Insurance MCQ

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n) Answer: Insuring agreement

Which statement regarding third-party ownership of a life insurance policy is true? Answer: It is used extensively in estate-planning as well as business circumstances

Which type of contract liquidates an estate through recurrent payments? Answer: Annuity

The provision in a health insurance policy that interrupts premiums being paid to the insurer while the insured is disabled is called the Answer: Waiver of Premium

Which of these is NOT a type of agent authority? Answer: Principal

Which plan is intended to be used by a sole proprietor and the employees of that business? Answer: Keogh Plan

What is considered to be a characteristic of an immediate annuity? Answer: Benefit payments start within one payment period of purchase

Which of these statements concerning an Individual Straight Life annuity is accurate? Answer: Payments are made to an annuitant for life

The annuity that represents the largest possible monthly payment to an individual annuitant is a(n) Answer: Straight Life annuity

S recently received a $500,000 lump sum retirement buyout from her employer. She would like to buy an annuity that will immediately furnish her with a guaranteed income for life. What type of annuity is best suited for her situation? Answer: Single Premium

The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is Answer: the cost

Which provision is NOT a requirement in a group life policy? Answer: Accidental

An employee with $25,000 group term life coverage was recently fired. This employee's group coverage may be converted to a Answer: $25,000 individual whole life policy

Under a trustee group life policy, who would be eligible for a certificate of coverage? Answer: Employee

On August 6, D submitted an application for a $50,000 Life Insurance policy and did not pay the initial premium. On August 18, D went to his doctor complaining of chest pains and some tests were given by the doctor. The life policy was delivered by the producer on August 20 and D explains what had recently taken place with the doctor. What action should the producer then take? Answer: Collect initial premium along with a signed health statement

What action should a producer take if the initial premium is NOT submitted with the application? Answer: Forward the application to the insurer without the initial premium

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? Answer: Collateral assignment

Which of these statements is INCORRECT regarding the federal income tax treatment of life insurance? Answer: Entire cash surrender value is taxable

T applies for a life insurance policy and is told by the producer that the insurer is bound to the coverage as of the date of the application or medical examination, whichver is later, provided that T is an acceptable risk. What item is given to T? Answer: Conditional receipt

P is a producer who notices 5 questions on a life application were not answered. What actions should P take? Answer: Set up a meeting with the applicant to answer the remaining questions

A policyowner is allowed to pay premiums more than once a year under which provision? Answer: Mode of Premium

Which premium schedule results in the lowest cost to the policyowner? Answer: Annual

A level premium indicates Answer: the premium is fixed for the entire duration of the contract

T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive? Answer: $0

If warranties are later discovered untrue or breached, what can happen? Answer: coverage and the contract may be voided.

If a material misrepresentation leads to the issuance of a policy, what can happen? Answer: coverage does not apply and may void the policy

What representations do not affect the acceptance or rating of the risk? Answer: immaterial representations

Statements that impact the acceptance of an insurable risk are Answer: material representations

In a conditional contract, the insured can only collect if what? Answer: there has been a covered loss where the insurer's list of conditions in the contract must be met

True or False: The insured in a unilateral contract has the right to cancel the policy at any time and cannot be legally forced to pay the premiums. Answer: True

When all the conditions are met by the insured in a unilateral contract, the insurer makes an enforceable promise of future performance and can be charged with what if those obligations are not me? Answer: breach of contract

In what type of contract is it very likely that there will be an unequal exchange of consideration by either party, depending on if a loss actually occurs and to what extent? Answer: aleatory contract

What type of contract is presented to the applicant on a "take-it-or-leave-it" basis? Answer: contract of adhesion

True or False: A contract of adhesion is negotiable. Answer: False: a contract of adhesion is not negotiable

How many parties write a contract of adhesion? Answer: one party, the insurance company, without any input from the applicant

Insurance is considered to be what type of contract? Answer: a contract of adhesion

If the premium does not accompany the application, the insurer may still issue a policy. In this case, what is considered the offer and acceptance? Answer: the policy is considered the offer and the premium, when paid, becomes the acceptance.

The "offer" aka premium and the "acceptance" aka issued policy together form a what? Answer: an agreement

What is the "acceptance" in insurance? Answer: the approved application allowing the policy to be issued

What is the "offer" in insurance? Answer: when an applicant submits an application to the insurance company for insurance along with the initial premium

A legal agreement requires what two parts? Answer: an offer and an acceptance

What disqualifies someone as a competent party? Answer: a minor (age 16 or under), mentally incompetent, & under the influence of drugs or alcohol

To enter a contact you need? Answer: legal capacity aka competent parties

A legal contract requires what four essential elements? Answer: competent parties, legal purpose, agreement, & consideration

Why does the lack of insurable interest make the purchase of insurance or payment of a claim illegal? Answer: benefiting from the policy without suffering a financial or economic loss would allow for a person to profit from the loss

In the case of life and health insurance, contract law requires that insurable interest must exist at the time of Answer: the application, not the time of the loss.

