Download NC Life Insurance Practice Exam: Q&A on Policies & Regulations and more Exams Insurance law in PDF only on Docsity! NC Life Insurance Practice Exam Questions And Answers All of the following are included within the Insurance Commissioner's duties EXCEPT a) Conducting investigation of all domestic insurers. b) Reviewing the insurers' annual reports. c) Writing North Carolina insurance laws. d) Reporting any violations of insurance laws to the Attorney General. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. - correct answer c) Writing North Carolina insurance laws. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. Which of the following insurance providers must be nonprofit and sell insurance only to its members? a) Reciprocal b) Fraternal c) Service d) Mutual - correct answer b) Fraternal NC Life Insurance Practice Exam Questions And Answers To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society. A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? a)Second-to-Die b)Family Income Policy c)Joint Life Policy d)Survivorship Life Policy - correct answer c)Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends. The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? NC Life Insurance Practice Exam Questions And Answers a) They can convert their coverage to permanent life insurance with evidence of insurability .b) Family members are not provided any rights. c) They can surrender the coverage for its cash value. d) They can convert their coverage to permanent life insurance without evidence of insurability. - correct answer d) They can convert their coverage to permanent life insurance without evidence of insurability. Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy. Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as a) Defamation. b) Coercion. c) Rebating. d) Misleading advertising. - correct answer b) Coercion. These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them. NC Life Insurance Practice Exam Questions And Answers When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must a) Request a police report from the Department of Motor Vehicles. b) Furnish a blank form to be used for that purpose. c) Document the request for further investigation. d) Submit the loss claim to underwriting for premium review and resolution. - correct answer b) Furnish a blank form to be used for that purpose. When any company under any insurance policy requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company or its representative must furnish a blank form to be used for that purpose. Insurance companies are required to provide proof of loss forms to the claimant within how many days after receipt of notice of loss? a) 15 b) 30 c) 31 d) 45 - correct answer a) 15 NC Life Insurance Practice Exam Questions And Answers When any company under any insurance policy requires a written proof of loss after notice of the loss has been given by the insured or beneficiary, the company must furnish a blank form within 15 days. Which is true about a spouse term rider? a) The rider is usually level term insurance. b) Coverage is allowed for an unlimited time. c) The rider is decreasing term insurance. d) Coverage is allowed up to age 75. - correct answer a) The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance. A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this? a)Level term NC Life Insurance Practice Exam Questions And Answers Which of the following is TRUE regarding an indeterminate premium whole life policy? a) The premium is lower in the first year of the policy; then it is gradually raised every year. b) The premium is level throughout the life of the policy. c) The premium is usually higher in the first few years of the policy. d) The premium can be raised up to a guaranteed maximum rate. - correct answer d) The premium can be raised up to a guaranteed maximum rate. Indeterminate premium whole life policy premium rate may vary from year to year. After the initial period (usually 2-3 years) when a lower premium is paid, the insurer establishes a new rate which could be raised up to the guaranteed maximum stated in the policy, kept the same or lowered, based on the company's expected mortality, expense and investments. A person who knowingly obtains information about an individual from an agent or the insurer under false pretenses has committed a(n) a)Class 1 misdemeanor. b)Trustworthy act. c)Unfair trade practice. NC Life Insurance Practice Exam Questions And Answers d)Felony. - correct answer a) Class 1 misdemeanor. A person who knowingly obtains information about an individual from an insurer or agent under false pretenses is guilty of a Class 1 misdemeanor. The initial amount of credit life insurance may NOT exceed a)An amount set by statute and adjusted regularly for inflation. b)The borrower's monthly income. c)The borrower's annual income. d)The amount to be repaid under the contract. - correct answer d) The amount to be repaid under the contract. The initial amount of credit life insurance may not exceed the total amount repayable under the contract of indebtedness. All of the following statements are true regarding installments for a fixed period annuity settlement option EXCEPT a)The insurer determines the amount for each payment. b)It is a life contingency option. NC Life Insurance Practice Exam Questions And Answers c)It will pay