Texas General Lines - Life Insurance Practice Exam: Questions and Answers, Exams of Insurance Economics

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LIFE SECTION 1

1. Sandra Timms, age 27, is advised by her producer to purchase Life insurance to cover a 20-year-amortized $50,000 business-improvement loan. Which of the following plans would adequately protect Ms. Timms at the minimum premium outlay? A- $50,000 Whole Life policy B- $50,000 Level Term policy for 20 years C- $50,000 20 Pay Life policy D- $50,000 Decreasing Term policy for 20 years - correct answer D—A $50,000 Decreasing Term policy for 20 years Explanation: The key here is "minimum premium". Term is the most inexpensive type of coverage. Since Sandra's $50,000 loan will be paid off over 20 years and the loan balance will decrease each year, Decreasing Term makes sense. Decreasing Term is not renewable.
2. A 45-year old customer who is seeking to supplement his retirement income at age 65 would not buy a: A- Deferred Annuity

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B- Equity Indexed Annuity C- Variable Annuity D- Immediate Annuity - correct answer B- Equity Indexed Annuity

3. John Livingston owns a 30-Pay Life policy that he purchased at the age of 30. The cash value will equal the face amount of the policy when he reaches the age of: A- 60 B- 70 C- 100 D- 30 - correct answer C- 100 Explanation: Limited Pay Life insurance policies such as Life Paid Up at 65 or 20-Pay Life are simply variations of Whole Life policies. The cash value will equal face amount of the policy (at least) at the maturity of the policy, which is always age 100 on Whole Life policies. These limited- pay policies are designed so that the insured may pay his or her premiums faster and be "paid up" at a certain age. However, just because the premiums are paid up doesn't mean the policy has matured.

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4. Which of the following is an example of a Limited-Pay Life policy? A- Universal life B- Whole Life C- Life Paid-Up at Age 65 D- Renewable Term to Age 70 - correct answer C- Life Paid-Up at Age 65
5. Which of the following policies provides the greatest amount of protection for an insured's premium dollar as well as some cash accumulation? A- Annuity B- Whole Life C- Term D- Limited-Pay Life - correct answer B- Whole Life If we had not mentioned cash accumulation, the answer would have been Term. However, Term has no cash value, so the answer is Whole Life, which is the most inexpensive type of permanent insurance and is required to have a cash value after the third policy year. Although Limited Pay Life is a type of Whole Life, it is incorrect since it is usually quite expensive due to the shortened pay-in period. Annuities have no cash value except the

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money the annuitant paid in. Since there is no death benefit, no protection is offered.

6. Which of the following individual policy conversions is usually permitted without any evidence of insurability? - correct answer C- Conversion from a Term policy to a Whole Life policy
7. Which of the following is NOT correct regarding Ordinary Whole Life policies? A- The premiums payments are owed annually until you die or reach age 100 B- The cash value grows more quickly in the beginning years of the policy C- Coverage lasts for your own life D- Ordinary Whole Life is a type of permanent insurance - correct answer D- Ordinary Whole Life is a type of permanent insurance
8. Which of the following statements is true about the premium payment schedule for a Whole Life policy? A- Premiums are payable for a designated period of time only, after which coverage is no longer provided

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B- Premiums are payable until the insured's retirement only, after which coverage is continued automatically until the insured's death C- One premium, in the amount of the insured's choice, is payable at the time of application, and the balance of the premiums is deducted from the face amount of the policy at the time of the insured's death D- Premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death

• correct answer D- Premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death

9. A life insurance policy that covers two parties, but only pays when the last party dies is known as: A- Joint Life B- Contingent Life C- Other insured Life D- Survivorship Life - correct answer D- Survivorship Life
10. Which of the following contracts requires that a series of benefit payments be made at specified intervals?

