Insurance MCQ

Liability policies provide certain supplementary payments that are: A) included in the policy's aggregate limits. B) paid only if the insured is found to be legally liable. C) paid in addition to the policy's regular limit of liability. D) included in the policy's occurrence limits. Answer: C

Common exclusions with a liability policy would typically include all of the following EXCEPT: A) damage to property in the insured's care, custody, or control. B) injuries or damages caused unintentionally by the insured. C) damage to property owned by the insured. D) injuries or damages caused intentionally by the insured. Answer: B

What is meant by aggregate limit of liability? A) The most the insurance company will pay for defense costs. B) The maximum amount payable in any one occurrence. C) The maximum amount the policy will pay per policy period regardless of the number of claims. D) The most the insurance company will pay to one person. Answer: C

An occurrence is best described as something that: A) is expected. B) is intentional. C) happens when no one is present. D) may take place over time. Answer: D

Bob has a liability policy in the amount of 300/500/100. How much coverage does he have per occurrence for property damage liability? A) $100,000.00 B) $50,000.00 C) $300,000.00 D) $500,000.00 Answer: A

Which of the following events is NOT considered an occurrence for insurance purposes? A) Wearing out clothing. B) Being struck by a falling object. C) Slipping and falling on icy pavement. D) Long-term exposure to chemicals. Answer: A

Which one of the following would be classified as a general damage? A) Medical bills. B) Damaged property. C) Lost wages. D) Pain and suffering. Answer: D

An employee is delivering packages for her employer but is using her own vehicle. The employee hits a pedestrian. The employer may be held liable because of the doctrine of: A) employer liability. B) workers' compensation. C) vicarious liability. D) gross negligence. Answer: C

Several unsupervised young children wander about your neighborhood. Although you have fenced your yard and pool, they climb both fences and swim in your pool. You've called their parents to complain and tell them that you will not be responsible if one of the children is injured or killed. When a child drowns in the pool, what type of liability would apply to you? A) Vicarious liability. B) Premises liability. C) Strict liability. D) None, because you have shifted liability to the parents. Answer: C

An insured owns a pet lion that is caged on the homeowner's property. The owner takes great care to warn neighbors of the possible danger by posting signs, fencing the yard, and locking the cage at all times. When a neighbor's child manages to open the cage and is bitten, what type of liability would apply to the lion owner? A) Contractual liability. B) Premises liability. C) Absolute liability. D) Vicarious liability. Answer: C

A person becomes seriously ill after eating unrefrigerated raw oysters from a street vendor. When the vendor is sued for negligence, what defense might best be used? A) Assumption of risk. B) Comparative negligence. C) Immunity. D) Last clear chance. Answer: A

A repairperson knowingly uses faulty parts when he repairs a boiler. The court awards special, general, and punitive damages amounting to several million dollars. How will the repairman's comprehensive general liability policy respond? A) Special, general, and punitive damages are covered unless excluded. B) Special damages are covered. C) General damages are covered. D) Special and general damages are covered. Answer: A

Payments for losses that cannot be precisely measured, such as the loss of companionship of spouse from another, are called: A) special damages. B) spousal damages. C) general damages. D) punitive damages. Answer: C

The insured is in a hurry to get to work, fails to stop at a stop sign, speeds through an intersection, and strikes another vehicle. That vehicle hits another car that then jumps a curb and injures a pedestrian. What is the proximate cause of the accident? A) Failing to avoid an accident. B) Leaving late for work. C) Failing to stop at a stop sign. D) Speeding. Answer: C

An insured speeds through a residential neighborhood, almost striking several children. Under the insurance definition of negligence, such an insured would be held: A) negligent. B) strictly liable. C) not legally liable. D) legally liable. Answer: C

An insured owns a small neighborhood grocery store. During a storm, a piece of the roof falls on the sidewalk. Several people are in the store at the time, but no one is injured. Under the insurance definition of negligence, such an insured would be held: A) negligent. B) strictly liable. C) not legally liable. D) legally liable. Answer: C

