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Life Insurance - North Carolina Final
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All of the following are included within the Insurance Commissioner's duties EXCEPT Conducting investigation of all domestic insurers. Reviewing the insurers' annual reports. Writing North Carolina insurance laws. Reporting any violations of insurance laws to the Attorney General. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. - ✔✔c) Writing North Carolina insurance laws. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. Which of the following insurance providers must be nonprofit and sell insurance only to its members? Reciprocal Fraternal Service Mutual - ✔✔b) Fraternal
To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society. A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? a) Second-to-Die b) Family Income Policy c) Joint Life Policy d) Survivorship Life Policy - ✔✔c)Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends. The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? a) $ b) $50,000 (50% of the policy value) c)$100, d)$300,000 (triple the amount of policy value) - ✔✔c)$100,
The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss. When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy? They can convert their coverage to permanent life insurance with evidence of insurability .b) Family members are not provided any rights. They can surrender the coverage for its cash value. They can convert their coverage to permanent life insurance without evidence of insurability. - ✔✔d) They can convert their coverage to permanent life insurance without evidence of insurability. Family members may convert their term coverage to permanent insurance if requested within the time stated in the policy. Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as a) Defamation. Coercion. Rebating. Misleading advertising. - ✔✔b) Coercion.
These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them. When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must Request a police report from the Department of Motor Vehicles. Furnish a blank form to be used for that purpose. Document the request for further investigation. Submit the loss claim to underwriting for premium review and resolution. - ✔✔b) Furnish a blank form to be used for that purpose. When any company under any insurance policy requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company or its representative must furnish a blank form to be used for that purpose. Insurance companies are required to provide proof of loss forms to the claimant within how many days after receipt of notice of loss? 15 30 31 45 - ✔✔a) 15
Which nonforfeiture option provides coverage for the longest period of time? a) Accumulated at interest b) Reduced paid-up c) Extended term d) Paid-up option - ✔✔b)Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy. Which of the following is NOT true regarding the accumulation period of an annuity? a) It is also known as the pay-in period. b) It would not occur in a deferred annuity. c) It is the period during which the annuity payments earn interest. d) It is the period over which the owner makes payments into an annuity. - ✔✔b)It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity). Life insurance death proceeds are
a) Taxed as ordinary income. b)Generally not taxed as income. c) Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. d) Taxed as a capital gain. - ✔✔b)Generally not taxed as income. Life insurance death benefits are generally not taxed as income. Which of the following is TRUE regarding an indeterminate premium whole life policy? The premium is lower in the first year of the policy; then it is gradually raised every year. The premium is level throughout the life of the policy. The premium is usually higher in the first few years of the policy. The premium can be raised up to a guaranteed maximum rate. - ✔✔d) The premium can be raised up to a guaranteed maximum rate. Indeterminate premium whole life policy premium rate may vary from year to year. After the initial period (usually 2-3 years) when a lower premium is paid, the insurer establishes a new rate which could be raised up to the guaranteed maximum stated in the policy, kept the same or lowered, based on the company's expected mortality, expense and investments. A person who knowingly obtains information about an individual from an agent or the insurer under false pretenses has committed a(n) a) Class 1 misdemeanor. b)Trustworthy act.
d) The payments are not guaranteed for life. - ✔✔b)It is a life contingency option. Under the installments for a fixed period annuity settlement option, the annuitant selects the time period for the benefits; the insurer determines how much each payment will be. This option pays for a specific amount of time only, and there are no life contingencies. The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? a) Reduction of premium b) Paid-up addition c)Accumulation at interest d)Cash option - ✔✔a)Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year. An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a) Inspection Report b) Medical Information Bureau's report c) Agent's Report
d) Underwriter's Report - ✔✔a)Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act. Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose a) 403(b) plan. b) 401(k) plan. c) HR- 10 (Keogh Plan). d) Section 457 Deferred Compensation Plan. - ✔✔c)HR- 10 (Keogh Plan). HR- 10 (Keogh Plans) are plans specifically for self-employed and their employees. Annually renewable term policies provide a level death benefit for a premium that a) Remains level. b)Fluctuates. c)Increases annually. d)Decreases annually. - ✔✔c)Increases annually.
Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a) Corridor option b) Variable option c) Option A d) Option B - ✔✔d)Option B Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value. All of the following entities regulate variable life policies EXCEPT a) The Guaranty Association. b) Federal government. c) The SEC. d) The Insurance Department. - ✔✔a)The Guaranty Association. Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC All of the following are true about variable products EXCEPT
a) The minimum death benefit is guaranteed. b) The cash value is not guaranteed. c)Policyowners bear the investment risk. d)The premiums are invested in the insurer's general account. - ✔✔d)The premiums are invested in the insurer's general account. Insurers selling variable products invest their customer's monies in a separate account, which is very similar to a mutual fund. Since there is no guaranteed rate of return, customers must bear the investment risk. Which of the following best describes a misrepresentation? a) Discriminating among individuals of the same insuring class b) Issuing sales material with exaggerated statements about policy benefits c) Making a deceptive or untrue statement about a person engaged in the insurance business d) Making a maliciously critical statement that is intended to injure another person - ✔✔b)Issuing sales material with exaggerated statements about policy benefits Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of dividends, etc. This includes oral statements. Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?
c) 5 d) 7 - ✔✔b) Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn. In cases when an applicant for insurance is blind or deaf, the insurer underwriting the policy may do which of the following? a) Limit the amount or type of coverage available to the applicant b) Apply the same standards as are used for applicants whose sight and hearing are not impaired. c) Charge a different rate for the same coverage based on increased risk. d) Refuse to insure the applicant because of adverse risk. - ✔✔b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. Insurers cannot refuse to insure or refuse to continue to insure an individual, limit the amount, extent, or kind of coverage available to an individual, or charge an individual a different rate for the same coverage, solely because of blindness or partial blindness, or deafness or partial deafness. Which of the following Life Insurance policies would be considered interest sensitive? a) Increasing term b)Universal life
c) Adjustable life d) Whole life - ✔✔b)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest. An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a) Graded premium whole life. b) Single premium whole life. c) Modified Endowment Contract (MEC). d) Level term life. - ✔✔b)Single premium whole life. Single premium whole life requires the entire premium to be paid in one lump sum at the policy's inception. What form of the annuity settlement options provides payments to an annuitant for the rest of the annuitant's life and ceases at the annuitant's death? a) Installment refund b) Joint and survivor c) Pure life
d) A broker does not return a client's calls on timely basis. - ✔✔a)An agent fails to pay state income tax. Failure to pay state income tax is a violation subject to license suspension or revocation; all the other examples are not. Which of the following is NOT true about a joint and survivor annuity benefit option? a) Payments stop after the first death among the annuitants. b) A period certain option may be included. c) This option guarantees income for two or more recipients. d) The surviving annuitant may receive reduced payments. - ✔✔a)Payments stop after the first death among the annuitants. A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments. An insured buys a 5 - year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? a) It will decrease for the new 5 - year term since the insured is now a lesser risk to the company. b) It will increase each year during the next 5 years as the face amount increases each year. c) It will increase because the insured will be 5 years older than when the policy was originally purchased.
d) It will remain the same for the new 5 - year term. - ✔✔c)It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal. Which of the following products requires a securities license? a) Equity Indexed annuity b) Deferred annuity c) Variable annuity d) Fixed annuity - ✔✔c)Variable annuity A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities. Which of the following best describes an insurance company that has been formed under the laws of this state? a) Sovereign b)Alien c)Foreign d)Domestic - ✔✔d)Domestic
