NC Comprehensive Life Insurance Test Materials

PREFACE

This document gives an overview of different types of life policies including summary notes followed by insurance terminologies, North Carolina regulations for life, questions and answers. Candidates who study this material will be in the position to pass the life exam administered by the state of North Carolina. It is not intended to serve as a school but to help recruits pass their life exams. You must register with a recognized pre-licensing school to be eligible to sit for the state life exam administered by Pearson Vue. This material helps recruits take quizzes, final exams, and bonus questions on ucanpass.and on Primericaonline. When you get your solution number from Primerica, go on www.ucanpass.com and www.primericaonline.com to register to enable you get access to the course materials, quizzes, and exams. You must complete all quizzes and exam on www.ucanpass.com to be eligible to sit for the life exam and you must complete all quizzes, stimulated exam, and bonus questions to be eligible for the life exam guaranteed. This way, Primerica will pay for your life exam once you pass your stimulated exam and the bonus questions with the score of 80% and above. On ucanpass, you must score at least 70% and above on all quizzes and exam to be pre-licensed. Once all quizzes and exam are done with a score of 70% and above on ucanpass, click on GET CERTIFICATE on the right hand side of your computer window, and you will be prompted to enter your date of birth. Follow the instruction on the screen on your computer. When you complete this task, ABLE will mail you your pre-licensing certificate along with the admission ticket. Once your pre-licensing certificate and admission ticket arrive, call 1-888-633-0962 to secure your life exam fee voucher and subsequently call the testing center to schedule your life exam. Call 1-800-274-0668 to speak to the Customer Service Representative.

Admission Ticket and Pre-licensing Certificate, call: 1-877-441-2378

If you have any question, call 704-780-3110 to speak to Jallah Yelorbah Koiyan.

BASIC TYPES OF INSURANCE CONTRACTS AND SUMMARY NOTES

  1. Term Life-Term insurance is considered temporary protection because it only provides coverage for a term of years that is specified in the contract. It only provides for the element of protection, referred to as pure death protection.
  2. Level Term is a temporary protection that refers to the death benefit that does not change throughout the life of the policy. It takes the form of annually renewable term.
  3. Decreasing Term decreases each year over the duration of the policy term. It is used for time sensitive.
  4. Increasing Term increases each year over the duration of the policy term. Most term insurance policies are renewable, convertible, or renewable and convertible. Renewable allows the policy owner the right to renew the coverage at the expiration date without evidence of insurability. Convertible allows the policy owner to change the policy to a permanent insurance policy without evidence of insurability.
  5. Whole Life policy is referred to as permanent protection since as long as the premium is paid coverage will continue for the life of the insured. It builds case value (living benefits) which the policy owner can borrow against or entitled to in the event the policy is surrendered.
  6. Straight Life also called continuous premium whole life changes a level annual for the lifetime of the insured and provides a level guarantee death benefit.
  7. Modified Life is a type of whole life policy that changes a lower premium in the first few policy years, and then a higher level premium for the remainder of the insured’s life.
  8. Graded-Premium Whole Life is the premium that starts out relatively low and then level off at a point in the future.
  9. Indeterminate Premium Whole Life the life policy in which the premium rate varies from year to year.
  10. Endowment Policy provides a permanent level death protection if the insured should die permanently.
  11. Multiple Indemnities is a rider that makes provision to accidental death policies under which certain benefits would double.
  12. Term Rider allows additional amount of temporary insurance to be provided on the insured without the need to issue another policy.
  13. Whole Life and Level Term insurance provides a beneficiary with income over a specified period of time.
  14. Joint Life provides or insures two or more lives.
  15. Last Survivor or Survivorship pays death benefit the last person on the policy.
  16. Juvenile Life Insurance is the life insurance on the life of a minor.
  17. Universal Life (Adjustable Life) allows the policy owner to adjust the premium, and the insurance coverage.
  18. Interest Sensitive Whole Life provides a guaranteed death to age 100.
  19. Current Assumption (another form of Interest –sensitive Life) is an indeterminate premium life policy with case value being created at current interest rates.
  20. Underwriting is the risk selection process. Although the producer is considered to be an underwriter, after the application is completed, it sent to the insurance company’s home office where the company underwriters finalize the acceptability of the applicant. They are responsible for protecting the insurer against adverse selection.
  21. Insurable Interest – The policy owner face the possibility of losing money or something of value in the event of loss.
  22. A warranty is an absolutely true statement upon which the validity of the insurance policy depends.
  23. Representations are statements believed to be true. Mispresentations are statements considered false or fraud. Misrepresentations are considered fraud if they are intentional and materials.
  24. Concealment is the legal term for the international withholding of information of a material fact which is crucial to making a decision.
  25. Impersonation refers to the act of assuming the name and/or identity of another person for the purpose of committing a fraud.
  26. In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legal binding promise, but the insurer is legally bound to pay losses covered by a policy in force.
  27. Adhesion is a contract prepared by one insurer and accepted or rejected by the other party (insured).
  28. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, and insured is permitted to collect only to the extent of her or his financial loss and in not allowed to gain financially.
  29. An Aleatory is a contract in which unequal amounts or values are exchanged. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the events of loss.
  30. A Conditional Contract requires both the insurer and the policy owner to meet certain conditions before the contract can be executed.
  31. The agent or company’s front line is a field underwriter.
  32. The application is the starting point and the basic source of information used by the company in the risk selection process.
  33. A conditional receipt says that coverage will be effective either on the date of the application or the medical exam.
  34. Approved Conditional Receipt coverage begins only when the pre-paid application is approved by the insurer.
  35. Unconditional (binding) receipt coverage begins immediately for a specific length of time, until the policy is issued.
  36. Interest-Adjusted Net-Cost Method considers the time value of money in comparing life insurance costs by applying interest adjustment to yearly premium and dividends.
  37. Comparative Interest rate is the return that must be earned on a “side fund.”
  38. Buy-Sell Agreements are used to contractually establish the instant of someone else to purchase the business upon the insured’s death and set a value on the business.
  39. Cross-Purchase Plan allows each partner to purchase insurance on the life of each.
  40. Variable Life Insurance products are regulated by state and federal government.
  41. Disability benefits are available for insured workers who become totally and permanently disable.
  42. Survival benefits are death benefits paid to the worker’s surviving spouse and dependent children.
  43. A variable Policy’s death benefits and case values are based on distinct pool of investments which are held in account separated from insurer’s general account.
  44. Primary Insurance Amount (PIA) is based on the worker’s income earnings, the worker’s age at retirement, and any additional earnings the worker makes at retirement.
  45. Retirement benefit begins when a worker who has earned the required work credits (40 calendar quarter or 10 years of work) reaches the age 65.
  46. The term fully insured refers to someone who has earned 40 quarters of coverage equivalent to10 years of work.
  47. Social Security (formally called Old Age Survivors Disability Insurance) is a federal program enacted in 1935 that is designed to provide protection, for eligible workers and their dependent, against financial losses due to old age, disability or death.
  48. Self-Employed Pension Plan (SEP) is a qualified plan suited for small employer.
  49. Keogh plan makes it possible for self-employed person to be covered under an IRS qualified plan.
  50. Tax Sheltered Annuities (TSA) also referred to as tax-deferred annuities or tax-sheltered account (TSA), or a 403 (B) Plan, is a qualified plan available to employees of certain nonprofit organization under section 501)(3) of the Internal Revenue Code and to employees of public school systems.
  51. Earn Income means salary, wages, commissions, but would not include income from investments, unemployment benefits, income from trust funds, and any other type of payment. Anyone with earn income who has not attained age 70 ½ can have an IRA.
  52. Qualified Retirement Plan entitles the owner to tax benefits. In order for the retirement to be qualified, certain federal requirements must be met. A qualified plan must be approved by IRS.
  53. Modified Endowment Contract (MEC) exists when the policy exceeds the seven-pay test.
  54. Settlement Option occurs when death benefit spreads evenly over income period (average). Interest payments in excess of death benefit portion are taxable.
  55. Cash Value is tax-deferred in the same manner.
  56. Policy loans are not taxable to a business.
  57. Policy death benefits are paid under a business owned or an employer provided life insurance policy received income tax free.
  58. Group Life is the plan that the employer pays the premium for the life insurance on an employee, where the policy is for the employee’s benefit.
  59. In whole life, premium is not taxable when cash value exceeds premium paid.
  60. Estate Taxation is the death benefit of life insurance policy may be included in the insured taxable estate.
  61. Policy loan – A loan from the cash value of a life insurance policy is not taxable to the policy owner.
  62. Individual Life – Premium that an individual pays for this or her personal life insurance are considered to be personal expense and are not tax deductible by the individual.
  63. Credit Life is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in event of death of the debtor.
  64. Modified Life charges a lower premium for the first few policy years and then a higher level premium for the remainder of the life of the policy.
  65. Term policy provides for the greatest amount of coverage for the lowest premium as compared to any other form of protection.
  66. Endowment policy is considered by more expensive then an ordinary straight life policy.
  67. Universal Life Policy offer cash value which could be used to pay administration costs, commission etc.
  68. Universal Life products allow the partial withdrawal, or surrender, or the policy cash value.
  69. Policy Provision explains the rights and characteristics of an insurance contract.
  70. Entire Contract provides and stipulates that the policy and a copy of the application along with any riders or amendments constitute the entire contract.
  71. Insurance Clause set forth the basic agreement between the insurer and the insured. It states the insurer promises to pay the death benefit upon the insured’s death.
  72. Free Look allows the policy owner 10 days from receipt to look over the policy and if dissatisfied for any reason, returns it for a full refund of premium.
  73. Owner’s Right- There is no clearly defined provisions in the life insurance policy regarding owner’s right. The policy owner is the individual who has all the ownership right under the policy.
  74. When the owner and the insured are not the same person, the agreement is called the third party ownership.
  75. The assignment specifies the policy owner’s right to assign the policy and the procedures must be followed to effect the assignment.
  76. Absolute assignment involves the transferring of all rights of ownership to another person or entity.
  77. Collateral assignment involves the transfer of partial rights to another person. The beneficiary is the person the benefit will be paid to upon the death of the insured.
  78. Estate is the assets and liabilities left by the insured at death.
  79. Class refers to children who may be the beneficiary. The primary beneficiary has the first claim to the policy proceeds following the death of the insured. The second beneficiary also called contingent beneficiary has a second claim in the event that the primary beneficiary dies before the insured. The tertiary beneficiary is the third in line for the benefit in the event that both the primary and the contingent beneficiaries die before the insured.
  80. A revocable designation can be changed while irrevocable designation can not be changed.
  81. A mode is the manner or frequency that the policy owner pays the policy premium. A policy may be terminated due to nonpayment of premium.
  82. Life Income Option provides the recipient with an income that he or she can not outlive.
  83. Life Income with period certain option provides best of world in term of lifetime income and guaranteed installment period.
  84. Life Income and Joint Survivor guarantees for as long they live.
  85. Interest Only Option retains the policy proceeds and passes interest on the proceeds to the recipients.
  86. Fixed-Period certain (period certain) specified period of years is selected and equal installments are paid to the recipients.
  87. Fixed Amount Option pays a fixed amount in installment until the proceeds (princip0le and interest) are exhausted.
  88. Paid-up option-The insurer first accumulates the dividend at interest and then uses the accumulated dividends.
  89. One-year Term Option-Dividend is used to purchase additional insurance for one year.
  90. Acceleration of Endowment requires the insurer to accumulate the dividends at interest.
  91. A surrender charge is a fee charged to the insured when a policy or annuity is surrender for its cash value.
  92. Extended Term uses the policy cash value to convert to term insurance for the same amount as the former permanent policy.
  93. Dividends are paid on participating policies. In other words, dividends are the returns of excess premium, and for the reason they are not taxable.
  94. Cash-under the cash option, the insurer sends the policy owner. Check for the amount of the dividend as they re declared, usually annually.
  95. Accumulation at Interest-the insurance company keeps the dividend and it accumulates interest.
  96. Paid-up-Addition is used to purchase a single premium addition to the face amount.
  97. Guaranteed Insurability rider allows the insured to purchase additional coverage at specified future dates (usually 3 years).
  98. Accidental death rider pays some multiple of the face amount if the death is the result of an accident as defined by the policy.
  99. Term riders allow for additional amount of temporary insurance to be provided on the insured without the need to issue another policy.
  100. Cost of living rider addresses the inflation factor by automatically increases the amount of insurance. Most of the life insurance policies have level premium, which means that the premium remains the same throughout the duration of the contract.
  101. Universal Life insurance policy allows the policy owner to pay more or less than the planned premium, referred to as flexible premium.
  102. Grace period is the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses usually 30 or 31 days.
  103. Excess interest refers to the difference between the interest rate guaranteed by the insurance contract and the actual interest rate paid on the proceed.
  104. The re-installment provision allows the policy owner an opportunity to put lapsed policy back in force, subject to provision continued insurability.
  105. The incontestability clause prevents an insurer from denying a claim due to statement in application after the policy has been force for 2 years.
  106. The policy loan option is only found in policies that contain cash value. Policy loans are not subjected to income taxation.
  107. Universal life policy allows partial withdrawal or surrender.
  108. Exclusions are policy provisions that exclude certain types of risks.
  109. Policy riders are added to the basic life insurance policy in order to add, modify or delete coverage are called exclusions.
  110. Waiver of Premium rider serves to waive the premiums for the policy if the insured become totally disabled.