Driving too fast and not wearing a seat belt are examples of: A) physical hazard. B) risk. C) moral hazard. D) morale hazard. Answer: D

Which one of the following hazards can be described as a careless attitude or general indifference on the part of the insured toward the occurrence of loss? A) Morale. B) Physical. C) Moral. D) Legal. Answer: A

Dishonesty on the part of an insured is an example of: A) a physical hazard. B) a morale hazard. C) a moral hazard. D) a peril. Answer: C

Which one of the following best defines a hazard? A) Uncertainty of a loss. B) Cause of a loss. C) Unexpected loss. D) Condition that increases the chance of a loss. Answer: D

Which one of the following is considered a hazard? A) Fire. B) Explosion. C) Trash. D) Lightning. Answer: C

Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be a(n): A) proximate cause. B) hazard. C) peril. D) indirect cause. Answer: B

Fire would be an example of a: A) loss. B) risk. C) peril. D) hazard. Answer: C

Which one of the following is an example of a peril? A) Illness. B) Earthquake. C) Gasoline stored on the premises. D) Indifference. Answer: B

What is the actual cause of a loss? A) Risk. B) Peril. C) Hazard. D) Proximate cause. Answer: B

If John's father transfers ownership of a house to John, which one of the following statements regarding insurance on the house is CORRECT? A) John can buy insurance because he has an insurable interest. B) John must purchase the house from his father to obtain an insurable interest in it. C) John's father must retain his policy on the house. D) John's father must assign his policy to John as well. Answer: A

Which of the following is NOT an example of an insurable interest? A) Person's interest in property she hopes that her uncle will leave to her in his will. B) Person's interest in the improvements he has added to his leased apartment. C) Person's interest in the home she owns. D) Dry cleaner's interest in his customers' clothing in his custody, care, or control. Answer: A

Which one of the following risks is insurable? A) Partial. B) Pure. C) Speculative. D) Whole. Answer: B

Which one of the following statements pertaining to risk is NOT correct? A) Only pure risks are insurable. B) A stock market venture is an example of a pure risk. C) Pure risk involves only the chance of loss; there is never a possibility of gain or profit. D) Uncertainty regarding financial loss is the definition of risk; therefore, it is characteristic of both pure and speculative risks. Answer: B

Which of the following is NOT a source of information important to an underwriter? A) Motor vehicle reports. B) Employer reference. C) Agent or producer comments. D) Consumer reports. Answer: B

The purpose of insurance is to: A) reduce adverse selection. B) transfer risk. C) eliminate risk. D) eliminate hazards. Answer: B

Which of the following is an example of reduction as a method of handling risk? A) Reducing coverage. B) Buying insurance to reduce the risk. C) Installing a burglar alarm. D) Increasing a deductible. Answer: C

Sharing is a method of handling risk. Which of the following phrases best describes the concept of sharing? A) Purchasing insurance. B) Increasing a deductible to share the loss with the insurance company. C) Signing a hold harmless agreement to share the liability. D) Buying a car with a friend to share the risk. Answer: A

Robert and Carolyn live in a busy city and decide that not owning a car is the solution to not experience having a car stolen. Which of the following methods describes this philosophy? A) Loss control. B) Avoidance. C) Retention. D) Transfer. Answer: B

Treating risk by purchasing insurance is an example of what type of risk management? A) Avoidance. B) Reduction. C) Retention. D) Transfer. Answer: D

A chance, possibility, or uncertainty of loss is known as a: A) hazard. B) peril. C) proximate cause. D) risk. Answer: D

How is uncertainty regarding loss best described? A) Peril. B) Risk. C) Insurance. D) Hazard. Answer: B

A condition or situation that presents a possibility of loss is a (an): A) law of large numbers. B) named certainty. C) exposure. D) proximate cause. Answer: C

The insured is looking for the amount of coverage in a property and casualty policy. This information would be found in the A) conditions. B) liberalization clause. C) declarations. D) endorsements. Answer: C