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A- 20-Pay Life B- Modified Whole Life C- Annuity D- Ordinary Whole Life - correct answer C- Annuity

11. If a client wants cash value life insurance with a flexible premium and an adjustable death benefit that will allow the policy owner a choice of various cash value investment options, he should buy: A- Variable Life B- Universal Life C- Adjustable Life D- Variable/Universal Life - correct answer D- Variable/Universal Life
12. If a person wants to invest a lump sum in an annuity that may appreciate along with market and economic conditions, they should buy a: A- Flexible premium Annuity B- Fixed Annuity C- Deferred Annuity D- Variable Annuity - correct answer D- Variable Annuity

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13. You have a client that is a real estate agent. Which of the following types of permanent protection is best for this type of client? A- Variable life B- Universal life C- Survivorship life D- Adjustable life - correct answer D- Adjustable life
14. In order to sell variable life insurance you must be registered with which of the following? A- The SEC B- The State C- The NYSE D- The NASD - correct answer D- The NASD
15. Which of the following is an example of a Limited-Pay Life policy: A- Traditional Whole Life B- Endowment at 65 C- 10 year Renewable Term Life D- 20-Pay Life - correct answer D- 20-Pay Life

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16. An insurance producer selling a Variable Annuity whose cash value depends on the performance of an underlying investment account must be registered with: - correct answer D- The Financial Industry Regulatory Authority (FINRA, formerly the NASD)
17. A business owner with a fluctuating income who wants a life insurance policy that can be changed to suit economic conditions should buy: A- Variable Life B- Modified Whole Life C- Adjustable Life D- Interest-sensitive Whole Life - correct answer C- Adjustable Life
18. An Annuity is designed to provide which of the following financial features? I. The liquidation of principal and interest II. Favorable tax treatment III. The creation of an estate - correct answer B- I and II

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19. Which of the following statements about a Renewable Term policy is true? A- It is renewable at the option of the insurance company B- It is renewable at the option of the insured C- It is renewable at the option of the insurance company, with proof of insurability D- It is renewable at the option of the insured, with proof of insurability - correct answer B- It is renewable at the option of the insured
20. Most Term Life insurance: A- Is convertible to permanent Whole Life without a physical exam B- Has a guaranteed cash value C- Is renewable with evidence of insurability D- Is renewable to age 100 - correct answer A- Is convertible to permanent Whole Life without a physical exam
21. A life insurance policy whose cash value will fluctuate depending upon the performance of a separate account is: A- Limited-pay Life

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B- Universal Life C- Ordinary Life D- Variable Life - correct answer D- Variable Life

22. A life insurance policy that combines term insurance protection, a flexible premium, and cash value accumulation is: A- Increasing Term Life B- Variable/Universal Life C- Universal Life D- Variable Life - correct answer C- Universal Life
23. Which of the following types of insurance policies would provide the greatest amount of protection for a temporary period during which an insured will have limited financial resources? A- Term B- Limited Pay policy C- Whole Life D- Annuity - correct answer A- Term

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24. At age 30, Tom Morris wishes to purchase a Whole Life policy. His producer explains that he can pay for the policy in several ways. One method is called 20-Pay Life, and another, Straight Life. Tom wishes to know which plan will accumulate cash value at a faster rate in the early years of the policy. Which of the following would be the producer's most appropriate response? A- "20-Pay Life will accumulate cash value faster." B- "The rate of cash-value accumulation depends on the profitability of the insurance company." C- "Straight Life will accumulate cash value faster." D- "Both plans will accumulate cash value at the same rate." - correct answer A- "20-Pay Life will accumulate cash value faster." LIFE SECTION 2 - correct answer LIFE SECTION 2
25. Which of the following statements about the Reinstatement provision is true? A- It provides for reinstatement of a policy regardless of the insured's health

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B- It requires the policy owner to pay, with interest, all premiums that are in arrears in order for the policy to be reinstated C- It permits reinstatement within 10 years after a policy has lapsed D- It guarantees the reinstatement of a policy that has been surrendered for cash - correct answer B- It requires the policy owner to pay, with interest, all premiums that are in arrears in order for the policy to be reinstated

2. The time period covered by the Free Look provision of a Life insurance contract starts: A- When the insured receives the contract and a "right to look" receipt B- When the contract is received in the agency office and given to the producer C- When the insured receives the contract and makes the first premium payment, if needed D- When the contract is issued and mailed to the agency office from the home office of the insurance company - correct answer C- When the insured receives the contract and makes the first premium payment, if needed

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3. Dividend projections may be included in a proposal for Life insurance when which of the following is true? A- There is a clear statement that payment of future dividends is not guaranteed B- The applicant has requested that they be included C- The projected amounts do not exceed the dividends previously paid by the same insurance company D- The projected amounts are calculated on the basis of the Commissioners Standard Ordinary Mortality Tables - correct answer A- There is a clear statement that payment of future dividends is not guaranteed
4. The Life insurance rider that will pay the insured's premium after a period of disability due to accident or sickness is: A- Guaranteed Insurability B- Accidental Death and Dismemberment C- Waiver of Premium D- Automatic Premium Loan - correct answer C- Waiver of Premium
5. Which of the following is a Non-forfeiture Option that provides continuing cash value buildup?