INSURANCE TERMINOLOGIES AND SHORT SENTENCES CON’T

  1. Financial Needs Approach: In determining how much life insurance is needed the needs of the surviving family are the focus. Using needs analysis worksheets, and amount is determined to meet the needs of the surviving family regardless of the earnings of the insured.
  2. Fixed Amount Annuity: A Life Annuity that guarantees a fixed dollar payment at regular intervals during the lifetime of the annuitant.
  3. Fixed Amount Settlement Option: Upon maturity of an insurance policy the beneficiary receives periodic payments of a set dollar amount from the policy proceeds.
  4. Fixed Period Settlement Option: Upon maturity of an insurance policy, the beneficiary receives income from the policy proceeds for a stated period of time.
  5. General Account V. Separate Account: General Account contains the regulated, or guaranteed, funds of an insurance company. Separate account contains the investments of an insurance company. These investments have no guaranteed rate of return and are regulated by the SEC and NASD.
  6. Graded Premium Policy: Premium for the policy increase regularly for 5 to 20 years and then level off. Death benefit remains level.
  7. Grace Period: A prescribed period of time during which the policy stays in force without the payment of premiums. Mandated by state law and usually 30 or 31 days.
  8. Group Insurance: An insurance policy that covers multiple people (who have common interest). A Master Policy is issued to the policyowner and individual insured receive Certificate of Insurance.
  9. Guaranteed Insurability Rider: Optional rider that enables the policyowner to purchase additional amounts of coverage at pre-determined times with out proof of insurability.
  10. Guaranty Association: A state mandated association of all insurance companies designed to protect consumers form impaired or insolvent companies.
  11. Hazard: Anything that increases the likelihood that a loss will occur (Faulty Wiring).
  12. Dividends: Distributions paid out by insurance companies. Stock insurance pay dividends (portion of profit) to stockholders and they are taxable. Mutual insurers pay dividends (return of unneeded premiums) t policywoners and they are not taxable. Dividends are never guaranteed.
  13. Equity Indexed Annuity: The annuity that has a guaranteed minimum interest rate and allows the annuitant to invest money in an index (i.e. S&P 500). The investments grow as the index grows.
  14. Estoppels: Legally preventing someone from asserting or reasserting a known right that they have previously waived.
  15. Extended Term Insurance: Nonforfeiture option where cash value is used to make a single premium payment on a Term Insurance Policy of he same face amount as the original policy. Original policy can be reinstated.
  16. Face Amount: Amount payable in the event of death of the insured. Also called face value, death benefit, policy proceeds, coverage, stated amount, indemnity amount of proceeds to the beneficiary.
  17. Facultative Reinsurance v Treaty Reinsurance: facultative Reinsurance: Facultative: Transferring risk from one insurance company to another on a policy-by-policy basis. Treaty: Transferring risk from one insurance company to another under a blanket agreement.
  18. Fair credit Reporting Act: A federal law that protects consumers in regard to their credit history. Establishes guidelines for how companies can access consumers’ credit reports and what types of disclosures and notifications are required.
  19. Accumulate at Interest: The Dividend Option where the policyowner leaves the dividends with insurer to invest and earn interest.
  20. Adverse Selection: The tendency for less favorable risks to seek or continue insurance to a greater extent than more favorable risks.
  21. Agency Agreement or Agency Contract: A legal document containing the terms of the agreement between the agent and the insurance company. It clearly defines what an agent can compensate.
  22. Agent Authorities: Expressed: Power or authority specifically granted in writing to an agent by the insurance company in their Agency Agreement. Apparent: Power or authority that the public reasonably assumes an agent has based upon his/her actions. Implied: power or authority that is not expressly granted by the company but that an agent can assume or that are implied he/she has in order to transact insurance business.
  23. Agent/Producer: Anyone who sells or aids in the selling of insurance. Legally represents the company.
  24. Agent’s Report: A written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured’s risks.
  25. Aleatory: Unequal exchange of value. One party may obtain a far greater value than the other under the contract.
  26. 401 K Plan: A qualified retirement plan in which the employee can set aside a portion of their income with pre-tax dollars.
  27. Absolute Assignment V. Collateral Assignment: Absolute: A permanent and irrevocable transfer of rights and/or benefits by the policyowner. Collateral: A temporary and/or revocable transfer of benefits by the policyowner.
  28. Accelerated Death Benefit: Policy provision that allows full or partial payment of the policy’s death benefit before the insured’s death if he/she is terminally ill.
  29. Accidental Death Benefit: An extra cost rider that requires the insurance company to pay an additional benefit in the event of that insured dies within 90 days of an accident as a direct result of the accident.
  30. Annual Renewable Term: A Term Life Insurance contract which gives the policyowner the option to renew the policy each year without showing proof of insurability. Premiums increase at each renewal.
  31. Annuitant: The person that buys an annuity; may or may not be an annuity’s policyowner.
  32. Annuity: A contract/policy that guarantees to pay income for a specified period of time or for the life of the annuitant. Designed to prevent people from outliving their savings.
  33. Appointment: Authorization of an agent/producer by an insurer to represent the company.
  34. Blackout Period: The period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse.
  35. Buy-Sell Agreement: Business use of Life Insurance where parties in a business buy life insurance on each other. They agree that when one of hem dies the survivors have the right to purchase the deceased partner’s share of the business. The death benefit from the insurance is used to finance the purchase.
  36. Cash Nonforfeiture Option: Policyowner receives a lump-sum payment of the current cash value of the policy upon surrender of the policy. The policy cannot be reinstated.
  37. Cash Settlement Option: Upon maturity of an insurance policy the beneficiary receives a lump-sum payment of the entire policy proceeds due.
  38. Cash Value: That part of an insurance policy that is the equity amount legally available to the policyowner. The cash value accumulates throughout the duration of the policy. Also known as living benefit or policy savings.
  39. Commissioner: Public official in charge of the state’s department of insurance. Charged with regulating the insurance industry in his/her state by enforcing the insurance laws.
  40. Conditional: Certain conditions must be met in order for policy to pay-out.
  41. Conditional Receipt: An interim insuring agreement under which the insurance company agrees to start coverage on the later of either the date of application or the date of the medical exam IF the proposed insured is found to be insurable on that date.
  42. Consideration: A necessary element of a contract; something of value exchanged for the transfer of risk. Insured’s consideration is payment of premiums is truthful statements on the application. Insurer’s consideration is promises contained in the contract.
  43. Contingent Beneficiary: An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured.
  44. Contributory Plan V. Noncontributory Plan: Contributory: Group insurance plan under which the employees contribute to the payment of premiums. Noncontributory: A Group insurance plan in which the employer pays all the premiums for the policy.
  45. Convertible Term: Term insurance that specifically permits “conversion” of the policy into permanent protection without proof of insurability.
  46. Human Life Value Approach: In determining how much life insurance is needed the worker’s annual earnings are multiplied by the number of years remaining until he/she retires. From the resulting figure taxes and expenses are subtracted.
  47. Immediate Annuity V. Deferred Annuity: Immediate: A Life Annuity contract where the first pay-out is made within 12 months after it is purchased. Can be purchased with either a single premium of with continuous premium payments.
  48. Incontestable Clause: A state mandated provision that limits the amount of time that an insurer can rescind a policy or contest a claim due to misrepresentation or concealment.
  49. Indemnify: To make financially whole again; restore to the condition enjoyed before a loss was suffered; to replace what as lost. Insurance is not designed for parties to profit a loss.
  50. Individual Retirement Account (IRA): A qualified retirement plan for any individual with earned income.
  51. Insurable Interest: A financial interest in the life of another person. In a position to loose something of value if the insured should die.
  52. Insurer/Principal: The insurance company; underwriter the policy and assumes the risk.
  53. Insuring Clause: The heart of an insurance policy. It contains the company’s promise to the policyowner and describes the coverage provided and the policy limits.
  54. Interest Settlement Option: Upon maturity of an insurance policy, the beneficiary receives periodic payments of the interest earned from the company’s investment of the policy proceed.
