Life & Annuity Practice Exam

1-1 Policies that may pay dividends to the policyowner are known as: A. InteractiveB. ProactiveC. ParticipatingD. Mutual

1-2 All of the following are true of life insurance, except:A. It reduces uncertainty. B. It eliminates risk.C. It transfers risk.D. It can be a basis of estate creation.

1-3 All of the following are true of the group life insurance classification, except:A. Over 40% of all life insurance in force in the United States is group insurance.B. The coverage is usually written on a permanent basis providing a cash value as

well as a death benefit.C. Coverage may be changed only within the Master Contract held by the employer,

creditor, or association.D. Presently 85% of the group coverage written is employer-employee based.

1-4 In determining a proper amount of life insurance, the Needs Approach is characterized by which of the following?

A. It assumes death of the client to be immediate.B. It assumes death of the client to be 10 years in the future.C. It assumes death of the client to be 20 years in the future.D. It assumes death of the client to be beyond 65 years of age.

1-5 Which of the following is true of a Key Person (Key Employee) plan?A. The plan is written for the benefit of the employee’s family, not the employer.B. The plan provides funds for an employee’s future retirement.C. The employer is the owner, premium payor, and usually the beneficiary.D. The proceeds of the plan are used to offset the expense and financial losses due to

the death of the employer.

1-6 The type of life insurance used to provide funds for a Buy-Sell Agreement is:A. Term LifeB. Whole LifeC. Variable LifeD. Any type of life insurance

1-7 Some disadvantages of not having a Buy-Sell Agreement include all of the following, except:

A. Income to surviving family members stops.B. The estate transfer may be delayed due to forced business liquidation.C. The agreement is legally enforceable.D. Share(s) of ownership transfer to surviving relatives.

1-8 A partnership involving four equal partners is valued at $1,800,000. Under a Buy-Sell Agreement (Cross-Purchase Plan) the amount of each policy on the life of each partner would be:

A. $1,800,000B. $900,000C. $450,000D. $150,000

1-9 All of the following are true of Deferred Compensation, except:A. The employer is the policyowner and beneficiary.B. If the employee dies before retirement, the life insurance benefit is paid to the

employer, who in turn pays the employee’s heirs.C. The employer is the policyowner and the employee is the beneficiary.D. Income taxes are deferred until the employee takes possession of the incentive

funds.

1-10 Which of the following is true?A. The insured and the policyowner are always the same.B. The insured and the policyowner are usually the same, but not necessarily.C. Any changes to a policy must be approved by both the insured and policyowner in

writing.D. The applicant, insured, and policyowner must approve any changes to a policy in

writing.

2-1 Which of the following is true regarding payment of premium?A. The more frequent the payment, the lesser the cost.B. Paying the premium monthly results is lesser total cost than paying quarterly.C. Paying the premium semiannually results in greater total cost than paying

quarterly.D. The more frequent the payment the greater the cost.

2-2 If a life insurance policy has not been surrendered for its cash value, then reinstatement requires:

A. The payment of back premiums only.B. The payment of back premiums, plus interest only.C. The payment of back premiums, plus interest, and proof of insurability.D. The payment of at least a future annual premium.

2-3 The provision which denies the beneficiary the right to commute, alienate, or assign his/her interest in the policy proceeds is:

A. The Common Disaster ClauseB. The Spendthrift ClauseC. The Insuring ClauseD. The Consideration Clause

2-4 Which statement is false in respect to the Misstatement of Age or Sex provision?A. The provision can cancel and void the policy.B. The Incontestability Clause does not influence the provision.C. The provision allows the insurer, at time of claim, to adjust the benefits according

to the amount the premiums would have purchased at the correct age or sex.D. Adjustments required due to misstatement of age are normally computed as a

fraction with what was being paid, divided by what should have been paid.

2-5 All of the following are true of Policy Loan Rate provisions, except:A. The policy loan amount cannot exceed the available cash value.B. Policies with adjustable loan interest rates have a maximum interest rate based

upon Moody’s corporate bond yield average.C. Interest, not paid when due, is added to the total debt.D. Policies with fixed interest loan rates have a maximum interest rate of 10%.

2-6 Which of the following is not true regarding life insurance policy exclusions?A. The Aviation exclusion applies to fare-paying passengers on regularly scheduled

flights and flight crewmembers.B. The insurer can add or alter any of the exclusions.C. The Results Clause stipulates that there is no coverage if death is the result of war,

declared or undeclared.D. Death is never covered if it is the result of the insured committing suicide.

