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All of the following statements about deferred annuity surrender charges
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Life Insurance
Mastery A
| Term | Definition |
|---|---|
| All of the following statements about deferred annuity surrender charges | The insurer sets the surrender charge, if any A deferred annuity owner may be forced to pay an insurer-imposed charge for withdrawing contract values. A deferred annuity owner has rights to his or her contract values. The insurer sets the surre |
| Annuity death benefits | Variable annuities guarantee a death benefit equal to at least the premium invested. |
| The automatic premium loan (APL) provision does which of the following? | prevents a life insurance policy from lapsing if the policyowner fails to pay a premium |
| The entire contract provision specifies that all statements the policyowner makes in the application are considered which of the following? | Statements the policyowner makes in the application are representations. |
| When are partial withdrawals taxable? | when withdrawals exceed the dollar amount of the premiums paid into the policy. Partial withdrawals are not taxable until they exceed the dollar amount of premiums that were paid into the policy. At that point, the withdrawals are taken from the intere |
| What does a family life insurance policy offer? | whole life on the primary insured and term life insurance coverage on the spouse and each child to age 21 |
| Which of the following best describes an agent's responsibilities? | An agent has to act in the best interests of insureds, applicants, and insurers. |
| Under a policy's facility of payment provision, what does an insurer do with the death benefit? | The insurer names a blood relative or someone with a valid claim as the new beneficiary. |
| Why are ambiguities in an insurance contract most often interpreted in favor of the insured or the policyowner? | The contract's terms are drafted by the insurer without input by the policyowner. |
| The suicide exclusion provision of a typical life insurance policy excludes coverage if death is the result of suicide within | 2 years following policy issue. |
| reduced paid-up life insurance nonforfeiture option | The paid-up policy keeps a cash value, which will continue to grow throughout the life of the policy. However, it will grow much more slowly than during the period that premiums were being paid. |
| The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policy owner | renew the policy at lower current rates than would be the case in a standard policy renewal. Once a term life insurance policy has lapsed, it cannot be reinstated. |
| life insurance policy dividend | A policy dividend is an amount returned to a policyowner out of an insurance company's surplus funds, effectively representing unused premiums. |
| Most disability income benefit riders also include which of the following? | provision for a waiver of premium In other words, the disability income rider waives the policy's premiums while providing monthly income payments. So when a person buys a disability income rider, he or she does not have to buy a waiver of premium ride |
| Which of the following sections of the Tax Code deals with the exchange of life insurance policies and annuities? | Section 1035 |
| Life and health insurance can be classified as participating or non-participating. This classification determines which of the following? | whether the policy pays dividends to its owner |
| Paul reached age 70 1/2 this year and has a Roth IRA worth $100,000. Which of the following statements best describes his distribution options? | Paul is not required to take any distributions from his Roth IRA. |
| Under an insured executive bonus plan, the employer pays some or all of the premiums on a life insurance policy covering the life of an executive. Which statement is true about this type of plan? | The executive is the policyowner. |
| Someone other than the insured often applies for and owns a life insurance policy. Which of the following can NOT be an applicant and owner? | a minor child of the insured |
| A Social Security recipient's modified adjusted gross income exceeds the threshold level for his or her filing status. What will happen to his or her benefits? | Up to 85 percent of his or her Social Security benefits will be subject to tax. |
| What are variable life insurance policies considered? | securities |
| Restrictions an insurer must operate under when using information from the Medical Information Bureau (MIB)? | Insurers cannot rate or decline a life insurance risk based solely on MIB information. |
| In a back-end loaded universal life policy, | surrender charges are added for withdrawals of cash value from the policy. These charges normally decline over the term of the policy, and typically are limited to the first ten policy years. |
| Premium rates will vary depending on the insurer's actual experience in which one of the following types of whole life insurance? | current assumption whole life |
| graded premium whole life | Graded premium whole life offers fixed, "known in advance" premium amounts. Rates are set based on the insurer's applicable premium factors. |
| How is increasing term life insurance normally sold? | as a modified endowment contract |
| Melissa asks to continue her lapsed universal life insurance policy under the extended term option. How will the insurance company respond? | It will tell Melissa that her policy does not have the extended term option. Universal life policies normally do not contain the standard nonforfeiture options for policy lapses. |
| Under standard exclusions, most insurers would deny coverage of which of the following? | someone serving as an aircraft crew member |