  55. Joint and Survivor Annuity: An annuity that makes payments to two or more annuitant throughout their lifetimes. Payments normally reduce at the dearth of each annuitant and stop altogether upon the death of the last annuitant.
  56. Keogh Plan (HR10): A qualified retirement plan for self-employed people and their eligible employees. Contributions are tax deductible and interest earned is deferred until withdrawn.
  57. Lapsed Policy: A policy that is no longer in force due to unpaid premiums. Also known as forfeit, surrender, cancel or terminate.
  58. Law of Agency: The actions of an agent/producer within the scope of the authority granted to him/her by the insurer become the actions of the company.
  59. Law of Large Numbers: States that larger numbers of similar risks grouped together become more accurately predictable.
  60. Level Term Insurance: Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires.
  61. License: Documentation is issued by a state’s department of insurance to an individual verifying that he/she is qualified to engage in the insurance business.
  62. Life Annuity With Period Certain: A Life Annuity that guarantees to provide income payments for a minimum period of time or life. Payments will continue to a beneficiary should the annuitant die during the specified period.
  63. Life Annuity/Straight Life Annuity: Upon maturity of an Annuity Contract the annuitant elects to receive fixed periodic for the rest of his/her life.
  64. Life Income Settlement Option: Upon maturity of an insurance policy, the policy proceeds are used to purchase an immediate Life Annuity payable in periodic payments to the beneficiary or the rest of his/her life.
  65. Medical Information Bureau: An organization that stores information from insurance companies and makes it available to other companies during the underwriting process. Its purpose is to help prevent fraud and concealment by insurance applicants.
  66. Modified Endowment Contract (MEC): Any cash value policy that builds cash value faster than a seven-Pay Whole Life Contract and therefore loses the tax advantages of life insurance.
  67. Modified Life Policy: Whole Life insurance with reduced premiums during the initial years and higher premium during later years. Can be structured as Term insurance during the initial years and changing to Whole Life in the later years.
  68. Nonforfeiture Options: Three options available by law to policyowners that enable them to recover a policy’s cash-value upon surrender of that policy. (1) Cash (2) Reduced Paid-Up Insurance (3) Extended Term Insurance.
  69. Non-qualified Retirement Plan: A retirement plan that does not qualify for special tax treatment by the IRS.
  70. Participating Company: Also known as a Mutual Company. Returns unused premium in the form of a policy dividend to the policy owners.
  71. Payor Rider: Optional rider that costs extra and will pay the premiums of a Juvenile Policy if the owner dies or becomes disabled.
  72. Peril: the cause of a loss (Fire).
  73. Policy Loan Provision: Describes the conditions by which a policyowner can borrow from the policy’s cash value.
  74. Policy Owner: The person in an insurance contract that has all the rights contained in the policy; designated on the application and may or may not be the insured.
  75. Policy Payment Methods: Continuous Premium: Insurance or an annuity that is paid for continuously throughout the duration of the policy. Requires the smallest payments amounts and grows cash value the slowest. Limited Pay: Insurance or an annuity that is paid for over a specified period of time after which no further premium payments are required during the duration of the policy. Know as Life Paid Up or x-Pay Life policies. Single Premium: Insurance: Insurance or an annuity that is paid for with a single lump-sum payment. No further premium payments are required during the duration of the policy. Requires the largest payment amount of any type of policy. Grows case value the fastest.
  76. Proof of Insurability: A statement about or evidence of a person’s physical and/ or mental health, personal character, occupation, living habits, etc. Used by the insurance company in assessing whether to accept the person’s risk.
  77. Qualified Retirement Plan: A retirement plan that meets certain federal requirements and therefore qualifies for special tax treatment. Plans must be (1) for the exclusive benefit of employees, (2) in wiring, (3) nondiscriminatory, (4) either defined benefits of defined contributions, and (5) permanent.
  78. Rebating: Anything of value given by an agent to a client as an inducement to by insurance.
  79. Reduced Paid-up Insurance: Nonforfeiture option where cash value is used to make a single premium payment to purchase as much of the same type of insurance as possible. Face amount of the new policy would be less than the original policy but no further premium payments would be necessary. Policy can be reinstated.
  80. Reinstatement Clause: Contained in the policy this clause described how a policy can be restored to its original condition. It states the conditions, period of time and necessary steps to reinstate a policy.
  81. Reinsurance: The sharing of risk between insurance companies. One insurance company sells part of its risk to another insurance company.
  82. Renewable Term: Term insurance where at the end of the specified term the policyowner has the right to continue the policy for another term without proof of insurability. Premiums will be determined by the new attained age.
  83. Replacement: The exchange of one policy for another. Replacement regulations must be followed.
  84. Representations: Statements made by an applicant or an insured that are true to the best of his or her knowledge and belief.
  85. Revocable Beneficiary V. Irrevocable Beneficiary: Revocable: A beneficiary named by the policy owner that can be changed by the policyowner at his/her discretion. Irrevocable: A beneficiary named by the policy owner that can not be changed b the policyowner at his/her discretion. Changing this beneficiary requires the permission of the beneficiary.
  86. Riders: Optional coverage that can be added to policies that provides additional benefits or protections. Vary from policy to policy and company to company. Also known as addendums, additions, amendments, or additional policy benefits.
  87. Risk Classifications: Standard Risk: A normal or average risk; no special conditions are required in the policy. Substandard Risk: A high risk; requires special conditions to be include in the policy or issued a rated policy. Preferred Risk: Less risky than the normal or average risk. Usually issued policies or a discounted basis.
  88. Roth IRA: A non-tax deductible individual retirement account which grows tax free after 5 years.
  89. Settlement Options: The five ways that the proceeds of a policy can be paid upon maturity. (1) Cash (2) Interest Only (3) Fixed Period (4) Fixed Amount (5) Life Income.
  90. Speculative Risk: The possibility of experiencing either a loss or a gain. Gambling is an example of speculative risk.
  91. Spendthrift Clause: State legislation that protects the rights of policyowners and beneficiaries from creditors. Death benefits cannot be attached by creditors of the policyowner.
  92. Stock Insurer: An insurance company publicly owned and controlled by its stockholders who elect a board f directors to manage it.
  93. Tax Sheltere3d Annuity (403B): A qualified retirement program for employees of non-profit organizations. Contributions are made through a salary reduction program.
  94. Third Party Ownership: When a person(s) other than the insured purchases the insurance policy.
  95. Twisting: Knowing making misleading statements or making fraudulent comparisons in order to induce a client to drop a policy with an existing insurer and start a new one with a different company.
  96. Underwriting: The process by which an insurer evaluates, classifies, and ultimately either accepts or rejects risks.
  97. Uniform Simultaneous Death Act: It directs that in life insurance if the insured and the primary beneficiary dies at the same time the policy benefits are payable as if the insured outlived the beneficiary.
  98. Unilateral: One-sided promise. Only one party makes a legally enforceable promise. The insurance company promises to pay the policy proceeds at some future date or event.
  99. Universal Life Insurance (UL): An “interest sensitive’ flexible premium life insurance policy. A combination of ART and cash value. Has two death benefit options (A & B0 and develops cash value.
  100. Variable Annuity: The product is invested in a separate account and has no guaranteed rate of growth. The annuity promises to pay a fixed number of annuity units to the annuitant for the rest of his/her life. The value of the annuity units varies depending on the performance of the investments or the separate account.
  101. Variable Life Insurance (VL): Whole Life Insurance with premiums. Cash value is invested in ‘separate accounts.” A minimum death benefit is guaranteed but could increase if the investments do well.
  102. Variable Universal Life Insurance (VUL): A life insurance policy that combines the flexibility of Universal Life with the investment or he cash values in separate accounts form Variable Life.
  103. Waiver of Premium Rider: Optional rider that requires an insurer to assume payment of premiums should he insured become totally disabled for six months for the duration of the disability.
  104. Warranty: Statement made that are guaranteed to be absolutely true. Statements made by the insurer must be warranties.