2-7 Which of the following are potential beneficiary designations?A. Primary/ContingentB. Revocable/IrrevocableC. Absolute/CollateralD. Class/Trust

2-8 Tom is the insured/owner of a $500,000 life insurance policy and dies leaving four surviving children, Mary, Carrie, Larry, and Barry, and each child receives $125,000 upon his death. This is an example of:

A. Per StirpesB. Per CapitaC. Pro RataD. Rule of 78

2-9 Which of the following is not true regarding Prohibited provisions in life insurance policies?

A. No provision shall require contract forfeiture when an outstanding loan is less than the loan value.

B. No provision shall designate the agent as the representative of the insured.C. No provision shall allow the settlement to be less than the face amount at

maturity, endowment or death.D. No provision shall limit the time for any legal action to be more than one year

after the act (or lack of an act) occurs.

2-10 What provision establishes that if it cannot be determined whether the insured or primary beneficiary died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent beneficiary of the insured, or to the insured’s estate?

A. Insuring ClauseB. Consideration ClauseC. Common Disaster ClauseD. Spendthrift Clause

3-1 Bill and Janet are both insured under a whole life policy that is designed to help cover federal estate taxes by paying upon the death of whichever of them is the last to die. The policy is a:

A. Modified Whole Life policyB. Joint Life policyC. Graded Premium policyD. Joint Survivorship Life policy

3-2 Timothy is the insured/owner of a whole life policy and is concerned that in the event of disability the premiums of the policy would not only be met to keep the policy from lapsing, but that he also might replace some of his lost income due to the disability. Which rider would accomplish Tim’s objective?

A. Waiver of Payors Premium RiderB. Waiver of Premium RiderC. Waiver of Premium/Disability Income RiderD. Guaranteed Insurability Rider

3-3 Jacob owns a policy that pays a $100,000 death benefit only if he dies within the 20-year policy period. If Jacob dies anytime within the 20-year policy period, Wanda, his beneficiary, will receive the $100,000 death benefit and the premium that Jacob will pay for this policy will be the same throughout the 20-year policy period. Jacob owns a:

A. Limited Payment Whole Life policy B. Family Maintenance policy C. Level Term policy D. Life-Expectancy Term policy

3-4 Erika owns a permanent policy in which the cash value and the death benefit will be equivalent at age 75. Erika owns a/n:

A. Enhanced Ordinary Life PolicyB. Limited Payment at age 75 Whole Life PolicyC. Endowment at age 75 PolicyD. Endowment at age 100 Policy

3-5 Will owns a policy on himself that is a whole life policy with a level term rider attached. If Will were to die within the period of the term rider, the policy would not only pay Sharon, his beneficiary, an immediate whole life benefit, but would also pay Sharon a monthly payment for a selected period of years beginning from the date of his death. Will owns a:

A. Family PolicyB. Family Maintenance PolicyC. Family Income PolicyD. A Whole Life policy with a Family Rider

3-6 All of the following are true of a Universal Life policy, except:A. Adjustments to the face amount, up or down, may be requested by the

policyowner to reflect changes in need.B. It adjusts to interest rate changes and allows the owner to make additional

contributions that will increase the cash value or skip some premiums if the owner desires to do so.

C. The death benefit is in the form of one year renewable term, while the cash value account earns interest at the current rate with a guaranteed minimum rate established.

D. Any borrowing or partial withdrawal from the cash value account has the effect of terminating the policy.

3-7 Which combination requires both a life and securities license to sell? A. Adjustable and Universal B. Universal and Variable C. Variable Universal and Variable D. Variable and Adjustable

3-8 Monica wants to renew her $50,000 Level Term life insurance policy, which of the following is true?

A. Monica will have to prove insurability, and the renewal premium will be based upon her age at the time the policy was issued.

B. Monica will not have to prove insurability, and the renewal premium will be based upon her age at the time the policy was issued.

C. Monica will have to prove insurability, and the renewal premium will be based on her now current age.

D. Monica will not have to prove insurability, and the renewal premium will be based on her now current age.

3-9 The Return of Premium Rider, the Return of Cash Value Rider, and the Cost of Living Rider all use which type of term insurance to accomplish their objective?