| Net single premium for a traditional life insurance policy | The net single premium for a traditional life insurance policy is the amount charged to the policyowner who wants to purchase the policy with a single premium payment. |
| Under a family term rider to a life insurance policy, children who are covered under the rider can typically convert their coverage to permanent coverage as early as | age 21, without having to provide evidence of insurability. |
| Simplified Employee Pension (SEP) plans are used by smaller companies because? | Of the lowered administrative, reporting and compliance costs, smaller employers often use SEP plans. |
| At the end of the interest-paying period (or upon request by the beneficiary), what happens to the annuity proceeds that the insurer was holding? | The insurer pays the proceeds, either in a lump sum or under one of the other settlement options. |
| life insurance settlement options | The policyowner or beneficiary can determine these options. A life insurance policy's death benefit can be paid out or settled in many different ways at the death of the insured. These options are specified in the policy. |
| Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to | 50 percent of the difference between the amount that was taken and the RMD amount that should have been taken. |
| spendthrift clause" of a life insurance policy | The clause keeps the beneficiary's creditors from forcing the insurer to pay them the death benefits. |
| Which one of the following most accurately describes the income tax treatment of life insurance death benefits received by a terminally ill insured under the accelerated benefits rider? | They are generally income tax free. |
| Brian earned $100,000 this year and contributed $10,000 to his 401(k) plan account. His employer contributed an additional $2,000 on his behalf. | Because Brian's contributions to his 401(k) plan account are made with pre-tax dollars, his taxable income will be reduced by the amount he contributed. |
| What type of life insurance company is owned by its stockholders? | stock company |
| Karen transfers all rights in her life insurance policy to her brother, David, in an absolute assignment. Who is typically responsible for paying the policy's premiums from that point forward? | David must pay the premiums. |
| Ralph, Jerry, and Paula are primary and equal beneficiaries of the $600,000 insurance policy on the life of their mother, Judy. Ralph dies before his mother. He leaves two children, Tim and Hal. If Judy's life insurance policy designates the death benefit | Under a per stirpes designation, Ralph's $200,000 share will pass equally to his two children when Judy dies. Jerry and Paula, the surviving children of Judy, will each receive $200,000. |
| describes a universal life insurance feature that is NOT available with traditional whole life insurance? | Universal life allows partial withdrawals from the policy's cash value. |
| facility of payment clause of a life insurance policy | The beneficiary dies before the policyowner and the policyowner did not name a contingent beneficiary. The beneficiary is a minor. The facility of payment clause lets the insurer pay the death benefit if the claim was not submitted within a reasonab |
| What is a term insurance policy in which the protection and premium amounts stay the same during the term period known as? | Level term Level term insurance offers a level death benefit and premium during a set period. During the term of coverage, neither the death benefit nor the premium changes. |
| In an absolute assignment, what term is used to describe the new policyowner? | assignee |
| The policyowner making the assignment is | the assignor |
| Diane invested $6,000 two years ago in a Section 529 college savings plan for her daughter, Cathleen, age 5. The account earned $400 the first year and $450 the second year. Which of the following statements is correct? | Funds in a Section 529 college savings plan accumulate tax free for federal income tax purposes. When later used to pay for higher education expenses, all of the money, including earnings, comes out income tax free. |
| period (term) certain payout option | Under a period or term certain annuity payout, payments are made for the specified number of years and then end. Common term certain payouts are 10, 15, 20, and 25 years. |
| Under which of the following are payments made for as long as it takes to liquidate the annuity principal, with the contract owner choosing a monthly amount, and the insurance company computing how long it will take to liquidate the principal at the selec | fixed amount certain payout option |
| Replacement is considered to have occurred if a life insurance policy is purchased and, in conjunction with that purchase | Replacement occurs when an applicant is about to buy a new life insurance policy or annuity and, as a result of the purchase, an existing life insurance policy or annuity will be surrendered. |
| Which of the following lets an annuity owner take advantage of interest crediting changes in response to market conditions at the time he or she withdraws funds? | market value adjusted annuities |
| variable annuities | With a variable annuity, the insurer makes no guarantee as to the annuity principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer's separate accounts instead of its general account. |
| viatical settlement brokers | Most states require viatical settlement brokers to be licensed. |
| An agent is figuring out how much money a surviving family would immediately need when an insured dies. The agent must estimate the amount of money that they would need immediately to pay for all of the following | final medical expenses. dependent care. estate taxes. |
| When does the free-look period for a variable life insurance policy end? | 10 days after the policy is delivered, or it can be extended to 45 days after the insurance application is completed, whichever is later |