the benefit only for a designated period of time. d)The payments are not guaranteed for life. - correct answer b)It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies. The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? a)Reduction of premium b)Paid-up addition c)Accumulation at interest d)Cash option - correct answer a)Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year. NC Life Insurance Practice Exam Questions And Answers A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher. A Universal Life Insurance policy is best described as a/an a)Annually Renewable Term policy with a cash value account. b)Variable Life with a cash value account. c)Whole Life policy with two premiums: target and minimum. d)Flexible Premium Variable Life policy. - correct answer a)Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance. Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a)Corridor option NC Life Insurance Practice Exam Questions And Answers b)Variable option c)Option A d)Option B - correct answer d)Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. All of the following entities regulate variable life policies EXCEPT a)The Guaranty Association. b)Federal government. c)The SEC. d)The Insurance Department. - correct answer a)The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC All of the following are true about variable products EXCEPT NC Life Insurance Practice Exam Questions And Answers a)The minimum death benefit is guaranteed. b)The cash value is not guaranteed. c)Policyowners bear the investment risk. d)The premiums are invested in the insurer's general account. - correct answer d)The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk. Which of the following best describes a misrepresentation? a)Discriminating among individuals of the same insuring class b)Issuing sales material with exaggerated statements about policy benefits c)Making a deceptive or untrue statement about a person engaged in the insurance business d)Making a maliciously critical statement that is intended to injure another person - correct answer b)Issuing sales material with exaggerated statements about policy benefits NC Life Insurance Practice Exam Questions And Answers In cases when an applicant for insurance is blind or deaf, the insurer underwriting the policy may do which of the following? a)Limit the amount or type of coverage available to the applicant b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. c)Charge a different rate for the same coverage based on increased risk. d)Refuse to insure the applicant because of adverse risk. - correct answer b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. Insurers cannot refuse to insure or refuse to continue to insure an individual, limit the amount, extent, or kind of coverage available to an individual, or charge an individual a different rate for the same coverage, solely because of blindness or partial blindness, or deafness or partial deafness. Which of the following Life Insurance policies would be considered interest sensitive? a)Increasing term b)Universal life c)Adjustable life NC Life Insurance Practice Exam Questions And Answers d)Whole life - correct answer b)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest. 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 a)Graded premium whole life. b)Single premium whole life. c)Modified Endowment Contract (MEC). d)Level term life. - correct answer b)Single premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception. What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? NC Life Insurance Practice Exam Questions And Answers a)Installment refund b)Joint and survivor c)Pure life d)Life with guaranteed minimum - correct answer c)Pure life A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors. Which of the following determines the cash value of a variable life policy? a)The company's general account b)The policy's guarantees. c)The premium mode d)The performance of the policy portfolio - correct answer d)The performance of the policy portfolio The cash value of a variable life policy is not guaranteed and fluctuates with the performance of the portfolio in which the premiums have been invested by the insurer. NC Life Insurance Practice Exam Questions And Answers a)Equity Indexed annuity b)Deferred annuity c)Variable annuity d)Fixed annuity - correct answer c)Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities. Which of the following best describes an insurance company that has been formed under the laws of this state? a)Sovereign b)Alien c)Foreign d)Domestic - correct answer d)Domestic A company is domestic when doing business within the state in which it is incorporated. NC Life Insurance Practice Exam Questions And Answers An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a)The insured may choose to convert to term or permanent individual coverage. b)The insured would not need to prove insurability for a conversion policy. c)The insured may convert coverage to an individual policy within 31 days. d)The premium for individual coverage will be based upon the insured's attained age. - correct answer a)The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance. An insured receives an annual life insurance dividend check. What term best describes this arrangement? a)Cash option b)Reduction of Premium c)Annual Dividend Provision NC Life Insurance Practice Exam Questions And Answers d)Accumulation at Interest - correct answer a)Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check. Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die? a)Joint Life b)Decreasing Term c)Whole Life d)Ordinary Life - correct answer a)Joint Life A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death. 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? NC Life Insurance Practice Exam Questions And Answers d)It provides the greatest cash value for a temporary period of time. - correct answer c)It provides the highest amount of coverage for a temporary period of time. Term insurance has no cash value and provides no death benefit if the insured dies after the policy is expired; however, it provides the highest amount of protection for a temporary period of time. The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? a)The death benefit can be increased only when the policy has developed a cash value. b)The death benefit can be increased only by exchanging the existing policy for a new one. c)The death benefit can be increased by providing evidence of insurability. d)The death benefit cannot be increased. - correct answer c)The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase. NC Life Insurance Practice Exam Questions And 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? a)Conditional b)Personal c)Adhesion d)Unilateral - correct answer c)Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written. What happens when a policy is surrendered for its cash value? a)The policy can be reinstated by paying back all policy loans and premiums. b)The policy can be converted to term coverage. c)Coverage ends and the policy cannot be reinstated. d)Coverage ends but the policy can be reinstated at any time. - correct answer c)Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated. NC Life Insurance Practice Exam Questions And Answers A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? a)There are not enough people in the group to qualify for group life insurance. b)The group has not been established for long enough. c)The purpose of the group was to purchase life insurance. d)Their profession poses too high of a risk for the insurer. - correct answer c)The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance. B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B? a)Limited Term b)Limited Pay NC Life Insurance Practice Exam Questions And Answers a)Seek higher returns. b)Are more risky than variable annuities. c)Are security instruments. d)Invest conservatively. - correct answer a)Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500. The interest earned on policy dividends is a)40% taxable, similar to a capital gain. b)Taxable. c)Nontaxable. d)Tax deductible. - correct answer b)Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income. NC Life Insurance Practice Exam Questions And Answers Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a)Term insurance only b)Permanent insurance only c)Universal life insurance only d)Any form of life insurance - correct answer d)Any form of life insurance Any form of Life insurance may be used to fund a buy-sell agreement. When a licensee is accused of any act, omission, or misconduct that would subject the licensee to a license suspension or revocation, with the approval of the Commissioner, the license may be surrendered for a period of a)Time to be set by the Commissioner. b)90 days. c)6 months. d)1 year. - correct answer a)Time to be set by the Commissioner. NC Life Insurance Practice Exam Questions And Answers The Commissioner sets the time for a licensee suspension or revocation. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a)The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b)The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c)One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. - correct answer d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive. Which of the following will NOT be an appropriate use of a deferred annuity? NC Life Insurance Practice Exam Questions And Answers Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time. The reinstatement provision in life insurance policies in this state allows an owner of a lapsed policy to reestablish it within how many years? a)2 b)3 c)4 d)5 - correct answer d)5 Reinstatement provision allows a policy to be reinstated at any time within 5 years after the policyowner defaulted on a premium payment. Which of the following are NOT fundable by annuities? a)A person's retirement b)Estate liquidation c)Death benefits d)Cash accumulation for any reason - correct answer c)Death benefits NC Life Insurance Practice Exam Questions And Answers Annuities are most commonly used to fund a person's retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance. Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client? a)Limited pay whole life b)Interest-sensitive whole life c)Life annuity with period certain d)Increasing term - correct answer a)Limited pay whole life Premium payments will cease at her age 65, but coverage will continue to her death or age 100. Mortality - Interest + Expense = a)Gross premium b)Benefits budget c)Operating expenses NC Life Insurance Practice Exam Questions And Answers d)Net premium - correct answer a)Gross premium If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" (or "loading") represents company operating costs, then the interest is subtracted from the cost of mortality, yielding the net premium, and the loading is added to the net premium to yield the gross premium. How long is a free-look period for replacement policies? a)10 days b)14 days c)20 days d)30 days - correct answer d)30 days The replacing insurer must provide to the policyowner notice of the right to return the policy or contract within 30 days of the delivery of the contract and receive an unconditional full refund of all premiums. Which of the following applicants would NOT qualify for a Keogh Plan? a)Someone who has been employed for more than 12 months b)Someone who is over 25 years of age NC Life Insurance Practice Exam Questions And Answers There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. Only the amount of the death benefit may fluctuate. If a life insurance policy increases significantly in face amount (death benefit) when the insured reaches a specified age, what type of policy is this? a)Single premium policy b)Jumping juvenile policy c)Limited pay whole life policy d)Modified life insurance policy - correct answer b)Jumping juvenile policy While many policies provide a level death benefit, Jumping Juvenile policies provide a low face amount in the early years and then increase, usually by 5 times the amount, when the insured reaches an age specified in the policy (usually age 21). If the Commissioner is scheduling a hearing for a potential violation of the Insurance Code, what is the minimum required notice? NC Life Insurance Practice Exam Questions And Answers a)10 days b)15 days c)30 days d)45 days - correct answer a)10 days All hearings will be held at a time and place designated in a written notice provided by the Commissioner. The notice must be provided at least 10 days prior to the hearing, and must also state any specific charges. Which of the following premium payment modes will incur the lowest overall payment? a)Annual b)Semi-annual c)Quarterly d)Monthly - correct answer a)Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower. Which nonforfeiture option has the highest amount of insurance protection? NC Life Insurance Practice Exam Questions And Answers a)Decreasing Term b)Reduced Paid-up c)Extended Term d)Conversion - correct answer c)Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time. Which of the following is another term for the accumulation period of an annuity? a)Annuity period b)Pay-in period c)Premium period d)Liquidation period - correct answer b)Pay-in period The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity. The regulation of the insurance industry primarily rests with NC Life Insurance Practice Exam Questions And Answers d)Improve the ability of the buyer to evaluate the relative costs of similar life plans. - correct answer a)Educate the buyer about policy protection by the Guaranty Association. The regulations of life insurance solicitation are intended to improve the buyer's knowledge and understanding of life insurance policies or plans. Which of the following best describes annually renewable term insurance? a)Neither the premium nor the death benefit is affected by the insured's age. b)It provides an annually increasing death benefit. c)It is level term insurance. d)It requires proof of insurability at each renewal. - correct answer c)It is level term insurance. Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost. Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? NC Life Insurance Practice Exam Questions And Answers a)Beneficiary clause b)Consideration clause c)Insuring clause d)Entire contract clause - correct answer c)Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate. A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? a)Waiver of premium b)Incontestability period c)Assignment d)Automatic premium loan - correct answer d)Automatic premium loan NC Life Insurance Practice Exam Questions And Answers This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? a)The same as the original policy minus the cash value b)Equal to the original policy for as long as the cash values will purchase. c)In lesser amounts for the remaining policy term of age 100. d)Equal to the cash value surrendered from the policy - correct answer b)Equal to the original policy for as long as the cash values will purchase. With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age. An insurer who transact insurance in this state but whose articles of incorporation are registered in Canada is considered what type of insurer? NC Life Insurance Practice Exam Questions And Answers continuation of extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values The renewable provision allows the policyowner to renew the coverage at the expiration date a). Only with evidence of insurability b). With evidence of insurability if the insurer requires it c). With evidence of insurability if the insurer risk has increased d. Without evidence of insurability - correct answer d. Without evidence of insurability The renewable provision allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability. All are true regarding the Insurance Commissioner's powers related to hearing and investigations EXCEPT a). Enact statutes to govern the insurance industry b). Disseminate information regarding the Department activities c). Enforce the NC Insurance