A policy may be amended only with a(n): A) warranty. B) condition. C) endorsement. D) declaration. Answer: C

The insuring agreement section of a policy describes: A) losses excluded. B) duties of the insured after a loss. C) perils insured against. D) description of the property insured. Answer: C

The limits of liability are found in which of the following sections of a casualty policy? A) Definitions. B) Declarations. C) Conditions. D) Insuring agreement. Answer: B

The procedure for resolving a disagreement between an insured and an insurance company about a loss is described in which of the following parts of an insurance policy? A) Exclusions. B) Conditions. C) Declaration. D) Insuring agreement. Answer: B

All of the following are basic parts of an insurance policy EXCEPT: A) exclusions. B) conditions. C) binders. D) declarations. Answer: C

Which one of the following components of an insurance contract contains information about the risk, the effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the insured property? A) Definitions. B) Declarations page. C) Insuring agreement. D) Conditions. Answer: B

Jennifer and David signed a homeowners insurance application for coverage on their home. They did not divulge that last year their garage burned down after their 16-year-old son left a cigarette burning. The agent sent in the application and a policy was issued. When another fire occurred 2 months after the policy was issued, the company voided the policy because the agent would not have sent in the application if he had known of the prior loss. Which contract principle does this situation describe? A) Waiver and estoppel. B) Reasonable expectations. C) Utmost good faith. D) Contract of adhesion. Answer: C

Both parties rely on statements made to each other when writing a contract. This contract is known as a: A) speculative contract. B) contract of utmost good faith. C) conditional contract. D) unilateral contract. Answer: B

An insurance company issued a homeowners policy that included ambiguous language regarding how a loss was settled. The insured sued the insurance company and won. The judge stated that due to the ambiguous language in the contract the decision must be made in favor of the insured. The judge was basing this decision on which of the following types of insurance contract? A) Aleatory contract. B) Conditional contract. C) Contract of adhesion. D) Unilateral contract. Answer: C

Which of the following describes a personal contract? A) The contract is a promise made only by one party. B) The contract is subject to numerous conditions. C) The persons involved may void the contract. D) The contract protects the individual who owns the property. Answer: D

The principle that restores someone to the condition he enjoyed before a loss is A) insurance. B) indemnity. C) risk transfer. D) risk reduction. Answer: B

Bryce owns a $50,000 lake cabin that he has insured for $40,000. He sustains a $5,000 covered loss. According to the principle of indemnity, how much will his insurer pay? A) $4,000.00 B) $50,000.00 C) $40,000.00 D) $5,000.00 Answer: D

The attempt to restore an insured to his preloss condition is known as: A) indemnification. B) subrogation. C) coinsurance. D) self-insurance. Answer: A

Ann and her agent meet to discuss automobile insurance. The agent completes an application for coverage, takes Ann's check for $200, and mails the application to the insurance company. Two weeks later Ann receives the policy in the mail. When did the consideration take place? A) When the company mailed the application. B) When Ann wrote the premium check. C) When the agent submitted the application. D) When the agent quoted the premium. Answer: B

Which one of the following is NOT an element of a valid contract? A) Legal purpose. B) Consideration. C) Intent. D) Competent parties. Answer: C

When an insurance company cancels a policy, what is the method used to determine the premium due? A) Short rate. B) Premature. C) Flat. D) Pro rata. Answer: D

A warranty is a statement made by the applicant regarding the risk to be insured. Which of the following statements is NOT true about warranties? A) A warranty is guaranteed to be true. B) A warranty must refer to a material fact. C) A policy can be cancelled if the warranty is false. D) A warranty is part of the contract. Answer: B

In legal terms, voluntary relinquishment of a known right is called: A) a withdrawal. B) a waiver. C) a concealment. D) a warranty. Answer: B

In insurance, a waiver is best considered as: A) a material representation. B) the suspension of a policy right. C) the voluntary surrender of a known right. D) a warranty. Answer: C

