of loss be provided for each claim A prelicensing course must be successfully completed for which of the following? - Answer: resident producer A producer who is a resident in another state but licensed to transact insurance in West Virginia is called a(n) ______ producer - Answer: nonresident A labor union must have at LEAST ____ members to be issued a group life policy - Answer: 25 A(n) ___________ sells, solicits, or negotiates insurance companies - Answer: producer In WV, an insurer licensed to conduct business in WV, but domiciled in NJ, is called a(n): - Answer: Foreign company Life insurance death benefits up to ______ are guaranteed by the West Virginia Life and Health Guaranty Association - Answer: $300,000 A producer is making a sales presentation for a whole life insurance policy. Which of the following statements may the producer guarantee during the presentation? - Answer: "I will guarantee a return of my commissions as an incentive" Which of these is a requirement for obtaining a resident insurance producer license in this state? - Answer: complete a prelicensing examination Which of these actions is NOT required when a producer replaces an existing individual life insurance policy? - Answer: Obtain the beneficiary's signature Page 11 of 20 A life insurance policy owner recently died. The proceeds from this policy are NOT exempt from a creditor's claims when they are payable to - Answer: The insured's estate All of the following could result in the revocation of a producer's license EXCEPT: - Answer: Replacing an insurance policy from one insurer to another based on misrepresentation Which of the following is NOT an example of "conducting insurance business?" - Answer: Selling shares of stock _______ is the authority given to a producer to transact business on behalf of the insurer - Answer: Appointment How long may an insurer defer granting a policy loan after receiving the loan application? - Answer: 6 months the Insurance Commissioner: - Answer: has authority to review policy forms if they will be issued for delivery in WV J is a producer who recently told a claimant that his rights might be impaired if he does not complete a release form within a specified time. What could this producer be found guilty of? - Answer: Coercion Which of these statements may a producer make to a client about a whole life policy? - Answer: "nonforfeiture benefits will be available after a period of time" Who approves continuing education courses in WV? - Answer: Insurance commissioner and the board of insurance agent education Page 12 of 20 Assignment of group life insurance benefits is allowed in the state of West Virginia. However, assignment is NOT allowed to the insured's - Answer: employer Which of these factors does NOT influence an applicant's need for life insurance? - Answer: Self- maintenance expenses A Loss-Purchase Buy and Sell agreement among three partners, funded with individual life insurance, would require how many policies? - Answer: 6 B is a licensed producer who sells multiple lines of insurance. Which of these products requires B to complete continuing education in order to maintain the license? - Answer: life insurance Replacement can be defined as - Answer: exchanging an existing policy for a new policy A group life insurance policy insured may assign up to _____ of the insured's coverage - Answer: 100% P is an employee covered under his employer's group life policy for $25,000. He quits after 1 year on the job. Which statement about his conversion options is NOT true? - Answer: P can convert to a $25,000 term policy A producer must notify the insurance commissioner within ____ days following the final deposition of an administrative action by any government agency - Answer: 30 The insurance commissioner must give at least ____ days notice prior to holding a hearing regarding a producer's license - Answer: 30 Page 15 of 20 N, age 50, recently bought an annuity that will pay a guaranteed $2,000/month at age 70 for life. What type of annuity did N purchase? - Answer: fixed deferred How does an indexed annuity differ from a fixed annuity? - Answer: Indexed annuity owners receive credited interest tied to the fluctuations of the linked index Which of the following statements regarding a Tax Sheltered Annuity (TSA) is INCORRECT? - Answer: The income from the TSA received income tax-free T has an annuity that guarantees an income payment for the rest of his life. The contract also guarantees that if T dies before receiving payments for 20 years, the remaining payments will be paid to his son for the balance of the 20 years. What type of annuity is this? - Answer: Life annuity with period certain S recently received a $500,000 lump sum retirement buyout from her employer. She would like to buy an annuity that will immediately furnish her with a guaranteed income for life. What type of annuity is best suited for her situation? - Answer: single premium Equity indexed annuities are invested in which of the following: - Answer: S&P 500 The annuity that represents the largest possible monthly payment to an individual annuitant is a(n): - Answer: Straight life annuity N purchases an annuity by making payments in an amount no less than $100 quarterly. This describes which of the following annuities? - Answer: Flexible installment deferred Which type of contract liquidates an estate through recurrent payments? - Answer: Annuity Page 16 of 20 Which of the following statements concerning an individual straight life annuity is accurate? - Answer: payments are made to an annuitant for life To be eligible for social security benefits, an employee must be able to perform: - Answer: any occupation Which of the following factors affects the amount of monthly disability benefits payable under social security? - Answer: the amount of the benefits available from other sources One becomes eligible for Social Security disability benefits after having been disabled for: - Answer: 5 months Which of the following does social security NOT provide benefits for? - Answer: Dismemberment What determines the full amount of social security retirement benefits a qualified individual is entitled to receive? - Answer: Primary Insurance Amount (PIA) In a qualified retirement plan, the yearly contributions to an employee's account: - Answer: Are restricted to maximum levels set by the IRS An IRA owner can start making withdrawals and NOT be subjected to a tax penalty beginning at what age? - Answer: 59 1/2 Traditional Individual Retirement Account (IRA) distributions must start by: - Answer: April 1st of the year following the year the participant attains age 70 1/2 Premature IRA distributions are assessed a penalty tax of: - Answer: 10% Page 17 of 20