  105. Whole Life Insurance: Type of insurance where level coverage lasts until death or age 10
  106.  and then the policy matures and pays out either the face amount or the cash value. Also know as straight life, ordinary life, fixed, rigid or permanent.
  107. If an insurer becomes insolvent, the Guaranty Association pays benefits to policyholders. Admitted insurance must be member of the Insurance Guaranty Association as a condition or their license.
  108. An insurance institution or agent may base an adverse underwriting decision upon additional personal information obtained from the prospective client as the result of information received from an insurance-support organization.
  109. The Commissioner does not regulate policyholders.
  110. In the event of insurance company insolvency, the Department of Insurance will take over the management of insurer in an effort to rehabilitate the company.
  111. Telling a client that his first premium will be waived if he purchased the insurance policy today will be an unfair trade practice of rebating.
  112. An insurance formed under the laws of another country is known as an Alien Insurer.
  113. The regulation of the insurance industry promptly rests with the state.
  114. An agent of company acts on behalf on the company to negotiate in regarding to receiving the premium.
  115. Family Maintenance-Whole life pays a lump sum, and level term pays monthly benefits for the predetermined years for the policy.
  116. A modified life policy is leveled at the beginning and increases after the first few years.
  117. Family income policy covers a breadwinner with permanent insurance and with decreasing term insurance in the form of rider.
  118. The comparison between survivorship life and a traditional joint life policy is that joint life pays a death benefit on the first death, while survivorship life pays on the second death.
  119. Family income policy provides monthly income upon the death of the insured while maintaining permanent coverage.
  120. Survivorship life is much the same as joint life in that it insures two or lives for a premium that is based on a joint age.  The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically changed for joint life. Survivorship is lower.
  121. Adjustable life policyowner can change the coverage period.
  122. All other things being equal, if the three primary types of term insurance sold, level term has the highest premium.
  123. In decreasing life policy, the premium is lower outlay than level term, there is not cash value and the contract pays only in the event of death, and the face amount steadily declines throughout the duration of the contract.
  124. Straight life policy matures and the amount is paid to the insured, no matter what if the insured lives t age 100.
  125. Adjustable life insurance allows changes on the policy face amount, premium mode and amount, period of protection.
  126. The two components of a universal policy are insurance and cash account.
  127. Family income policy provides monthly income upon the death of the insured.
  128. Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.
  129. If a level term product is renewed at the end of the term period, the premium will be based upon the attained age of the insured.
  130. Evidence of insurability may be required when insurance is increased in adjustable life.
  131. An agent selling variable annuities must be registered with FINRA because variable annuities are considered to be securities, a person must be registered and hold a security license in addition to a life agent’s license in order to sell variable annuities.
  132. Accumulated money is converted into a stream of income in an annuity during the annuitization period.
  133. When an annuity is written, annuitant’s life expectancy is taken into consideration.
  134. Annuity may used to provide a structured distribution for a sum of money, provide a guarantee of income for the life of an annuitant, and supplement a retirement income.
  135. Life income with period certain in a annuity pays benefits throughout the lifetime of the annuitant and guaranteed payment for a minimum number of years.
  136. If an annuitant dies before annuitization, the beneficiary will receive either the amount paid into the plan or the cash value of the plan, whichever is greater.
  137. Deferred annuities may be purchased with either a single lump sum or periodic payments, but they do not begin the income payments, until sometime after 1 year from the date of purchase.
  138. The following are true about a joint and survivor annuity benefit option: A period certain option may be included, the option guarantees income for two or more recipient, and the surviving annuitant may receive reduced payment.
  139. When an annuitant dies, the beneficiary receives the difference between the annuity price and the installment payment already made.
  140. The annuity period is the time during which accumulated money is converted into an income stream. It may last for the lifetime of the annuitant or for a shorter period of time.
  141. The following is true about the annuitant: The annuitant’s life expectancy is taken into consideration for the annuity. The annuitant receives the annuity benefits. The annuitant must be a natural person.
  142. If a beneficiary in not named for annuity benefits, the benefit is paid to the annuitant’s estate.
  143. An equity indexed annuity is considered to be a fixed annuity because it has a guaranteed minimum interest rate.
  144. Joint life annuity settlement option pays benefits to two or more annuitants, but stops upon the death of the first.
  145. A rider attached to a life insurance policy that provides coverage on a spouse or other family members is called the other insured rider.
  146. The life insurance clause that prevents an insurance company from denying payment of a death claim after a specified period of time is called incontestability clause.
  147. When a reduced-paid up nonforfeiture option is chosen, the face amount of the policy is reduced to the amount of what the cash value would buy as a single premium.
  148. Copy of the original application must be made part of the insurance policy contract.
  149. The nonforfeiture option company pays the surrender value and has no further obligation to the policyowner is called cash surrender.
  150. The policy does all of the following in the ownership provision entities: receive a policy load, assign the policy, and designate a beneficiary.
  151. Unlike the dividend itself, the interest earned on the dividend is taxable.
  152. Guaranteed insurability option allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.
  153. Collateral assignment is transferring all or a part of the death benefit to another.
  154. Straight Whole Life is classified as a traditional level premium contract.
  155. The dismemberment portion of the AD and D rider will usually pay the principal (face amount) for loss of two hands, two arms, two legs or the loss of vision in both eyes.
  156. If s settlement option is not selected by the policyowner before the insured dies, then the beneficiary can choose the option.
  157. A nonpayment of premium may result in lapsed policy.
  158. The premium on the children’s rider does not change on the inclusion of additional children.
  159. The policy, together with the attached application is called entire contract.
  160. A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured.
  161. Cost of living rider adjusts the face amount of a policy to maintain the relationship of the face amount in the cost of living.
  162. The factor added to the net premium is called expenses.
  163. Guaranteed Insurability Option is a rider that is included at the time of application which allows the insured to increase the amount of insurance without proving evidence of insurability.
  164. All of the following would be eligible to establish a Keogh retirement plan: a sole proprietor of a service station who employs four employees, a sole proprietor of film development store with no employees, and a hair dresser who operate her business in her home.
  165. Keogh plans (HR-10) are for self-employed individuals and their employees.
  166. In a cross-purchase plan, each partner involved purchases insurance on the life of each of the other partners.
  167. Policyowner must have insurable interest in the insured.
  168. A worker is fully insured under social security if he or she has accumulated the required number of credits based on his or her age.
  169. The following are allowed in credit life insurance: creditor having a collateral assignment on the policy, creditor requiring that a debtor has a life insurance, and creditor becoming a policy beneficiary.
  170. A person must have worked at least 1000 hours per year to be eligible for Keogh plan.
  171. False advertising is the illegal practice of advertising or circulating materials that untrue, deceptive, or misleading.
  172. It is an unfair trade practice to make any statement that an insurer’s policies are guaranteed by the existence of the life and Health Guaranty Association.
  173. A foreign insurer is the one that is formed under the laws of another state.
  174. The agent must give the client a written list of the questions during a interview for research and marketing purpose.
  175. A Viatical Settlement is arranged between a viatical company and a terminally ill insured. Under a viatical settlement, a terminally ill individual transfers his or her life insurance policy in return for an immediate cash settlement.
  176. Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members.
  177. During a replacement of life insurance, a replacing insurer must obtain a list of all life insurance policies that will be replaced.