A. Increasing TermB. Decreasing TermC. Level TermD. Re-Entry Term

3-10 Graded Premium life insurance is a type of: A. EndowmentB. Whole LifeC. Term LifeD. Variable Life

4-1 Which statement is not true of Nonforfeiture Options?A. They add flexibility to a cash value policy.B. They protect the policyowner against total loss of benefits if the policy should

lapse or be cancelled.C. They are used when the insured lives to the endowment date of the policy or at the

insured’s death.D. The three nonforfeiture options are Cash Surrender, Reduced Paid-Up, and

Extended Term.

4-2 Which of statement is true of dividends?A. They are a return of excess premiums paid and are guaranteed.B. They are the property of the policyowner and may be withdrawn anytime there is

an accumulation.C. The dividends as well as interest earned on them are taxable as income.D. They are a characteristic of nonparticipating policies and are paid as declared.

4-3 Lucy uses her dividends to purchase single premium additional permanent benefits at her attained age. These are added to the face amount of the original policy. Which Dividend Option is Lucy exercising?

A. Paid-up AdditionsB. Paid-up OptionC. Reduced Paid-UpD. One-Year Term

4-4 Frank, the owner of a life insurance policy, chooses a Settlement Option whereby the proceeds of his policy will be paid out over 20 years, regardless of who may receive the payments, policyowner or beneficiary. Frank has chosen:

A. Life Income Period Certain B. Fixed AmountC. Life Income Joint and SurvivorD. Fixed Period

4-5 All of the following are true of Settlement Options, except:A. If the policyowner has chosen an option prior to death, it cannot be changed by

anyone.B. A policyowner may revise an option before receiving any of the living benefits.C. Both principal and interest received as a result of a settlement option are taxed as

ordinary income to the beneficiary, as received.D. Settlement Options are used when the insured lives to the endowment date of the

policy, or at the insured’s death.

4-6 Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is:

A. One-Year TermB. Reduced Paid-UpC. Extended TermD. Paid-Up Additions

4-7 If an insured wanted to choose the Nonforfeiture Option that would provide coverage for the longest period of time, then he or she should choose:

A. Reduced Paid-UpB. Extended TermC. Paid-Up AdditionsD. Life Income Only

4-8 Albert, as the owner of a life insurance policy insuring his son David, wants a Settlement Option that, if David were to die, would provide guaranteed payments to Albert and his wife Lois, until both of them die. Albert should choose:

A. Fixed PeriodB. Joint LifeC. Life Income Joint and SurvivorD. Fixed Amount

4-9 Fran wants to pay off her $100,000 permanent policy more quickly than scheduled, the Dividend Option that would help her to accomplish this is:

A. Premium ReductionB. Paid-Up AdditionsC. Paid-Up OptionD. Accelerated Endowment

4-10 Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose:

A. Life Income OnlyB. InterestC. Fixed Period

D. Fixed Amount

5-1 Benefits that may be received monthly under a “fully insured” status of the Social Security System, are available for all of the following, except:

A. A dependent parent of a deceased worker.B. A dependent child of a retired worker.C. A widow or widower at age 65, or at age 50 if disabled.D. A spouse of a retired worker at any age, if caring for a dependent child.

5-2 Under a Group Credit Life Plan, which statement is true?A. The creditor is normally both the policyowner and the beneficiary.B. The debtor is normally both the insured and the policyowner.C. The amount of coverage typically will exceed the amount of indebtedness by a

specified percent.D. The coverage begins when the creditor becomes obligated to the debtor.

5-3 Under an Industrial or Home Service Contract, which statement is true?A. The grace period is typically 30 days and the method of settlement upon death is

lump sum.B. The grace period is typically 31 days and the method of settlement upon death is

fixed period.C. The grace period is typically four weeks and the method of settlement upon death

is fixed amount.D. The grace period is typically four weeks and the method of settlement upon death

is lump sum.

5-4 Which statement is false regarding Social Security funding?A. It is not fully funded and provides only a minimal base of income.B. The actuarial value of contributions is related to the actuarial value of benefits.C. The funds are collected and invested in government securities and are managed by

two public trustees and the Secretaries of the Treasury, Labor, and Health and Human Resources.

D. Self-employed individuals pay an amount equal to the total of an employer and employee payment.

5-5 Under a Group Life Insurance Plan, all of the following are true, except:A. Employees do not have personal control of the policy or policy changes, as with

an individual policy.B. Continuation due to disability may be accomplished if the disability occurred

while covered under the group, and the claim is filed within 12 months of the disability.