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. They do not tell the agent that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on a regular basis to drive to work. Once the company found out about George after he had an accident, they denied the claim, citing what legal concept as the reason? A) Misrepresentation. B) Breach of warranty. C) Concealment. D) Fraud. Answer: C

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The fact is, Henry had 4 speeding tickets, but never told his parents. Once the company found out about Henry's record, they voided the policy citing misrepresentation as the reason. Did Joan and Steve misrepresent Henry's driving record? A) No. They must have known about the tickets, but the company could not prove it. B) No. They answered to the best of their knowledge. C) No. The representation was not material. D) Yes. Though not fraudulent, the misstatement was material. Answer: D

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The fact is, Henry had 4 speeding tickets, but never told his parents. What legal concept does this scenario describe? A) Misrepresentation. B) Warranty. C) Fraud. D) Representation. Answer: D

Statements made on an application that are guaranteed to be true are: A) representations. B) promises. C) misrepresentations. D) warranties. Answer: D

Which of the following terms describes an insured's oral or written statement that becomes part of an insurance contract? A) Misrepresentation. B) Warranty. C) Representation. D) Waiver. Answer: B

Knowingly lying on an application in order to obtain coverage would be an example of: A) misrepresentation. B) recession. C) fraud. D) concealment. Answer: C

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. When the agent asks if anyone else drives the car, they do not tell him that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on a regular basis to drive to work. Once the company found out about George after he had an accident, they denied the claim, citing what legal concept as the reason? A) Concealment. B) Breach of warranty. C) Fraud. D) Misrepresentation. Answer: C

What is the cost of a unit of insurance? A) Premium. B) Loss. C) Reserve. D) Rate. Answer: D

Which of the following is an example of adverse selection? A) An individual buys a new house and the mortgage company requires homeowner insurance. B) An individual with a new car purchases collision coverage. C) An individual, who has a new, healthy baby, purchases medical insurance. D) An individual with a terminal illness purchases health insurance. Answer: D

All of the following consumer characteristics are considered in a consumer report regulated by the Fair Credit Reporting Act EXCEPT: A) creditworthiness. B) credit standing. C) character. D) occupation. Answer: D

Which one of the following requires that insurance applicants be advised that a consumer report may be requested on them and the scope of any investigation resulting from the application? A) Financial Freedom Act. B) Fair Credit Reporting Act. C) Fair Disclosure Act. D) Freedom of Privacy Act. Answer: B

An insurance binder is best described as: A) a temporary agreement to pay a claim pending final settlement. B) temporary, short-term evidence of coverage. C) a bound collection of rules, rates, and forms. D) a rate manual supplied by one of the rating organizations. Answer: B

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss? A) One. B) Two. C) Five. D) Three. Answer: D

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured? A) Assignment. B) Risk transfer. C) Subrogation. D) Indemnity. Answer: C

Which one of the following describes the concept of subrogation? A) The insured claims the right to sue a third party. B) The insurer claims the right to send the disputed claim into arbitration. C) The insurer claims the right to collect from a negligent third party. D) The insurer claims the right to collect damages from the insured. Answer: C

An auto is sold for salvage value following payment of a loss. Who receives the proceeds? A) Lien holder. B) Insurance company. C) Insured. D) Claimant. Answer: B

An insurance company takes possession of a damaged auto it has covered. When the company becomes the legal owner of the auto, it is exercising the right of: A) condemnation. B) leasing. C) liability. D) salvage. Answer: D

The insured has a building with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When a $80,000 loss occurs, the policy will pay: A) $40,000.00 B) $80,000.00 C) $100,000.00 D) $50,000.00 Answer: D

Which one of the following best describes the purpose of coinsurance? A) Rate penalty. B) Claims credit. C) Partial deductible. D) Rate credit. Answer: D