QUESTIONS, ANSWERS, DEFINITIONS, AND SHORT SENTENCES

178. In modified life policies, what happens to the premium? Ans. It is leveled at the beginning and increases after the first few years.

179. Which statement is not true regarding a straight life policy? Ans. Its premium steadily decreases over time in response to its growing cash value.

180. A Variable annuity has a payout that is contingent upon the profitability of the investment portfolio.

181. Which of the following is a similarity between equity index annuities and fixed annuities” Ans. They have a guaranteed minimum interest rate.

182. What causes a variable annuity to vary” Ans. The annuity’s underlying investment.

183. Which of the following is not true regarding Equity Index Annuities? Ans. They earn lower interest rates than fixed annuities.

184. The three main difference between fixed and variable annuities include all of the following except: Ans. Mortality

185. Which of the following is a feature of a variable annuity? Ans. Benefit payment amounts are not guaranteed.

186. Which of the following is not true regarding annuity payment? Ans. A deferred annuity is characterized by the time during which payments are made into the annuity and gain interest on a nontaxable basis.

187. All of the following statements about equity annuities are correct except. Ans. The annuitant receives a fixed amount of return.

188. Under a pure life annuity, an income is payable by the company. Ans. Only for the life of the annuitant.

189. Which of the following best describes the difference between Pure Life and life with Guaranteed Minimum Settlement Option? Ans. Life with Guaranteed Minimum will pay the remaining principal to the beneficiary.

190. Which of the following is NOT true regarding the life with guaranteed minimum annuity settlement option? Ans. It provides a higher monthly benefit than a pure life annuity.

191. How long will a life annuity with an installment refund pay? Ans. Until the balance of the initial premium is paid out in continued payments to the beneficiary after the annuitant dies.

191. Which of the following is true about a class designation? Ans. Beneficiaries are not identified by name.

192. Any agent or limited representative who signs any blank contract or policy of insurance is guilty of a class 3 misdemeanor and upon conviction, shall be punished only be a fire of not less than $1000 nor more than $5000.

193. A younger father would like a life insurance policy to provide coverage for all five family members at the lowest cost. Which types of policy would he most likely buy? Ans. Family Protection Policy

194. What does “level” refer to in level insurance? Ans. Face amount

195. How long does a North Carolina Agent have to notify the Department of Insurance I the event of a change in residence address? Ans. 10 days

196. An insured purchases a policy in 2000 and dies in 2005. The insurance company discovers at the time that the insured concealed information during the application process. 197. What can they do? Ans. Pay the death benefit.

198. Which of the following is true regarding an indeterminate premium whole life policy? Ans. The premium can be raised up to a guaranteed maximum rate.

199. Which of the following is NOT typically excluded from life policy? Ans. Death due to plan crush for a fare-paying passenger.

200. Any rental or company may act as an agent for an authorized insurer only in connection with the rental of vehicles and with respect to all of the following kinds of insurance EXCEPT: Ans. Title Insurance

201. All of the following are true about key employee life insurance EXCEPT: Ans. The key employee has premium deducted from has salary.

202. How long will a life annuity with an install refund pay? Ans. Until the balance of the initial premium is paid out in continued payments to the beneficiary after the annuitant dies.

203. Which of the following situations would be addressed by the Uniform Simultaneous Death with a common Disaster Provision? Ans. The insured and the primary beneficiary are injured in the same car accident, and the beneficiary dies within 30 days of the insured.

204. When an insurance producer conducts business under any name other than the producer’s legal name, he or she must: Ans. Notify the Commissioner before using the assumed name.

205. All of the following are true statements regarding the accumulation at interest option EXCEPT: Ans. The interest credited under this option is not taxable since it remains inside the insurance policy.

206. An insurance policy specifies that it will pay $600 for a specific loss. The policyowner suffers a loss of $500. How much will the policy pay? Ans. $500.

207. Under a pure life annuity, an income is payable by the company: Ans. Only for the life of the annuitant.

208. If a change needs to be made to the application, it should be accompanied by any the following methods EXCEPT: Ans. Erase or “white-out” the incorrect or incomplete answer and record the correct answer.

209. Prior to the issuance of a license as a broker, the applicant must file a bond with the Commissioner. Which of the following is not required? Ans. If the license is terminated due to misconduct, the bond is forfeited.

210. A restricted license, which allows an individual to represent a life insurance company domicile in NC to transact insurance business in a foreign country, must be renewed. Ans. Annually

211. No insurance company, agent, adjuster, appraiser or any person employed to perform their service shall recommend the use of a particular service or source for the repair of property damage. Ans. Without clearly informing the claimant that the claimant is under no obligation to use the recommended repair service.

212. An insured committed suicide one year after his life insurance policy was issued. The insurer will: Ans. Refund the premium paid.