| What is the standard life insurance policy suicide exclusion period? | one to two years |
| Dan surrenders his whole life policy and decides to apply its $20,000 cash value to buy $35,000 of whole life coverage for the remainder of his life. Dan has chosen which of the following? | reduced paid-up option |
| cash surrender option | Under the cash surrender option, the policyowner surrenders the policy and the insurer pays the cash value to the policyowner in a lump sum. The policy is canceled and the insurer's responsibility under the terms of the contract ends. A policyholder canno |
| if a traditional IRA owner is covered by an employer-sponsored qualified plan? | The amount he or she can deduct for IRA contributions may be limited, depending on his or her income level. |
| People can contribute up to the maximum amount allowed by law to a traditional IRA | Regardless of whether they are covered by a qualified employer plan. |
| In a third-party life insurance contract, the parties to the contract are the | the owner, the insured and the insurance company. the owner and the insured are different people. |
| The two parties in a standard two-party insurance contract are | the owner and the insurance company. |
| An insurance company is developing a new product. Which one of the following is the actuaries' most important responsibility? | deciding the premium for the new product |
| Cash value withdrawals from a universal life insurance policy | Universal life withdrawals do not incur interest charges |
| What is the typical life insurance contract's reinstatement provision period? | three years, but may be longer depending on the case and the laws of the state that control the policy |
| If an individual employer offers group life insurance on a non-contributory basis, how much of the group must be covered? | The plan must cover 100 percent of the group. |
| Which of the following provides independent ratings of insurance companies' financial strength and claims-paying abilities? | A.M. Best Duff and Phelps Moody's |
| The group term life insurance premiums an employer pays are fully tax deductible to the employer. | the value of coverage under $50,000 is not taxable |
| A currently insured worker is eligible for which of the following Social Security benefits? | survivor death benefits only. To be eligible for Social Security disability benefits, a worker must be fully insured. |
| With a survivorship life insurance policy, the insurer pays the death benefit only | when the surviving spouse dies Survivorship life insurance policies insure more than one person but do not pay the death benefit when the first insured dies. |
| All of the following statements about annuities are generally correct | An annuity converts a sum of money into a series of income payments. Annuities are not life insurance Annuities are sold by life insurance agents and are issued by life insurance companies. |
| Annuities are sold by | life insurance agents and are issued by life insurance companies. |
| When owned by non-natural entities, the accumulating values in a deferred annuity contract are taxed in which one of the following ways? | Current tax is payable on the annual increase in the contract's value. Current tax is not payable on the annual increases in the contract's annuitization value. |
| All of the following are required for a risk to be insurable | To be insurable, a loss must be definable, measurable, uncertain, and not catastrophic. |
| When a person buys a fixed immediate annuity or when a fixed deferred annuity is annuitized, the funds are converted into fixed payments. They are then distributed based on the payout option the owner has selected. Which of the following options most corr | dollars per $1,000 of accumulation, based on the payout option |
| Which statement about binding receipts | A binding receipt guarantees coverage from the time the applicant completes the application. This holds true even if the insured is later found to be uninsurable. |
| The following statements about family term riders with life insurance are correct | A family term rider is an alternative to either a separate spousal rider or separate children's rider. |
| The Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD), regulates | agents who sell variable life products. It does not apply to most life insurance products. |
| regulates variable insurance products? | state insurance departments and the SEC (Securities and Exchange Commission) |
| moral hazards | Moral hazards are individual traits or habits that increase the chance of a loss |
| Physical hazards | refer to risk posed by a person's condition or general health, as opposed to their character or behavior. |
| Pure risk may result only in | a loss like: Knowing that his family depends on his income, Franklin wants to insure his life |
| For a risk to be considered insurable? | Loss must be ascertainable |
| Hazards | A hazard is a condition that increases the number of losses or the severity of losses. Taking medications to control a life-threatening disease is a hazard-reduction technique. |
| Adam is an independent agent and solicits policies for several different insurers. Which best describes the type of relationship Adam has with each insurer? | Fiduciary - Adam has a fiduciary relationship with every insurer with whom he does business. This means that he must avoid conflicts of interest and must act in good faith and with integrity in his dealings with various insurance companies. |
| Patty is considering purchasing a life insurance policy, and Agent Brown asks if she has any existing policies. She does, and states that she would not maintain her current policy if she purchased the policy that Agent Brown presented. Therefore, Agent Br | He must inform Patty of the consequences of replacing the policy. |