C. The employee is responsible for paying the premium during the grace period.D. The group must “be together” for purposes other than reducing the cost of

insurance.

5-6 Lorraine’s position has been terminated, and she is interested in converting her group life coverage to an individual policy. In the process, she will find all of the following to be true, except:

A. The premium will be at a higher than normal to include the insurer’s guaranteed convertible surcharge.

B. She has 31 days of eligibility to convert to the private plan without having to prove insurability.

C. If she waits until the eligibility period has closed, the insurer may require evidence of insurability to reduce adverse selection.

D. She will be converting her group term benefit to an individual term benefit.

5-7 Which of the following is the correct classification of benefits under Social Security?

A. Retirement, Death, Medicaid, and Medicare.B. Medicare, Long-Term Care, Retirement, and Medicaid.C. Death, Disability, Retirement, and Medicare.D. Disability, Death, Medicare, and Medicaid.

5-8 The Social Security Survivor Benefit is based on:A. The Primary Insurance Amount of the deceased.B. The Primary Insurance Amount of the recipient.C. The Primary Insurance Amount of the beneficiary.D. The Primary Insurance Amount of the survivor.

5-9 Under a Franchise Plan, an employee would find their cost to be:A. The same as the cost of an individual plan of like amount.B. Less than the cost of an individual plan of like amount.C. Twice the cost of an individual plan of like amount.D. Three times the cost of an individual plan of like amount.

5-10 The Facility of Payment Clause under an Industrial Plan allows:A. The insurer to pay the premium when the insured cannot.B. The insured to skip a weekly premium payment once each year.C. The insurer to pay to a relative or anyone it deems entitled to the benefits in the

absence of a designated beneficiary.D. The insured to pass to the employer the premium payment obligation.

5-11 Regarding Social Security survivor benefits, when the youngest child reaches age 16, the widow’s/widower’s _____ period begins and continues until the surviving (non-married) spouse reaches age 60.

A. ProbationaryB. EliminationC. BlackoutD. Waiting

6-1 The securities legislative act that deals principally with new issues of securities is the:A. The Maloney Act of 1938B. The Securities Act of 1934C. The Securities Act of 1933D. The Investment Company Act of 1940

6-2 Which of the following is true of annuity mortality tables when compared to life insurance mortality tables?

A. Annuity mortality tables reflect the same life expectancy as life insurance mortality tables.

B. Annuity mortality tables reflect greater life expectancy than life insurance mortality tables.

C. Annuity mortality tables reflect shorter life expectancy than life insurance mortality tables.

D. Annuity products are based on morbidity tables and life insurance products are based on mortality tables.

6-3 A lump sum of money is placed into an account from which the annuitant will draw periodic benefits beginning more than a year from the date of purchase. This describes a:

A. Flexible Premium Deferred AnnuityB. Single Premium Immediate AnnuityC. Flexible Premium Immediate AnnuityD. Single Premium Deferred Annuity

6-4 In respect to nonforfeiture of Fixed and Equity-Indexed annuities, which of the following is false?

A. The contract owner assumes no market risk with respect to account values.B. They place requirements upon the insurer to absorb at least 80% of the

management and investment risk with the contract owner absorbing any amount beyond the 80%.

C. The insurer must pay any excess interest above the guaranteed minimum interest rates specified in the contract.

D. The insurer must price its annuity taking into account its cost of doing business and still fulfill the promise of the contract to its holder.

6-5 Ralph has selected an annuity benefit or payment option, where upon annuitization, the annuity will be payable to himself and his wife Thelma, until either of them dies. Ralph has elected which of the following benefit or payment options?

A. Straight Life AnnuityB. Life IncomeC. Joint and SurvivorD. Joint Life

6-6 Which statement is true of annuities?A. They may be written only as a basic savings vehicle.B. They may be written only as a tax-qualified retirement plan.C. They may be written as a basic savings vehicle or a tax-qualified retirement plan.D. Annuities are sold primarily to create an estate whereas life insurance is sold

primarily to liquidate an estate.