213. Harvey is a successful automobile sale manager in Durham, NC. His friend, Jim, is a successful insurance agent in Durham as well. Harvey and Jim have developed a “referral leads” relationship such as that when one of them refers a “Prospect” to the other, they pay each other $50 for the referral if business is generated and commissions are earned. This practice is: Ans. An acceptable if Harvey has an insurance license for the lines of insurance that Jim markets.

214. The minimum number of credits required for partially insured status is: Ans. 6

215. Which of the following protects the insured from an unintentional policy lapsed due to nonpayment of premium? Ans. Automatic premium loan.

216. An insurer invests the money if it receives from premiums paid by its insured. Which of the following is true regarding the interest earned on these investments? Ans. It is used to lower premiums.

217. No insurance company, agent, adjuster or appraiser or any person employed to perform their service shall recommend the use of a particular service or source for the repair of property damage. Ans. Without clearly informing the claimant that the claimant is under no obligation to use the recommended repair service.

218. A business owner went to the bank to obtain a loan in order to fund the purchase of doughnut shop, but he bank needed to use it to secure the loan. Which provision makes this possible? Ans. Collateral assignment.

219. Insured states her age as 40 on the application. When she dies, the insurer discovers that she was actually only 37 at the time of application. What will the insurance company do? Ans. Pay the death benefit in the amount that the premium at the correct age would have purchased.

220. Which of the following is a statement that is guaranteed to be true, and if untrue may breach an insurance contract? Ans. Warranty

221. Prior to the insurance of a license as a broker, the applicant must file a bond with the Commissioner. Which of the following is not a requirement? Ans. If the license is terminated due to misconduct, the bond is forfeited.

222. All of the following are TRUE statements regarding the accumulation at interest option EXCEPT: Ans. The interest credit

223. 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 discovered that he is actually 45 years old, and not 43 as stated on the application. What will the company do? Ans. Pay a reduced death benefit.

224. If a policy has an automatic premium loan provision, what happens if the policy owner dies before the loan is paid? Ans. The balance of the loan will be taken out of the death benefit.

225. Which option for Universal Life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? Ans. Option B

226. All of the following are true of key employee life insurance EXCEPT: Ans.

227. Which of he following would NOT be taxable? Ans. A policy loan borrowed by the policy owner.

228. Which of the following is true regarding term coverage? Ans. The premium remains level regardless of the term policy type.

229. All of the following are true statements regarding the accumulation at interest option EXCEPT: Ans. The interest credited under this option is not taxable since it remains inside the insurance policy.

230. Which of the following is NOT true regarding Equity Index Annuity? Ans. They earn lower interest rates than fixed annuities.

231. Prior to the insurance of a license as a broker, the applicant must file a bond with the Commissioner. Which of the following is not a requirement? Ans. If the license is terminated due to misconduct, the bond is forfeited.

232. Which component must increase in the increasing term insurance? Ans. Death benefit

233. When a replacement is involved, a replacing insurance company is responsible for all of the following EXCEPT: Ans. Provide a copy of the important notice regarding replacement of life insurance to the applicant.

234. Contracts that are prepared by one party and submitted to the other party on a “take it or lease it” basis re classified as: Ans. Adhesion

235. Paul is the policyowner of a life insurance policy which will increase significantly in face amount (death benefit) when the insured reaches an age specified in the policy. This policy is referred to as a: Ans. Jumping Juvenile Policy.

236. Stan is a top agent for the Atmost Insurance, a national P & C insurer. Stan is competing in a company contest and has calculated that the contest grand prize is worth $25,000. He is willing to invest $500 to win. What illegal practice is this called? Ans. A rebate or refund of premiums and is a violation of marketing laws.

237. Under a straight life annuity, if the annuitant dies before the principal  amount is paid out, the beneficiary will receive: Ans. Nothing; the payment will cease.

238. When Barkley started work for the ACE Company, he was told he could participate in a Simplified Employee pension Plan. This plan is: Ans. A defined contribution plan for a small business.

239. If s life insurance policy develops cash value faster than a seven-pay whole life contract, it is: Ans. A modified endowment contract.

240. If any insurance agent, broker, or administrator embezzles or fraudulently converts to his own used, or fraudulently without any money received by him in his performance as an agent, broker, or administrator, he shall be guilty of: Ans. A felony and be subject to fine and prison terms based on the dollar amount in question.

241. Which of the following is a legal process? Ans. Discrimination in policy benefits on he basis of life expectancies.

242. Which statement regarding the One-Year Term Dividend Option is true? Ans. The dividend is used to purchase an additional policy in the amount of the cash value.

243. All of the following are TRUE statements regarding the accumulation at interest EXCEPT: Ans. The interest credited under this option is not taxable since it remains inside the insurance policy.

244. Agent Z takes an application for a life policy and accepts a check for the first premium. The application and check are mailed to the insurer, who discovers the check is not signed. When will the coverage for this policy go into effect? Ans. When the policy is issued and premium is paid.

245. The number of credits required for fully insured status is: Ans. 40

246. Phil Swanson is a nonresident property and casualty agent in North Carolina. Phil wrote a policy on his client, Don Juan Domingo to cover his motor home while Don was on vacation to Florida. Since Phil is a nonresident agent in North Carolina, to comply with the counter-signature provision of the law, he will need: Ans. To conduct the transaction as if he were resident licensed and make normal delivery upon the issue.

247. How long does the grace period last under a standard policy? Ans. 31 days

248. Your client is 45 years old and currently owns life insurance, but considering purchasing a new universal life policy, which of the following scenarios would NOT involved replacement? Ans. allowing his One-Year Term Policy to expire.

249. In North Carolina the state’s continued education requirement: Ans. Consists of completing 24 hours every 2 years for property or casualty agents.

250. Which nonforfeiture option provides coverage for the longest period of time? Ans. Reduced Paid-up

251. When a policy owner designates an individual or group of individuals as the beneficiary of life insurance, death benefit without naming the individual or individuals, this is called: Ans. Class designation

252. How are funds contributed to a tax-sheltered annuity treated for taxation? Ans. The contributions are not included as income for the employee, but are taxable upon distribution.

253. Which of he following is not true regarding the life with Guaranteed Minimum Annuity Settlement Option? Ans. It provides a higher monthly benefit than a pure life annuity.

254. Under a pure life annuity, an income is payable by the company: Ans. Only for the life of the life of he annuitant.

255. A restricted license, which allows an individual to represent a life insurance company domiciled in North Carolina to transact insurance business in a foreign country, must be renewed: Ans. Annually

256. Which of the following is incorrect regarding whole life insurance? Ans. Policy loans are tax deductible.

257. An insurance or authorized representative of insurer that terminates the appointment, employment, contract, or other insurance business relationship with an agent shall notify the commissioner: Ans. Within 30 days after the effective date of the termination.

258. All other factors being equal, which of the following types of annuities will generally provide the highest monthly income? Ans. Straight Life

259. At age 30, a man wants to start an insurance program, but realizing that his insurance needs will like change, he wants a policy that can be modified to accommodate those changes as they occur. Which of the following policies would most like fit his needs? Ans. Adjustable Life

260. All of the following are TRUE statements regarding the accumulation at interest option EXCEPT: Ans. The interest credited under this option is not taxable since it remains inside the insurance policy.

261. The Commissioner is empowered to make and promulgate reasonable rules and regulations governing these transactions of Insurers, Agents, and Brokers. Ans. The Commissioner does not regulate policy holders.

262. When are “Catch-up” contributions allowed in an IRA? Ans. When the contribution reaches the age of 50.

263. Which of the following statements is true about a policy assignment? Ans. It transfers the owner’s right under the policy to the extent expressed in the assignment form.

264. All else being equal, including the same face amount, which policy will mostly likely cost the client the most on an average annual basis the first year of the policy? Ans. A 20-year Level Term Policy

265. Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? Ans. Life Income with Period Certain

266. A 27-year old professional has limited income and can only budget $15 per month for life insurance. Which of the following life insurance policies would provide the largest face amount for that amount of premium? Ans. Term insurance

267. When would a 20-pay whole life policy endow? Ans. When the insured reaches age 100.

268. Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income? Ans. Income Period

269. Jason, an agent for XYZ Company, is completing an application of insurance for Jack and Jill. Jason is required to provide the couple a “notice of information practices” at all of the following times EXCEPT: Ans. No notice is ever required at the initial completion of the application.