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A- Extended Term B- Deferred Annuity C- Reduced Paid-Up D- Cash Surrender - correct answer C- Reduced Paid-Up

6. A rider that keeps a policy from lapsing due to non- payment of premium by borrowing from the cash value is: A- Reduced Paid-Up Option B- Extended Term Option C- Automatic Premium Loan D- Mode of Payment - correct answer C- Automatic Premium Loan
7. Which of the following Settlement Options might provide payments that exceed the proceeds of the policy and the interest earned? A- Interest Only B- Fixed Period C- Life Annuity D- Fixed Amount - correct answer C- Life Annuity

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8. A client buys a $50,000 Whole Life policy on himself and wants to add $25,000 in Term coverage for his spouse. He should add which of the following riders to his policy? - correct answer A- Spousal Rider B- Family Rider C- Other Insured Rider D- Additional Insured Rider
9. All of the following are considered to be owner's rights under a Life insurance policy, EXCEPT: - correct answer A- Changing an irrevocable beneficiary B- Changing a dividend option C- Taking a policy loan D- Selecting a settlement option prior to death
10. If the insured dies 5 years after he bought a Life insurance policy and the insurer determines that there was material misrepresentation on his application, they will: - correct answer A- Pay the claim B- Pay only a portion of the claim C- Deny the claim D- Deny the claim but refund the premium

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11. The life insurance policy provision that prevents the insurer from modifying a policy after it has been issued is the: - correct answer A- Incontestability Clause B- Entire Contract Clause C- Consideration Clause D- Insuring Clause
12. Which of the following statements is true about exercising a Guaranteed Insurability option: I. The new insurance is available at the original issue age rate II. Evidence of insurability is not required III. The insured can exercise the option at any time after the age of 21 IV. The maximum purchase is specified in the contract - correct answer A- III and IV B- I and II C- II and IV D- I, II, and III
13. In a policy insuring the life of a child, which of the following allows the premiums to be waived in the event

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of the death or disability of the person responsible for premium payments? - correct answer A- Reduced Paid-Up option B- Payor Benefit Rider C- Waiver of Premium provision D- Reduction of Premium option

14. Which of the following is true about the Misstatement of Age provision - correct answer A- It allows the insurer to adjust benefits B- It allows the insurer to change the premium C- It allows the insurer to void the contract D- It allows the insurer to contest a claim during the first 2
15. Which of the following statements about a typical Suicide clause in a Life insurance policy is true? - correct answer A- Suicide is excluded for a specific period of years and covered thereafter B- Suicide is excluded as long as the policy is in force C- Suicide is covered for a specific period of years and excluded thereafter D- Suicide is covered as long as the policy is in force

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16. A $10,000 Life insurance policy with a Triple Indemnity clause has been in force for three years. The insured is injured in a train wreck and dies in a hospital five months later. The death proceeds payable under the policy would be: - correct answer A- $20, B- $ -0- C- $30, D- $10,
17. Grandma owns a policy on her grandchild. Which rider would kick in if Grandma should die tomorrow? - correct answer A- Guaranteed Insurability Rider B- Waiver of Premium Rider C- Payor Benefit Rider D- Child Term Rider
18. Dividend projections may be included in a proposal for Life insurance: - correct answer A- When there is a clear statement that they are not guaranteed B- Only upon the request of the applicant C- When they are required to be applied to future premiums due

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D- When past results are used as the basis for future projections