6-7 The annuity benefit or payment option requiring the greatest amount of capital available to sustain a specific (certain) payment level is:

A. Life Income Joint and SurvivorB. Life Income with RefundC. Joint LifeD. Life Income

6-8 Angelo owns a Variable Annuity. It is imperative that upon annuitization Angelo understands:

A. The number of annuity units received remains level, but the unit value will fluctuate.

B. The number of annuity units received will fluctuate, but the unit value remains level.

C. The separate account(s) and unit values are unrelated.D. Payments are made in terms of dollars rather than units.

6-9 Gloria needs use her annuity as a long term savings plan rather than as a short-term tax shelter, otherwise she will incur a ____% penalty tax against any withdrawals prior to age 59 ½ of:

A. 5%B. 10%C. 15%D. 20%

6-10 Jasmine wants an annuity whereby if she, the annuitant, has not received an amount equal to the total of all payments made into the annuity, that any balance will be paid to the beneficiary either lump sum or in installments. Jasmine should choose which of the following benefit or payment options?

A. Joint LifeB. Life Income Joint and SurvivorC. Life Income with RefundD. Life Income Period Certain

7-1 Clayton is asking you, the agent, about any taxation issues related to his $100,000 personal Whole Life policy. You find that his understanding is correct on all points, except:

A. Since his policy is a personal policy, he cannot deduct the premiums he pays for the policy.

B. Annual increases in the policies cash value are not taxable at the time they are credited to the policy.

C. The interest that he pays on personal loans that he might take from the policy is tax deductible for the life of the loan.

D. Upon surrender of the policy, he will be taxed on any amount by which the cash value at time of surrender should exceed the premiums paid to date of surrender.

7-2 Which of the following would always be considered a Modified Endowment Contract under the TAMARA legislation?

A. Limited Pay Whole LifeB. Straight or Continuous Pay Whole LifeC. Modified Whole LifeD. Single Premium Whole Life

7-3 Sherman is the custodian at Pound Elementary School and has chosen to participate in a qualified retirement plan, whereby he contributes $100.00 a month by salary reduction towards his future retirement, under which both the $100.00 monthly contributions and any interest accumulation are tax-deferred until they are received. Sherman participates in a:

A. Section 457 Deferred Compensation PlanB. 403 (b) Tax-Sheltered AnnuityC. HR 10 KEOGH PlanD. Simplified Employee Pension

7-4 All of the following are IRS requirements to be met by qualified plans, except:A. Benefits may be reduced by any Social Security retirement benefits.B. Limitations of benefits, both minimums and maximums, must be stated at the

beginning of the contract.C. All benefits remain equal or improve upon any merger of two or more plans.D. Procedures for a claim review must be available both to the participant and to

his/her beneficiary.

7-5 Clementine is purchasing a Roth IRA and finds all of the following to be correct concerning its taxation, except:

A. After 5 years and age 59 ½, proceeds may be received tax free to those who qualify.

B. Contributions made to the plan are tax deductible as they are with a traditional IRA.

C. Her contribution period may exceed 70 ½.

D. Converting her existing traditional IRA to a Roth IRA will cause it to be taxed as ordinary income the year she does it.

7-6 All of the following are true regarding IRS requirements of tax-qualified plans, except:A. Plan benefits must be reduced by any Social Security retirement benefits.B. A minimum level of participation and vesting must be established in the contract.C. All benefits are to remain equal or improve upon any merger of two or more

plans.D. When a participant may begin receiving distribution from the plan must be stated

in the contract.

7-7 All of the following would be considered to be advantages in respect to the charitable gifting of life insurance, except:

A. Very little documentation is required by the IRS.B. The receiving charity’s future value of the insurance policy is the cash value of

the contract.C. The donor may remain anonymous, if so desired.D. The entire death benefit is guaranteed, even if the insured dies after only one

premium payment.

7-8 Taxes levied on the right of survivors to receive property from the deceased’s estate are known as:

A. Estate taxesB. Inheritance taxesC. Both estate taxes and inheritance taxesD. Neither estate taxes nor inheritance taxes

7-9 Which of the following best defines the “Cost Recovery Rule”?A. The cash value, plus the sum of the premiums paid, equals the equity in the

contract.B. The face amount, less the cash value, equals the equity in the contract.C. The face amount, plus the cash value, equals the equity in the contract.D. The cash value, minus the sum of the premiums paid, equals the equity in the

contract.

7-10 In respect to the Accelerated Death Benefit, all of the following are false, except:A. It can be a source of replacement income as the result of the insured becoming

disabled.B. The physician must give a prognosis of 30 months or less life expectancy for the

named insured.C. The insurer provides a monthly report for the insured showing the amount paid

and the amount of benefit remaining in the policy.D. The benefit cannot be associated with payment of nursing home or long-term care

expenses.