270. How long must a complaint record be maintained? Ans. 5 years

271. Which of the following statements is true concerning whole life? Ans. Lump sum death benefits are not taxable.

272. Which of the following is true regarding an indeterminate premium whole life policy? Ans. The premium can be raised up to the guaranteed maximum rate.

273. If any agent, examining physician, applicant, or other person shall knowingly or willfully makes any false or fraudulent statement or representation in or with reference to any application for insurance: Ans. Shall be guilty of a class 1 misdemeanor.

274. Which of the following is true regarding an indeterminate whole life policy? Ans. The premium can be raised up to a guaranteed maximum rate.

275. The validity of the policy can not be contested once it has been in force for how many years after its date of issue? Ans. 2 years

276. Which of the following best describes the aleatory nature of an insurance contract? Ans. Exchange of unequal values

277. All of the following benefits are available under Social Security Except: Ans. Welfare benefits

278. An employee has group life insurance through her employer. After five years, she decides to leave the company and work independently. How can she obtain an individual policy? Ans. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.

279. An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of he policy’s cash value. There is a limit for withdrawal and insurer charges fees. What type of policy does the insured most likely have? Ans. Universal Life

280. In terms of social security, what is the interval spinning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called? Ans. Blackout Period

281. An insurer, agent, or broker may accept payment of an insurance premium by credit card if: Ans. The insurer accepting payment by credit card makes payment by credit card available to all exiting and prospective insured and pays all fees associated with the transaction.

282. Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure a person engaged in the business of insurance? Ans. Defamation

283. Julie pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. Julie ha decided that she would rather use the dividend to help pay for her next premium. What option would allow her to do so? Ans. Reduction of Premium Option

284. The corridor in a Universal Life insurance policy  raises the death benefit to avoid: Ans. Losing tax advantages

285. Before then, an annuitant had received $12,500 in monthly benefits from $25,000 straight life annuity. He was also a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant’s spouse received in benefits? Ans. $50,000

286. Under which of he following conditions may an applicant for life insurance NOT be provided a buyer’s guide and a policy summary before the initial premium deposit is collected? Ans. The policy applied for has a death benefit of less than $5000.

287. Your client wants both protection and savings from the insurance, and is willing to pay premium until retirement at 65. What would be the right policy for his client? Ans. Limited Pay Whole Life

288. According to the Replacement Rule, replacement of life insurance is defined as a process in which: Ans. A new policy is bought and an old policy is converted to a reduced paid-up policy.

289. Wynona will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period and proof of insurability is provided. This is accomplished under the: Ans. Reinstatement Provision

290. If a beneficiary wanted a guarantee that would be paid for a period of 10 years before being exhausted, what option would a beneficiary select? Ans. Fixed Period

291. All of the following statements concerning waiver of premium riders are correct EXCEPT: Ans. An insured who has recovered from a disabling injury will be required to repay the insurer for any premiums that were waived.

292. After receiving notice that an adverse underwriting decision has been made, an individual has how long to request information about that decision in writing? Ans. 90 days

293. Jason’s employer provides a group life plan for its employees. It is $50,000 of term to age 65. When Jason was hired 10 years, he misstated his age and told his employer he was 50, when in fact he was 56 years old. Jason died last week. His beneficiary will receive: Ans. Nothing, due to the insured’s reaching the maximum age.

294. A prospective insured receives a conditional receipt and dies before the policy is issued. The company will: Ans. Pay the policy proceeds only if it would have issued the policy.

295. When a replacement is involved, a replacing insurance company is responsible for all the following EXCEPT: Ans. Provide a copy the important notice regarding the replacement.

296. An insurance institution, agent, or insurance-support organization shall not disclose any personal or privileged information about an individual collected or received in connection with an insurance transaction unless: Ans. Disclosure is with the written authorization of the individual.

297. In North Carolina, anyone who acts without the proper insurance license or who otherwise violates the insurance laws may be deemed guilty of a misdemeanor. Upon conviction, they must pay a fine of at least: Ans. $1,000.

298. Which of the following individuals must have insurable interest in the insured? Ans. Policyowner

299. If the policy ha unanswered questions on the application, what is assumed? Ans. The policy will be interpreted as if the insurer waived its right to have an answer on the application.

300. 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: Ans. An agent of company

301. Which statement is NOT true regarding a Straight Life Policy? Ans. Its premium steadily decreases over time in response to its growing cash value.

302. What type of annuity promises to pay a beneficiary in a lump sum, the difference between the amount paid into the contract and the benefits received prior to the annuitant’s death? Ans. Cash Refund Annuity

303. An individual works for a manufacturing company. If he decides to fund a retirement plan for himself, for which of the following plans could he qualify? Ans. Individual Retirement Account (IRA)

304. Which of the following statements best describes the ethics CE requirement? Ans. Agents must take 3 hours of ethics every 2 years.

305. A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner’s death is a: Ans. Buy-sell Agreement

306. Which of the following types of insurance covers the whole family in a single contract? Ans. Family Policy

307. What type of whole life insurance policies has premium that are adjusted so that during the first years of the policy, the premiums are lower than those of a straight whole life policy, and in subsequent years the premium are higher than those of a straight whole life policy? Ans. Modified Life

308. Under a 20-pay whole life policy in order for the policy to pay the death benefit to a beneficiary, the premium must be paid: Ans. For 20 year or until death, whichever occurs first?

309. Tom purchased a ten year level term insurance policy that is guaranteed renewable and convertible. Which of the following statements about Tom’s policy is correct? Ans. At the end of the 10 year term, Tom can choose to renew the policy for another 10 year, but at a higher premium rage.

310. Which of the following statements is true about a policy assignment? Ans. It transfers the owner’s rights under the policy to the extent expressed in the assignment form.

311. Social Security was created to protect against: Ans. Sickness in old age, premature death, and disability.

312. Which statement regarding the one-year term dividend option is true? Ans. The dividend is used to purchase an additional policy in the amount of the cash value.

313. Which special policy combines decreasing term insurance with whole life insurance to provide the insured’s family with a monthly income upon the death of the insured, which maintaining permanent coverage until the end of the income payments? Ans. Family Income Policy

314. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to: Ans. Purchase a single premium policy for a reduced face amount.

315. Which of the following is true regarding an indeterminate premium whole life policy? Ans. The premium can be raised up to a guaranteed maximum rate.

316. All other factors being equal, which of the following types of annuities will generally provide the highest monthly income? Ans. Straight life

317. Your customer doesn’t mind paying a higher premium as long as he gets a life insurance product that would allow for faster growth of the cash value. What kind of policy would you recommend? Ans. An endowment Policy

318. Ashley purchases a $90,000 annuity whit a single premium and begins taking payment 2 months after that. What type of annuity does Ashley have? Ans. Immediate

319. Tom completed property insurance course that, in total, were approved for 30 hours of continuing education credit. How many hours may he transfer to next year continuing education? Ans. 6

320. Which of the following statements is true with regards to insurance information practices of a title insurance company? Ans. A notice is required only at the time the final policy is issued.

321. Which of the following protects the insured from an unintentional policy lapsed due to a nonpayment of premium? Ans. Automatic Premium Loan

322. Which of the following is true about credit life insurance? Ans. Creditor is the policyowner.

333. The policyowner of an adjustable life policy can increase premium payments and: Ans. Have a limited pay policy

334. Wilma owns a policy in which she is covered as the breadwinner with permanent insurance and with decreasing term insurance in the form of a rider. Wilma owns a : Ans. Family Income Policy

335. Which of the following statements is incorrect concerning an IRA? Ans. Married individual must contribute into one account for both spouses, up to a specified amount for each person.

336. With respect to a variable annuity, when is the number of annuity units determined? Ans. At the time of the initial payment.

337. The policyonwer of a universal life policy may skip paying the premium and the policy will not lapse as long as: Ans. The policy contains sufficient cash value to cover the cost of insurance.

338. A 27-year old professional has limited income and can only budget $15 per month for life insurance. Which of the following life insurance policy would provide the largest? Ans. Term Life

339. Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guarantee period, during which if the original recipient dies, the payment will continue to a designated beneficiary? Ans. Life Income with Period Certain

310. Which must insurable interest exist in a life insurance policy? Ans. At the time of application

311. In case where the commissioner shall find upon substantial evidence that any complaint against penalties, the company shall: Ans. Also be liable for the expenses of the investigation

312. Which of the following explains the policy owner’s right to change beneficiaries, chooses options, and received proceeds of a policy? Ans. Ownership rights

313. The paid-up addition option uses the dividend: Ans. To purchase a smaller amount of he same type of insurance as the original policy.