Code d). Determine if an agent has acted in violation of the Insurance Code - correct answer a). Enact statutes to govern the insurance industry NC Life Insurance Practice Exam Questions And Answers State statutes are enacted by the state legislature. The Insurance Commissioner is empowered to enforce the laws pertaining to insurance What is a specific requirement regarding the number of employees in a SIMPLE plan? a). No more that 100 employees b). At least 100 employees c). Between 2 and 50 employees d). No more than 2 employees - correct answer a). No more that 100 employees A SIMPLE ( Saving Incentive Match of Employees) plan is available to small business that employ not more than 100 employees receiving at least 5K in compensation from the employer during the previous year. To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss. What is this concept called? a) Insurable interest NC Life Insurance Practice Exam Questions And Answers b). Indemnity c). Exposure d). Pure Loss - correct answer a) Insurable interest To purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss this is called insurable interest After an insurer appoints a new agent, the Commissioner must be notified within a). 10 days b). 15 days c). 20 days d). 30 days - correct answer d). 30 days Within 30 days of new agent appointments, the insurer must file the names, addresses, and other information with the Commissioner. Dividends received on participating life insurance policies are a). Not taxable because they are a return of unused premiums NC Life Insurance Practice Exam Questions And Answers An important fact about financial status of an insure was deliberately withheld. Which of the following terms best describes this action? a). Twisting b). Loading c). False financial statement d). Defamation - correct answer c). False financial statement Statements of this kind - when used to put the company into a favorable light are often called false financial statements Which of the following would be true of both the fixed-period and fixed-amount settlement options? a). Both guarantee that the principal and interest will be fully paid out b). The amount of payments is based on the recipient's life expectancy. c). The size of installments decreases after certain period of time d). Both guarantee payments for the life of the beneficiary - correct answer a). Both guarantee that the principal and interest will be fully paid out NC Life Insurance Practice Exam Questions And Answers Neither the fixed-period nor fixed-amount settlement options guarantee income for the life of the beneficiary; however they both guarantee that the entire principal and interest will be distributed Cash Value guarantees in whole life policy are called a). Dividends b). Nonforfeiture values c). Living Benefits d). Cash Loans - correct answer b). Nonforfeiture values Because permanent life insurance policies have cash values, there are certain guarantees that are built into the policy that cannot be forfeited by the policy owner. These guarantees (know as nonforfeiture values) are required by state law to be included in the policy. A table showing the nonforfeiture values must be included in the policy for a minimum period of 20 years. The policy owner has options as to how to exercise nonforfeiture values. All of following are true of annually renewable term insurance EXCEPT a). The death benefit remains level b). The policy must be renewed no matter what happens to one's health NC Life Insurance Practice Exam Questions And Answers c). Proof of insurability must be provided at each renewal d). The premium increases each year - correct answer c). Proof of insurability must be provided at each renewal ART is a form of level term insurance, in which 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 insured's attained age. What type of an interest rate is guaranteed in universal life policies a). Adjustable interest rate b). Current interest rate c). Contract interest rate d). Nominal interest rate - correct answer c). Contract interest rate The insurer guarantees a contract interest rate. A current interest rate is not guaranteed in the contract and may be higher because of current market conditions All are true regarding the Insurance Commissioner's power related to hearings and investigations EXCEPT NC Life Insurance Practice Exam Questions And Answers b). It can be purchased with single lump sum c). The annuity grows tax deferred d). Income payments begin within 1 year from the date of purchase - correct answer d). Income payments begin within 1 year from the date of purchase Deferred annuity benefit payments begin sometime after one year after the contract was purchased. The rest of the statements are true regarding deferred annuities. Which of the following indicated the person upon whose life the annuity income amount is determined? a). Owner b). Insured c). Annuitant d). Beneficiary - correct answer c). Annuitant The annuitant is the person upon whose life the annuity income amount is determined An insured brought an insurance policy that requires him to pay $150 in premiums on the 15th of each month. He takes an extended vacation NC Life Insurance Practice Exam Questions And Answers and forgets to pay the premium. Ten days later, his policy is still in effect and has not lapsed. Which policy provision allowed for this? a). Waiver