15-1 Bill, one of your insureds, has a tendency to drink to excess, not take his medications on a regular basis, and drives with reckless abandon. Bill represents a _____ _____ to the insurer.

A. Physical hazardB. Moral hazardC. Morale hazardD. Habitual hazard

15-2 Which of the following is true of Reinsurance?A. The agreement of reinsurance is strictly between the insured and reinsurer.B. The originating insurer is known as the reinsurer and the insurers who share the in

the risk are known as ceding (primary) insurers.C. Under Facultative Reinsurance, the transfer is immediate and automatic in

accordance with the reinsurance agreement.D. All inquiries and transactions by the consumer regarding the reinsurance process

are through the ceding (primary) company.

15-3 Through the purchase of insurance, a person is essentially:A. Eliminating risk.B. Retaining risk.C. Transferring risk.D. Avoiding risk.

15-4 A peril is best defined as a:A. Cause of loss.B. Chance of loss.C. Condition of loss.D. Contract for loss.

15-5 When the number of similar units increase, the predictability of loss improves according to:

A. The Law of Predictability.B. The Law of Common Exposures.C. The Law of AssumptionD. The Law of Large Numbers

15-6 When one takes action to minimize the severity of a potential loss, he/she is practicing:

A. Risk acceptanceB. Risk avoidanceC. Risk transferD. Risk reduction

15-7 The limit of liability under a life insurance policy is also known as the:A. Face amountB. Cash valueC. Loan valueD. Nonforfeiture amount

15-8 The insuring of risks that are more prone to loss than average (standard) risks is known as:

A. Preferred selection.B. Detrimental selectionC. Qualitative selectionD. Adverse selection

15-9 The extent to which one may be affected by a peril is known as:A. HazardB. Loss exposureC. RiskD. Adverse selection

15-10 A person offering himself/herself or another person to be insured by contract best defines:

A. PolicyownerB. ApplicantC. InsuredD. Beneficiary

15-11 The process of evaluating a risk for the purpose of issuing insurance coverage is:A. Risk sharingB. UnderwritingC. Adverse selectionD. Loss exposure

15-12 Which of the following is a false statement regarding insurable interest?A. The insurable interest on one’s own life is generally regarded as unlimited.B. Insurable interest can be defined as the possibility of economic loss due to

sickness or death.C. With the exception of a parent purchasing insurance on a minor child, no one may

purchase insurance on the life of another person without that person’s consent.D. In life insurance, insurable interest must be proven at the time loss or claim.

15-13 All of the following are requisites of an ideally insurable risk, except:A. The loss must be unpredictable.B. The loss must cause economic hardship.C. The loss must be definite in terms of cause, time, place, and amount.D. Catastrophic perils are typically excluded.

15-14 The restoration of the insured to the same financial condition as prior to the loss is known as the:

A. Law of Large NumbersB. Principle of IndemnityC. Doctrine of Legal ActionD. Rule of Reciprocation

15-15 The type of risk in which only the chance of loss and no chance of gain exists, defines:A. Active risk.B. Speculative risk.C. Passive riskD. Pure risk

15-16 Travis owns his own insurance agency and sells and places business with some 12 different insurers, each of which he represents by contract. Travis is marketing and distributing business as a part of the following system:

A. The Direct Writer SystemB. The Direct Response SystemC. The Branch Office SystemD. The American Agency System

15-17 In respect to the authorities or powers of agents, all of the following are true of implied authority, except:

A. Implied authority is contingent upon the apparent authority.B. Implied authority is the authority the public assumes the agent to have.C. Implied authority is the active authority when conducting insurance.D. Implied authority is contingent upon the expressed authority.

15-18 Consideration is one of the elements of a legal contract. All of the following are true of consideration, except:

A. The insurer’s consideration is to indemnify the insured in the event of loss.B. The applicant’s consideration is the answering of all questions on the application

and submitting the first premium.C. The policy limit and the initial premium are of equal value.D. If the application is incomplete, or the first premium is not submitted, there is not

any applicant consideration.