What relationships most often qualify as insurable interest? Answer: family

In life and health insurance, indemnity takes the form of what? Answer: cash (a death or disability income benefit) or payments to physicians or hospitals for care and services provided to an insured who is injured or ill

Is it possible to indemnify a person of all losses with life and health insurance? Answer: no

The insurance contract involves the exchange of what? Answer: small and definite expense (known as premium) for the promise of payment for a large uncertain loss

A Currency Transaction Report (CTR) must be filed with FINCEN (Financial Crimes Enforcement Network) through the Department of Treasury for Answer: every cash transaction that exceeds $10,000 and wire transfers in excess of $3,000.

True or False: Per PATRIOT ACT, financial institutions and insurance companies are required to provide anti-money laundering (AML) training to their producers. Answer: True

PATRIOT Act was passed to help detect and prevent Answer: money laundering

Fair Credit Reporting Act (FCRA) protects the consumer's right to Answer: privacy of credit and financial information

What are the 3 kinds of insurer domicile? Answer: domestic, foreign, and alien

T or F: Fraternal insurers: Membership is typically drawn from members of a given religious organization, lodge, order, or society. Answer: True

T or F: Fraternal insurers are typically non-profit. Answer: True

Fraternal insurers are primarily what type of organization? Answer: social

Mutual insurer dividends are not guaranteed and are considered a return of premium based on what? Answer: any surplus at the end of the year once all claims and operating expenses have been paid

Mutual insurer policyholders may receive non-taxable dividends as a return of what? Answer: unused premium

Why do stock insurers issue non-participating policies? Answer: policyholders not entitled to dividends

Stockholders share in the company's profits and may receive corporate dividends taxable as ordinary income IF Answer: declared by the Directors

Who runs the day-to-day activities of a stock insurer company? Answer: officers elected by board of directors

Who manages a stock insurer company? Answer: a board of directors elected by stockholders

A stock insurer is owned by who? Answer: stockholders/shareholders

Does the NAIC have any legal authority to enact or enforce insurance laws? Answer: no

Who represents the executive branch and has the power to issue rules and regulations to help enforce these statutes? Answer: Commissioner, Director, or Superintendent of Insurance

A producer must include their name and address on which of the following? Answer: policy summary

Does life insurance eliminate or transfer risk? Answer: does not eliminate risk; it transfers the larger risk from the policyowner/insured to the insurance company

To bind the company to the terms of the contract, the face of the policy also includes signatures of the Executive Officers

What needs to be collected before coverage can begin? Answer: premium

A counter-offer policy must be hand-delivered by producer why? Answer: to collect any additional premium, explain any substandard rating or changes in coverage and premium, and reinforce the value of the contract

If a policy is not approved as applied for and is issued as substandard, the insurer may Answer: make a "counteroffer" to the applicant by issuing a policy with a surcharge (higher rating) or exclusions to the policy

During policy delivery, its the producer's responsibility to obtain what? Answer: delivery signatures and explain policy benefits to the policyowner/insured.

Who does the annual mode result in the lowest premium outlay while monthly premiums result in the highest? Answer: to offset the lost interest earnings and increased administration costs

Premium payments are made how often? Answer: either monthly, quarterly, semiannually, or annually.

Mortality Table also show that males have a higher mortality rate than females. Based on this statistic, what will happen to males premiums? Answer: males will pay a higher rate than females.

Premiums are based on what 3 factors? Answer: expected mortality, interest, and expenses

If an applicant is an acceptable risk, underwriters will then determine what? Answer: the classification to be used in the calculation of the premium

What is not considered an underwriting factor? Answer: marital status

Underwriting attempts to eliminate what? Answer: conditions with more frequent and higher claims than the insurer's rates anticipate

Underwriting involves analysis of the applicant to determine what? Answer: if he/she is acceptable for the proposed insurance

Special Hazardous Activity Questionnaire is used to determine what? Answer: If an applicant has engaged in high-risk hobbies (skydiving, scuba diving, motorcycle racing), a questionnaire is used to determine the risk and frequency of those hobbies and if those activities will affect insurability.

Does an Agent's Report remain confidential? Answer: yes, only between the producer and the insurer

Can the MIB alone be used to decline an applicant for insurance? Answer: No, since its info is general

The non-profit organization MIB, Inc is owned by who? Answer: its members

Required medical exams are at the expense of who? Answer: the insurer

What is the primary source for underwriting? Answer: the application

Is a binding receipt allowed for life insurance? Answer: no

Replacement is any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: Lapsed, forfeited, surrendered, or terminated Reduced in value Amended with a reduction in benefit or term Reissued with a reduced cash value Subjected to borrowing

Why must all individually identifiable health information obtained on an applicant during the underwriting process remain confidential and the applicant's privacy protected? Answer: HIPAA's Privacy Rules

Who is the Notice of Information Practices disclosed? Answer: as part of the application. The signature on the application by the applicant serves as the notice of information practices

For an insurance company to receive information by a third party by FCRA laws, what must happen? Answer: The applicant must be notified and give written consent

A copy of what must either be provided to the applicant at the time of application or no later than policy delivery? Answer: buyer's guide & policy summary