314. Which of the following must an alien insurer obtain in order to transact insurance within a given state? Ans. Certificate of Authority

315. If any person shall unlawfully solicit, negotiate for , collect or transmit a premium for a contract of insurance or transact of any unlawful insurance with an insurance company not licensed to do an insurance business in North Carolina: Ans. Shall be guilty of a misdemeanor

316. No insurance institution, agent or insurance-support organization may seek information in connection with an insurance transaction concerning: Ans. Any previous adverse underwriting decision experienced by an individual, unless a request is made for the reason for any previous decision.

317. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to: Ans. Purchase a single premium policy for a reduced face amount.

318. Annuities have nonforteiture values, which may be withdrawn: Ans. Prior to the annuitization date

319. All statements or description in any application for a policy of insurance, or in the policy itself, shall be deemed: Ans. Representations and not warranties

320. Which of the following statements about a suicide clause in a life insurance policy is true? Ans. Suicide is excluded for a specific period of years and covered there after.

321. All other things being equal, the premium for an endowment policy is considerably higher than for a whole life insurance policy. What is the advantage of that to the policy owner? Ans. Higher cash value

322. A producer who omits a statement which may mislead or deceive the persons addressed has committed. Ans. Misrepresentation.

323. If an insured continually uses the automatic premium loan option to pay the policy premium: Ans. The policy will terminate when the cash value is reduced to nothing.

324. An individual has been making periodic premium payments on an annuity. The annuity income payments are scheduled to begin 2 years after the annuity was purchased. What type of annuity is it? Ans. Deferred

325. The type of term insurance that provides increasing death benefits as the insured ages is called: Ans. Increasing Term

326. A party wishing to buy an annuity that will advance with economic and market conditions should buy a : Ans. Variable annuity

327. Which of the following employees insured under a group plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated? Ans. Those who have been insured under the plan for at least 5 years.

328. What causes a variable annuity benefit t vary? Ans. The annuity’s underlying investment

329. When a licensee is accused of act, omission, or misconduct that would subject the licensee to a suspension or revocation, the licensee, with the approval of the Commissioner, may surrender the license for a period of: Ans. Time to be set by the Commissioner

330. The Commissioner may suspend, revoke, or refuse to renew the license of any licensee who willfully fails to: Ans. Report a reasonable cause to believe that any entity licensed by the Commissioner is financially impaired.

331. Which of the following statements is most correct concerning irrevocable beneficiary? Ans. They can be changed only with the written consent of that beneficiary.

332. If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is: Ans. A modified contract

333. A straight life policy changes: Ans. A level annual premium for the life of the insured.

334. On behalf and on request of an insurer by which an agent or limited representative is appointed, the agent or limited representative may from time to time3 act as an adjuster and investigate and report upon claims; however, he may do so: Ans. Without being licensed as an adjuster

335. What is true about nonforfeiture option? Ans. They are required by state law to be included in the policy.

336. A policy which pays monthly income upon the death of the breadwinner for predetermined number of years after death, plus a lump sum at death, and combines level term and whole life is known as which policy? Ans. Family Maintenance

337. When would a 20-pay whole life policy endow? Ans. When the insured reaches age 100.

338. An insurance institution, agent, or insurance-support organization that discloses information in violation of the information privacy and disclosure status of North Carolina shall be liable for: Ans. Damage sustained by the individual to whom the information relates.

339. Harvy is covered under an Accidental Death and Dismemberment policy with a principal $50,000. Harvy lost both arms in an auto accident. How much will the policy most likely pay? Ans. The full benefit (100% of principal sum) due toe loss of both limbs.

340. All else being equal, including the same death benefit/face amount, which policy  will most likely cost the client the most on an average annual basis the first year or the policy? The client is 40 years old, recently married, with a child on the way. Ans. A 20-year endowment contract for the client’s child’s education

341. Which of the following is NOT true about a joint and survivor annuity benefit option? Ans. Payments stop after the first death among the annuitants

342. Which of the following statements is NOT true regarding IRA? Ans. Married couples are required to purchase a jointly owner IRA.

343. When Y applied for insurance and paid the initial premium on August 14, his agent issued a conditional receipt. Y was killed in an automobile accident on August 22, before the policy was issued. The insurance company found nothing negative in his application and has no reason to reject the risk or classify it other than as standard. In this: Ans. Issue the policy anyway and the face value to the beneficiary.

344. If a life insurance policy is deemed to be a modified endowment contract, the policy loans: Ans. Will be taxed on a last-in-first-out basis.

345. Which nonforfeiture option has the highest amount of insurance protection? Ans. Extended Term

346. A claimant, who is totally and permanently disable, is eligible for Social Security Disability benefits after an elimination period of: Ans. 5 years

347. According to the “Common Disaster” clause, if the insured and primary beneficiary is killed in the same accident and it can not be determined who died first, which of the following is assumed? Ans. The primary beneficiary died before the insured.

348. 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? Ans. Insurable Interest

349. Prior to issuance of a license as a broker, the applicant shall file with the commissioner a bond in the sum of not less than: Ans. $15,000.00.

350. Which of the following statements is FAlSE regarding the acceptance of credit card payment by the insurer? Ans. The insured pays the fees charged by the credit card company for the payment of premium by credit card.

351. Which is true about Spouse Term Rider? Ans. The rider is level-term insurance.

352. An applicant for Medicare Supplement and long-term insurance license requires completion of: Ans. 10 hours of instruction.

353. A person who, being a licensed agent, procures insurance for a party other than himself through a dully authorized agent of an insurer that is licensed to do business in North Carolina for which the person is not authorized to act as agent is called: Ans. A broker

354. An adjustable life policy can assume the term of: Ans. Either term insurance or permanent insurance.

355. George pays his$190 annuity premium on the 14th of each month. Which of the following best describes his agreement? Ans. Level

356. A lender who  conditions approval of a loan on the condition that the borrower purchase insurance from that lender may be guilty of: Ans. Coercion

357. All of the following are true of group life insurance EXCEPT: Ans. The insured each own his or her contract.

359. Early withdrawal of nonforfeiture values from an annuity may result in: Ans. A withdrawal or surrender charge

360. In order to obtain life insurance on someone’s life, all of the following may have an insurable interest, EXCEPT: Ans. The beneficiary

361. Which of the following is true regarding the insurance amount in a credit life policy? Ans. Creditor can only insure the debtor for the amount owed.

362. An agent intentionally misrepresents the terms and benefits of a policy in order to convince an insured to surrender his policy. This is known as: Ans. Twisting

363. The provision that sets forth the basic agreement between the insurer and the insured and states the insurer’s promise to pay the death benefit upon the death of insured is called: Ans. Insuring Clause

364. All other variables being equal, what is the difference between a straight life policy and a 20-pay whole life policy? Ans. Premium Payment Period

365. Bob has held a temporary insurance license for 90 days. For how many days will the license be valid? Ans. 90

366. Your client wants to provide a retirement income for his elderly parents in case something happens to him. He wants to make sure that both beneficiaries are guaranteed an income for life. Which settlement option should this policyowner select? Ans. Joint and Survivor

367. A graded premium life insurance policy is a modified form of: Ans. Whole Life

368. The guaranteed Insurability Rider allows the owner to purchase additional amount of life insurance without proof of insurability at all of the following EXCEPT: Ans. Purchase of a new home

369. Which of the following loses would likely be covered under the Accidental Death Rider? Ans. Death caused by a head-on collision.

370. When agents act in violation of the insurance code, they will be fine up to: Ans. $5,000.

271. Which of the following is true regarding a level term insurance policy? Ans. It provides a temporary protection.

272. Which of the following is true regarding the cash value in term policies? Ans. There is no cash value.

373. Target premium prevents a universal life policy from: Ans. Lapsing

374. Which of the following would be a disadvantage of term insurance? Ans. There is not death benefit to the beneficiary if the insured dies after the end of the term.

375. Which of the following is true regarding the annuity period? Ans. It may last for the lifetime of the annuitant or for the shorter period of time.