of premium b). Automatic premium loan c). Incontestability d). Grace period - correct answer d). Grace period Grace period is a mandatory found in all life insurance policies that provide coverage for a period of time after the premium becomes past due. Under what circumstances will the contingent beneficiary receive the death benefit? a). If designed by the insured b). If designed by the primary beneficiary c). If the primary beneficiary dies before the insured d). If the tertiary beneficiary dies before the insured - correct answer c). If the primary beneficiary dies before the insured If a licensee is convicted of a criminal violation, the licensee's insurance license is NC Life Insurance Practice Exam Questions And Answers a)Automatically revoked. b)Not affected. c)Suspended after a hearing. d)Automatically suspended. - correct answer d)Automatically suspended. The conviction of an insurance licensee for a criminal violation automatically suspends the license of that person. All of the following are TRUE regarding the convertibility option under a term life insurance policy EXCEPT a)Upon conversion, the premium for the permanent policy will be based upon attained age. b)Upon conversion, the death benefit of the permanent policy will be reduced by 50%. c)Evidence of insurability is not required. d)Most term policies contain a convertibility option. - correct answer b)Upon conversion, the death benefit of the permanent policy will be reduced by 50%. NC Life Insurance Practice Exam Questions And Answers Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? a)Accumulation at Interest b)Paid-up additions c)Dividend Accumulation option d)Paid-up option - correct answer d)Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid- up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy. What is the advantage of reinstating a policy instead of applying for a new one? a)The cash values have gained interest while the policy was lapsed b)The original age is used for premium determination c)Proof of insurability is not required d)The face amount can be increased - correct answer b)The original age is used for premium determination NC Life Insurance Practice Exam Questions And Answers The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status. Which of the following riders would NOT cause the Death Benefit to increase? a)Guaranteed Insurability Rider b)Cost of Living Rider c)Accidental Death Rider d)Payor Benefit Rider - correct answer d)Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount. NC Life Insurance Practice Exam Questions And Answers Any agent, broker or limited representative who acts for a person other than himself negotiating a contract of insurance, for the purpose of receiving the premium, is deemed to be a)A managing partner of the insured. b)In violation of the free credit act. c)An agent of the company. d)A designated representative of the agent. - correct answer c)An agent of the company. Any agent, broker or limited representative who acts for a person other than himself negotiating a contract of insurance, for the purpose of receiving the premium, is deemed to be the company's agent. Any agent, broker or limited representative knowingly procuring by fraudulent representations payment, or the obligation for the payment, of a premium of insurance, may be found guilty of a Class 1 misdemeanor. Which of the following statements regarding insurable interest in viatical settlements is correct? a)It is not necessary unless the viator is not a resident of North Carolina. b)It must exist at the time of the issue of the original life policy. c)It must exist at the time of sale by the viator. NC Life Insurance Practice Exam Questions And Answers the buyer's guide and policy summary may be delivered either before or at the same time as the delivery of the policy. Which of the following is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated? a)Annuity certain b)Fixed annuity c)Refund life d)Variable annuity - correct answer a)Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date. A young father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which type of policy would he most likely buy? a)Level Term Policy b)Family (Protection) Policy NC Life Insurance Practice Exam Questions And Answers c)Universal Life Policy d)Family Income Policy - correct answer b)Family (Protection) Policy This type of insurance combines protection for all members of a family into one policy. It usually provides a permanent plan of insurance on the 'base insured', and term riders on other members of the family. Because they are all covered under a single policy, there is only one policy fee. The Commissioner reports any violations of insurance laws and regulations to the a)Attorney General. b)Guaranty Association. c)Governor. d)NAIC. - correct answer a)Attorney General. The Insurance Commissioner is required to report any violation of insurance law to the Attorney General. An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it NC Life Insurance Practice Exam Questions And Answers is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? a)Pay the full death benefit and refund excess premium b)Pay a reduced death benefit c)Pay the full death benefit d)Pay nothing; there was a misrepresentation on the application - correct answer b)Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.