Which type of hazard is dishonesty, drugs, alcohol abuse, etc.? Answer: Moral

Which type of hazard is poor health, overweight, blind, etc? Answer: Physical

What is the only insurable risk and presents a potential for loss only with no possibility of gain, such as injury, illness, and death? Answer: Pure Risk

What presents the chance for both loss and gain? Ex. Gambling Answer: Speculative Risk

Similar objects of insurance that are exposed to the same group of perils. Answer: Homogeneous Exposure Units

Described as unintentional decrease in the value of an asset due to a peril. Answer: Loss

Described as something that can cause a financial loss. Answer: Peril

What is described as spreading risk by sharing the possibility of loss over a large number of people? Answer: Risk Pooling

A nonparticipating company is sometimes called what? Answer: Stock Insurer

What is a type of insurer that is owned by its policy owners? Answer: Mutual

What is issued by a mutual insurer and provides a return of divisible surplus? Answer: Participating Life Insurance Policy

Which policy will not pay dividends? Answer: Nonparticipating policy

What is described as a plan in which an employer pays insurance benefits from a fund derived from the employers current revenue? Answer: Self-Funded Plan

What is described as an insurers ability to make unpredictable payouts to its policy owners? Answer: Liquidity

Primary purpose for a rating service company such as A.M best? Answer: To determine financial strength of an insurance company

A Variable Life contract must contain all of the following provisions EXCEPT: A.Reinstatement B.Nonforfeiture C.Accidental Death D.Grace Period Answer: C

An individual may obtain a temporary insurance producer's license without passing the licensing examination if the individual: A.is a deceased licensed producer's next of kin B.is taking insurance courses at a university C.has met the minimum experience requirement D.holds a license in another state Answer: A

Which of the following statements is CORRECT about insurance producers who fail to satisfy the continuing education requirements? A.They may be subject to a fine. B.They may be subject to legal prosecution. C.Their licenses will be terminated. D.Their licenses will be suspended. Answer: C

An individual appointed by an insurance company to solicit applications for a policy of insurance on its behalf is known as: A.an adjuster B.a consultant C.an insurance broker D.an insurance producer Answer: D

Controlled business is defined as insurance a producer writes on all of the following individuals EXCEPT the producer's: A.relatives B.employees C.neighbors D.spouse Answer: C

Which of the following statements about Credit Life insurance is CORRECT? A.It may be provided through a group or individual policy. B.The face amount must exceed twice the amount of the debt. C.The premiums must be paid by the lender. D.The lender may require that it be purchased through a particular insurance company. Answer: A

An insurance producer who makes false statements that harm the reputation of another insurance company is guilty of: A.discrimination B.defamation C.misrepresentation D.controlled business Answer: B

In a life policy, a special benefit that prepays a portion of the death benefit during the lifetime of an insured in the event of a specified illness is called: A.an accidental death and dismemberment benefit B.an acceleration of life insurance benefit C.a major medical benefit D.a waiver of premium disability benefit Answer: B

Which of the following persons is authorized to enforce state insurance laws? A.The Insurance Commissioner B.The state Attorney General C.The Governor D.The state Auditor Answer: A

Which of the following types of insurance policies is EXEMPT from the Life Insurance and Annuity Replacement Rule? A.Group Life B.Convertible Term Life C.Ordinary Whole Life D.Universal Life Answer: A

An individual who, for the purpose of collecting premiums, acts for another in negotiating a contract of insurance is considered to be: A.a principal B.a broker C.a solicitor D.a producer Answer: D

The purpose of the FAIR Plan is to provide: A. automobile insurance for high-risk drivers B. crime insurance for residents of high-risk neighborhoods C. property insurance on recreational vehicles for which such coverage is unavailable in the regular market D. basic property insurance for which coverage is not available in the regular market Answer: D

An incorporated insurer with capital divided into shares and owned by its shareholders is known as: A. a stock company B. a mutual company C. a fraternal benefit society D. an association group Answer: A

The Insurance Commissioner is empowered to: A. enforce state laws relating to insurance B. pass state laws relating to insurance C. write policy forms for mandatory insurance coverages D. set rates for mandatory insurance coverages Answer: A

If an owner-occupied dwelling is totally destroyed without criminal fault on the part of the insured, the amount of the loss covered by a property policy would be based on: A. a depreciated value of the dwelling B. the policy limits C. the market value of the dwelling D. the assessed value of the dwelling Answer: B

In this state, a domestic insurer is defined as a company that: A. operates in this state but is incorporated in another state B. operates in this state but is domiciled in another state C. is headquartered in this state D. is incorporated in this state Answer: D

Under the standard flood insurance policy, all of the following loss avoidance measures are covered up to $1,000 when damage to the insured property due to flooding is imminent EXCEPT: A. sandbags, including the sand to fill them B. tools required to secure the property C. plastic sheeting and lumber D. the value of work, at the federal minimum wage, that a member of the household performs Answer: B

After an insurance producer license is issued, a licensee MUST complete how many hours of approved continuing education courses every two years? A. Ten B. Fifteen C. Twenty D. Twenty-four Answer: D