| Jennifer applied for a $500,000 whole life insurance policy. The insurer issued the policy but classified Jennifer as a substandard risk, resulting in a higher premium. Which type of policy delivery would be preferred in this situation? | Legal delivery of a policy requires personal delivery to the client and an explanation. The agent should explain any terms of the policy that were imposed during the underwriting process as well as the reason for any additional premium charge that was not |
| Stacey is a captive agent for Best Rates Insurance Company. According to her agency contract, she can use business cards containing Best Rates' company logo and can also submit applications for their policies. Which type of authority does Stacey have to t | express authority - The agency contract between Stacey and Best Rates Insurance Company sets forth certain acts and duties that she is specifically authorized to perform, such as submitting applications and using the company's logo. This authority is call |
| Jane asks her insurance agent to stop notifying her when her policy is due for renewal and tells him to notify her attorney instead. What is this an example of? | Waiver - occurs when a party to a contract voluntarily relinquishes a known right. In this case, Jane is giving up or waiving her right to personal notification of her policy renewal date. |
| An insurer sends a premium statement to a former policyowner. Even though the statement indicates that the policy is still in effect, it has in fact lapsed for non-payment of premiums. The policyowner believes the policy is still in effect and pays the pr | Estoppel compels a party to relinquish a right it had no intention to relinquish when through its words, actions, or inactions, another party was reasonably led to act in a manner such that to allow the first party to enforce its right would be unfair to |
| estoppel | Estoppel compels a party to relinquish a right it had no intention to relinquish when through its words, actions, or inactions, another party was reasonably led to act in a manner such that to allow the first party to enforce its right would be unfair to |
| Mr. James has a policy that expired due to nonpayment of premium. His agent sends him a statement the following month without noting the lapse. If Mr. James pays the premium and later suffers a loss for which he files a claim, the insurer will probably be | Estoppel - Mr. James was sent a renewal statement that reasonably led him to believe his policy was still in force, and he acted with this belief. The insurer is therefore prevented from denying the claim on the basis that the policy had lapsed. |
| The federal Risk Retention Act of 1986 contains guidelines for which of the following entities? | self-insuring businesses |
| Retention | Rather than taking measures to reduce the risk to her family, such as purchasing life insurance, Emily has chosen to do nothing and live with the exposure to the risk. This method of handling risk is known as risk retention. |
| An insurance policy provides financial protection against | losses caused by perils |
| Reciprocal insurer | A reciprocal insurer is essentially a formal risk-sharing arrangement. |
| Which of the following describes a group whose members pay a pro-rata share of the losses suffered by other members in the group? | Reciprocal insurer |
| Insurers and their producers are bound by the common law rules of agency. Who are the two parties to this relationship? | principal and agent A principal is the party on whose behalf the agent acts. An agent is the party who acts on behalf of another, the principal. |
| Under the law of agency | An agency relationship several types of authority are automatically given by the principal to the agent. This includes express authority. |
| Agent authority | Apparent authority Implied authority Express authority |
| Included in the first part of an insurance application? | Name and address Occupation Beneficiary information |
| The laws of agency that govern the relationship between insurers and their producers are derived from common law. The common law originated with which of the following? | ideas and judicial decisions that existed in England at the time of the American Revolution |
| Helen is an agent with XYZ Insurance Company. When she does field underwriting, what duties is she performing for the insurance company? | requesting information from applicants |
| While taking an insurance application, Betty suggests backdating her client's application so that the proposed insured will be a year younger on the form. Is Betty's action ethical? | Yes, as long as it is for six months or less and authorized by the insurer. |
| Roger presents a prospective insured, Diane, with an application. Diane completes the application, writes a check for the first premium, and gives these to Roger. The insurance company approves Diane's application and issues her policy. Which of the follo | Diane made an offer to buy the policy, and the insurance company accepted |
| Under an insurance contract, which of the following best describes the difference between a representation and a warranty? | A representation is not part of a contract, while a warranty becomes part of a contract. |
| One month after paying the initial premium for a disability income policy, Suri was hit by a car and was seriously injured. She then received disability income payments for the next 12 months. The fact that Suri ultimately received more in value under the | Aleatory |
| basic elements of a legally enforceable contract | Acceptance Consideration A named beneficiary |
| Sarah submits an application to ABC Insurance Company for $1,000,000 in life insurance coverage. ABC decides it is too high a risk. The company offers to insure Sarah for $200,000 and invites her to respond in writing. Sarah calls her agent and verbally t | There is no binding contract until ABC receives Sarah's acceptance in writing |
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