An insured owns an office building valued at $200,000. He carries a deductible of $1,000. The building sustains a loss of $40,000. If the insurance policy carries an 80% coinsurance clause, how much coverage must the insured carry to ensure that the loss is paid in full? A) $192,000.00 B) $200,000.00 C) $160,000.00 D) $80,000.00 Answer: C

The definition of actual cash value is: A) the cost of replacing damaged or destroyed property at the time of a loss. B) replacing damaged property with similar property that performs the same function as the damaged or destroyed property. C) replacement cost minus depreciation. D) replacement cost plus depreciation. Answer: C

Which of the following phrases best describes actual cash value? A) Original cost less depreciation. B) Replacement cost less depreciation. C) Replacement cost plus appreciation. D) Original cost less appreciation. Answer: B

When a policy is written on a reporting basis, a premium is paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This is called a (an): A) total premium. B) audited premium. C) deposit premium. D) final premium. Answer: C

Which of the following terms describes a building in which no one is present but to which the occupants intend to return? A) Vacant. B) Unoccupied. C) Occupied. D) Uninhabited. Answer: B

Which of the following terms is used to describe an empty building that is not being used? A) Absent. B) Vacated. C) Unoccupied. D) Vacant. Answer: D

When an insured fails to pay an insurance premium, the mortgagee remits the premium to the insurance company. When a loss occurs, the loss payment settlement would be made to the: A) mortgagee. B) insured. C) insured and the mortgagee. D) contractor. Answer: A

Which one of the following statements about the standard mortgage clause is CORRECT? A) The mortgagee is the only party that can submit claims under the policy. B) The mortgagee has no rights under the policy. C) Nothing the insured does can prevent the mortgagee from collecting under the policy. D) The mortgagee can only collect from the policy with the prior written consent of the policyowner Answer: C

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and: A) subrogate against the parking valet. B) relieve the parking valet of legal liability for the loss. C) subrogate against the named insured. D) recover any additional loss from the lienholder. Answer: A

A bailee is: A) someone who escorts litigants into a court room. B) a bond posted to free someone from jail. C) a temporary reprieve from liability. D) someone who has taken temporary custody of another person's property for a special purpose. Answer: D

The liberalization provision will do which of the following? A) Require the insurer to liberalize the conditions of the policies. B) Automatically broaden coverage without additional premium if there is a revision to the policy. C) Protect the insured against a cancellation of the policy. D) Allow the insurer to set the property values. Answer: B

What does the liberalization clause do to a property policy? A) Eases the criteria for concealment or fraud. B) Gives the insurer subrogation rights. C) Broadens coverage. D) Waives the premium in some situations. Answer: C

Two insurance policies apply to Monica's home. The limit for Policy A is $100,000, and the limit for Policy B is $50,000. Both policies have a pro rata other insurance clause. If she suffers a $9,000 covered loss to her home, how much will Policy A pay? A) $6,000.00 B) $9,000.00 C) $4,500.00 D) $3,000.00 Answer: A

Ace Insurance Company and Acme Insurance Company each insure the same building for the same amount. Both policies contain a pro rata other insurance clause. In the event of a partial loss, how much of the loss will Acme pay? A) One-third, because the insured is the third party to the contract and must bear a proportionate share of the loss. B) None, because second-named insurers always provide excess coverage. C) 0.5. D) 100%, although Acme will have the right to subrogate the claim against Ace Insurance Company Answer: C

The conditions section of an insurance contract sets forth: A) the limits of liability under the contract. B) the coverages provided by the contract. C) the exclusions of coverage under the contract. D) the duties of the insured and insurance company. Answer: D

The purpose of the conditions section of an insurance policy is to A) cover unique insurable exposures of the insured. B) list the obligations of the insured and the insurance company. C) alter the general provisions of the insuring agreement. D) eliminate uninsurable perils. Answer: B

Which of the following policy provisions restricts certain risks from coverage? A) Insuring agreement. B) Conditions. C) Exclusions. D) Declarations. Answer: C