15-19 Larry purchases an insurance contract from ABC Insurance Company and finds that there is ambiguity and questionable verbiage in the contract that leaves doubt in his mind as to the responsibilities of the parties to contract in the event of claim. If such ambiguity is in fact founded, it will be held against ABC Insurance Company, because an insurance contract is deemed to be a contract of:

A. IndemnityB. AdhesionC. Alienation

D. Representation

15-20 Martin has received a receipt from his life insurance agent that the agent has explained as a temporary insurance agreement. Martin has received a:

A. Approval Conditional ReceiptB. Unconditional ReceiptC. Conditional ReceiptD. Acceptance Conditional Receipt

15-21 The ingredients necessary for an insurer to calculate a Net Premium or Pure Rate are:A. Mortality rate and expenses.B. Expenses and rate of interest assumed.C. Rate of interest assumed and mortality rate.D. Premiums paid plus interest earned.

15-22 Which statement is true regarding mutual insurance companies?A. They are owned by their stockholders.B. Traditionally, they issue nonparticipating policies.C. Demutualization is the process whereby they become a stock insurance company.D. The are commonly referred to as a reciprocal exchange.

15-23 All of the following statements are true, except:A. The price of insurance for each exposure unit is called the rate.B. Tort law pertains to injuries suffered by a certain party that may be the result of

another party’s negligence.C. Agreement, consideration, competent parties, and legal purpose are the essential

elements to be found in a legal contract.D. Aleatory contract means that only one party is legally bound to contractual

obligations after the premium is paid to the insurer.

15-24 Which underwriting source is primarily used when an application reveals conditions for which more medical information is required?

A. Inspection ReportB. Agent’s ReportC. Attending Physician StatementD. Medical Information Bureau Report

15-25 The authority created when a producer/agent exceeds the authority stipulated in his/her contract, and the insurer does nothing to counter the public impression that such authority exists (i.e. the producer/agent accepting premiums on lapsed policies) is known as:

A. Specific AuthorityB. Express AuthorityC. Apparent AuthorityD. Implied Authority

15-26 All of the following are true statements, except:A. An insurer’s failure to enforce a provision of a contract may constitute a waiver of

such provision on the part of the insurer.B. Conditional receipts are issued at time of application; not at time of policy

delivery.C. Under an Acceptance (Approval) Conditional Receipt, coverage begins

immediately for a specified length of time regardless of whether the applicant is ultimately approved by the insurer.

D. The absence of any of the one of the four elements of a legal contract may void the contract.

16-1 The purpose of a state Life and Health Guaranty Association is to:A. Protect insurers from the insolvency of their insureds.B. Protect the Department or Division of Insurance from the insolvency of both

insurers and insureds.C. Protect policyowners, insureds, and beneficiaries from the insolvency of insurers.D. Protect insurers from financial issues or difficulties when dealing with the

Securities and Exchange Commission on variable contracts.

16-2 Lawson, an insurance agent with AOKAY Insurance Agency, is in the habit of offering potential clients a 10% premium discount on the first year’s premium if they will buy their insurance from him instead of one of his competitors. Lawson, in doing so, is guilty of:

A. RebatingB. TwistingC. DefamationD. Coercion

16-3 Which action would not constitute an unfair claim settlement practice on the part of the Lampoon Insurance Company in their claim handling or processing?

A. Making claim payments that are not accompanied by statements containing the coverage under which payments are being made.

B. Offering an insured substantially less than a lawsuit would award him/her.C. Offering an insured a prompt explanation in denial of a claim or offer of

compromise.D. Disclosing a history of appealing arbitrated decisions in order to threaten the

claimant into accepting less than the settlement awarded.

16-4 The Frampton National Bank requires that any and all credit life insurance in conjunction with a customer’s loan be purchased solely from them. This is an unfair trade practice known as:

A. TwistingB. CoercionC. RebatingD. Defamation

16-5 If JKL Insurance Company were to allow individuals of the same class to be charged different rates, this would constitute:

A. RedliningB. DefamationC. Unfair DiscriminationD. Boycott

16-6 In a replacement situation, it is recommended that an existing policy not be terminated until:

A. The application for the replacing policy has been completed.B. The replacing policy is issued and delivered.C. The existing policy has been in force for at least five years.D. The existing policy has been in force for at least ten years.E. All of the above.

16-7 Which circumstance would be a basis for Ted to have his insurance license, suspended, revoked, or renewal refused?

A. Ted has been convicted of a felony or crime of moral turpitude.B. Ted knowingly has misrepresented the terms of an insurance policy to a client.C. Ted has committed a fraudulent or dishonest act in the acceptance, custody or

payment of money.D. All of the above.