19. What Life insurance policy provision applies if a policy lapsed last year and the insured wants it back? - correct answer A- Assignment B- Reinstatement C- Non-forfeiture D- Grace Period
20. A customer buys a $25,000 Life insurance policy with a $25,000 Accidental Death Benefit rider attached. If he dies of cancer, how much will his policy pay? - correct answer A- Nothing B- $25, C- $50, D- $75,
21. The contingent beneficiary will receive policy proceeds when: - correct answer A- No beneficiary has been designated B- The insured pre-deceases all designated beneficiaries C- The primary beneficiary pre-deceases the insured

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D- The insured pre-deceases the primary beneficiary

22. If the insured understated his age and the error is discovered after the insured's death, the insurance company will: - correct answer A- Deny the claim under the Incontestability clause B- Refund all premiums paid plus accumulated interest C- Pay the claim, less a deduction for the amount of the underpaid premium D- Pay the amount that the premium paid would have purchased at the correct age
23. The clause that states the insurer's promise to pay the policy benefits in accordance with the contract's provisions is the: - correct answer A- Incontestability Clause B- Insuring Clause C- Beneficiary Clause D- Consideration Clause
24. Which of the following is true about the Insuring Clause? - correct answer A- It contains the insurer's enforceable promise to pay covered claims B- It states the policy owner's rights

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C- It states that the insurer may contest a claim for material misrepresentation D- It requires that the application be attached to the policy

25. A client applied for Life insurance on October 1st. The application was approved and the policy was issued on October 10th. It was delivered to the customer on October 18th. When did the Free Look start? - correct answer A- October 31st B- October 18th C- October 10th D- October 1st
26. Which of these is a rider that would ensure you can purchase additional insurance coverage, at specified ages, regardless of health? - correct answer A- Payor Benefit Rider B- Guaranteed Insurability Rider C- Waiver of Premium Rider D- Child Term Rider

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27. A beneficiary designation that prevents the policy owner from making certain changes in the policy is: - correct answer A- Primary B- Irrevocable C- Revocable D- Contingent
28. Margaret May wants to name her husband as the beneficiary of her Life policy; however, she wishes to retain all of the rights of ownership. Mrs. May should name her husband as: - correct answer A- Revocable beneficiary B- Irrevocable beneficiary C- Tertiary beneficiary D- Secondary beneficiary
29. On Life insurance, the purpose of the Entire Contract Clause is to: - correct answer A- Limit the policy to the contract plus the application, if attached B- Spell out the rights of the policy owner C- Require that the insurer attach the application to the policy at issue D- Spell out the rights of the beneficiary

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30. The Life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the: - correct answer A- Misstatement of Age clause B- Insuring clause C- Incontestability clause D- Reinstatement clause
31. The provision in a Life insurance policy that provides protection against unintentional policy lapse is known as the: - correct answer A- Automatic Premium Loan provision B- Payor clause C- Waiver of Premium benefit D- Reduction of Premium option
32. The purpose of the Grace Period is to: - correct answer A- Give the beneficiary time to prove that insurable interest exists B- Protect the policy owner against unintentional lapse C- Protect the insurer against adverse selection D- Give the insurer time to determine the cause of death

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33. Jim gets married and wants to add his new spouse to his existing Life insurance policy. Which rider should he add? - correct answer A- Guaranteed Insurability Rider B- Other Insured Rider C- Payor Rider D- Term Rider
34. An insured died during the Grace Period of her Life insurance policy and had not paid the required annual premium. The insurance company is obligated to pay which of the following to the beneficiary? - correct answer A- The face amount of the policy less any earned premiums B- The full face amount of the policy C- The cash value of the policy, if any D- A refund of any premiums paid
35. A client buys a Life insurance policy on July 1st and dies by suicide 6 months later. The insurance company will: - correct answer A- Deny the claim B- Deny the claim, but refund the premium C- Pay the claim in full

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D- Pay half of the claim

36. To add coverage for a child to your Whole Life policy you would purchase which of these riders? - correct answer A- Payor Benefit Rider B- Guaranteed Insurability Rider C- Waiver of Premium Rider D- Child Term Rider
37. Which of the following statements about the Misstatement of Age provision in a Life insurance policy is true? - correct answer A- If the insured's age has been overstated, it provides that a premium refund and the face amount of the policy will be payable B-If the insured's age has been understated, it provides that a death benefit smaller than the face amount of the policy will be payable C- It becomes inoperative after the expiration of the policy's Contestable period D- It is an optional provision