When a small restaurant is damaged by a tornado, the owners are forced to close for 1 month while the property is repaired. The building suffers damages of $20,000. The owners estimate they will lose $50,000 in business receipts. In order to keep their staff, the owners must continue to pay salaries totaling $5,000. Ignoring any deductible, how much of the direct loss will the business owners policy pay? A) $20,000.00 B) $50,000.00 C) $55,000.00 D) $75,000.00 Answer: A

Which one of the following situations describes an indirect loss? A) Lost profits when business is suspended. B) Water damage caused by firefighters extinguishing a fire. C) Destruction of a car in a collision. D) Damage to a roof from a hailstorm. Answer: A

A business loses money because it was forced to close after a fire on the premises. This loss is described as a (an): A) proximate cause. B) named peril. C) indirect loss. D) direct loss. Answer: C

The insured has a named peril policy that covers hail, fire, wind, and lightning. Which one of the following events would be covered? A) A rain storm causes the insured's basement to flood. B) The roof collapses from heavy snow. C) A window is broken in a riot. D) The roof is damaged in an electrical storm. Answer: D

An all-risk or open-perils policy protects against: A) named perils unless otherwise excluded. B) any peril except those that are specifically excluded. C) any peril. D) only stated perils. Answer: B

The list of perils covered under a policy is found in which part of the policy? A) Declarations page. B) Conditions section. C) Exclusions section. D) Insuring agreement. Answer: D

The coverages offered by an insurance policy are described in the: A) definition section. B) conditions section. C) insuring agreement. D) declarations page. Answer: C

Which of the following is an example of property that might be insured on a valued basis? A) Golf equipment. B) Coin collection. C) Rare painting. D) Jewelry. Answer: C

A policy under which the insured and insurer agree on the property value and list the value in the policy is known as: A) a block policy. B) an agreed value policy. C) an actual cash value policy. D) a floater policy. Answer: B

Which of the following amounts is the maximum that an insurer will pay in case of a loss? A) Loss reserve. B) Condition. C) Actual cash value. D) Limit of liability. Answer: D

An insured owns 4 stores. As inventory is sold, the insured transfers new inventory from the other locations to the store making the sales. Which type of policy would best fit this insured's needs? A) Scheduled policy. B) Specific policy. C) Value Reporting policy. D) Blanket policy. Answer: D

Why do insurance policies usually define who is considered an insured under the policy? A) To specify who is covered in addition to the named insured. B) To specify who is a named insured. C) To specify who is not insured. D) To specify that the named insured is the only person covered by the policy. Answer: A

All of the following are characteristics of a qualified retirement plan, EXCEPT: a. Employer contributions are immediately tax deductible to the employer b. Employee contributions are either pre-tax or tax deductible c. The penalty for premature distributions may be waived for death, disability, qualified education costs, medical expenses and first -time homebuyers d. Employers in private industry are required to establish pension plans Answer: D

All of the following statements regarding a Modified Endowment Contract are correct, EXCEPT: a. Distributions received from a MEC are subject to a LIFO tax treatment b. Distributions on gains withdrawn from a MEC prior to age 59 1/2 are subject to a 10% penalty in addition to taxation c. A policy that fails the 7-pay test will be deemed a MEC d. If a policy is deemed a MEC, the owner has 7 years to receive a refund of excess premiums and remove the MEC status Answer: A

Which of the following statements is correct regarding an employer's ability to deduct the premiums it pays for an employee's life insurance benefit? a. Premiums are deductible as long as the business does not derive a direct benefit from the policy b. Premiums can be deductible if the business does not receive more than 50% of the death benefit c. An employer cannot ever deduct premiums it pays for an employee's life insurance benefit d. Employers can always deduct the premiums it pays for an employee's life insurance benefit Answer: B

Which of the following distributions in a life insurance policy is taxable? a. Policy loans b. Cash dividend from a participating policy c. Interest paid on a death benefit settlement option d. Withdrawal of cost basis Answer: D

Social Security monthly retirement benefits are determined using a formula that calculates which of the following? a. FICA b. FRA c. COLA d. PIA Answer: B

An advantage of key person life insurance is to: a. Provide the family of the deceased employee with up to ten years of the employee's lost future income b. Provide the owner of the policy with funds to recruit and train a replacement employee upon the death of an employee who contributes substantially to the success of a company c. Provide life insurance benefits to all eligible employees and their dependents d. Protect a partnership against the death of a partner by providing benefits to buyout a deceased partner's share of the business Answer: C

A Buy-Sell Agreement: a. Provides a business with funds in the event of the death of a key person who is not an owner b. Describes which relatives of a business owner have the right to purchase that person's interest in the business upon death c. Assures the continuation of the business by providing benefits to the surviving business partners to buyout a business partner's interest in the event one of them dies unexpectedly d. Specifies the conditions and requirements that are necessary to sell the business to a third party if a business owner dies unexpectedly Answer: A

In an employer-sponsored group life insurance plan, the employee's description of benefits is referred to as the: a. Certificate of Insurance b. Change of beneficiary form c. Master Policy d. Claim form Answer: A

An employer-sponsored group life insurance plan, the employee has control over which of the following? a. Amount of benefits b. Type of policy c. Naming a beneficiary d. Premium payment option Answer: C

All of the following are characteristics of a variable annuity, except: a. Premiums made into the annuity purchase accumulation units b. Designed to protect against inflation c. The separate account provides for a guaranteed minimum return d. Each month the payment will increase, decrease, or remain the same as the previous month's payment based on the actual return as compared to the assumed interest rate (AIR) Answer: C

A characteristic of a fixed annuity is that the: a. Annuitant cannot be changed b. Interest rate credited in the account varies based on the performance of the separate account c. Monthly income benefits are fixed and level d. Separate account has investment options Answer: B

All of the following factors are used to determine the monthly benefit payment of an annuity, except: a. Accumulated account value b. Age of annuitant c. Annuity payment option selected d. Annuitant's medical history Answer: D

All of the following statements are correct regarding an annuity, EXCEPT: a. An annuity can be characterized by immediate or deferred income b. Annuity premiums can be made in single or periodic payments c. An immediate annuity must start providing income within 3 years of the first premium payment d. The accumulation value grows tax-deferred Answer: C

When comparing life insurance to an annuity, an annuity: a. Protects against the annuitant living too long b. Provides tax-free payments for the lifetime of a beneficiary c. Creates a lump sum benefit to be paid upon the annuitant's death d. Guarantees a death benefit upon the insured's death Answer: A

A contract that is designed to accumulate value over time with the intent to provide a stream of income over the lifetime of an individual is called _________. a. Whole life insurance b. Variable life insurance c. Term insurance d. An annuity Answer: D

Dividend options do not include which of the following choices? a. Refund in cash b. Reduce premiums due c. Lifetime income d. Paid-up additional insurance Answer: C

Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options? a. Nonforfeiture options b. Settlement options c. Dividend options d. Beneficiary options Answer: B

A policyowner who wishes to maintain all rights in the policy should designate a(n): a. Irrevocable beneficiary b. Primary beneficiary c. Contingent beneficiary d. Revocable beneficiary Answer: D

The grace period in a life insurance policy is typically 31 days and provides for the: a. Insurance company to delay payment of the death benefit until it can determine the validity of the proof of death b. Payment of the premium to be received after its due date without a penalty or lapse in coverage c. Payment of the premium to be received after its due date with a maximum 5% penalty d. Policyowner to reinstate the policy before it lapses Answer: B

A policy is applied for on September 2, accepted as an insurable risk on September 20, mailed to the producer on September 22, and delivered by the producer inperson to the policyowner on September 25. The free look begins September ___. a. 2 b. 20 c. 22 d. 25 Answer: D

The incontestability clause states that after 2 years the: a. Insurer will not argue about which beneficiary is primary or contingent b. Insurer will only pay for suicide if the insured was insane at the time c. Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance d. Policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy Answer: C