1
Which of the following best describes the concept of "Insurable Interest"?
A. Policyholder must stand to lose money if insured dies.
B. Insured must have a financial interest in insurer
C. Insurer must have a financial interest in policyholder
D. Beneficiary must be related to insured
A. Policyholder must stand to lose money if insured dies.
Insurable interest means the policyholder must stand to lose something of financial value if the insured dies. It prevents wagering on someone's life.
Which of the following is not an element of a valid insurance contract?
A. Consideration
B. Competent parties
C. Conditional receipt
D. Legal purpose
C. Conditonal receipt
A conditional receipt is not an element of a valid contract - elements are: Offer, Acceptance, Legal Purpose, and Competent Parties
A term life policy provides:
A. Coverage for insured's entire lifetime
B. Coverage that builds cash value
C. Temporary proteection with no cash value
D. A guaranteed rate of return on investments
C. Temporary proctection
Term life provides coverage for a specific period of time with no cash value.
Which type of policy allows the policy owner to adjust the death benefit, premium, and coverage period?
A. Variable Life
B. Adjustable Life
C. Universal Life
D. Whole Life
C. Universal Life
Allows flexible premiums, adjustable death benefits, and builds cash value with an interest-bearing account.
In a Universal Life policy, the cash value account earns interest:
A. At a fixed rate set by state
B. Based on insurer's portfolio performance
C. Based on stock market index
D. Only when premiums are paid
B. Based on insurer's portfolio performance
Universal Life interest is credited based on the insurer's general investment portfolio performance with minimum guaranteed rates.
Which of the following is true about a policy loan?
A. Must be repaid within 12 months
B. It is taxable income
C. It reduces the policy's cash value and death benefit if unpaid
D. It cancels the policy
C. It reduces the policy's cash value and death benefit if unpaid.
Which of the following is a nonforfeiture option?
A. Extended term insurance
B. Waiver of premium
C. Payor benefit
D. Accidental death benefit
A. Extended term insurance
A conditional receipt provides:
A. Coverage immediately upon application
B. Coverage only after underwriting approval
C. Coverage effective on the date of application if insurable
D. Coverage only after policy is delivered
C. Coverage effective on the date of application if insurable.
Premium must also be paid
A tax-qualified annuity differs from a non-qualified annuity because:
A. Qualified annuities are funded with pre-tax dollars
B. Non-qualified annuities are always tax-free
C. Qualified annuities are only for those under 50 years old
D. Non-qualified annuities cannot have beneficiaries
A. Qualified annuities are funded with pre-tax dollars
During the annuity payout period, payments to the annuitant are:
A. Fully tax-free
B. Partially tax-free and partially taxable
C. Fully taxable
D. Taxed only on capital gains
B. Partially tax-free and partially taxable
Earnings are taxed, principle is not
Which annuity provides the highest monthly income?
A. Joint and Survivor
B. Life with period certain
C. Straight Life
D. Refund Life
C. Straight Life
Ends at death - no refund or survivor benefits
The primary source of underwriting information is:
A. MIB report
B. Insurance application
C. Attending Physican's statement
D. Consumer report
B. Insurance application
MIB and Medical reports are supporting data
When must insurable interest exist in a life insurance contract?
A. At policy issue
B. At time of claim
C. At end of term
D. At all times
A. At policy issue
The NC Guaranty Association protects policyholders if an insurer becomes incsolvent up to:
A. $100k death benefit
B. $250K death benefit
C. $300K death benefit
D. $500k death benefit
C. $300k death benefit
Twisting is:
A. Misleading a client to replace an existing policy
B. Failing to collect the first premium
C. Selling a term policy as a whole life policy
D. Withholding commission information
A. Misleading a client to replace and existing policy
A policy summary must include:
A. A copy of the application
B. Name, address, and poliy description
C. Only premium rate
D. Tax advice for the client
B. Name, address, and policy description
Policy summary must include insurer name, policy number, premiums, and benefits. It's a consumer disclosure document.
A group life policy in NC must cover at least:
A. 5 people
B. 10 people
C. 25 people
D. 50 people
B. 10 people
A domestic insurer is:
A. incorporated under NC laws
B. incorporated in another state but sells in NC
C. operates outside of the USA
D. chartered by the federal government
A. incorporated under NC laws
The incontestability clause in a life insurance policy prevents the insurer from:
A. Charging higher premiums after two years
B. Contesting the policy due to misrepresentation after two years
C. Canceling the policy for nonpayment after two years
D. Denying a claim for suicide
B. Contesting the policy due to misrepresentation after two years
The incontestability clause means that after the policy has been in force for two years, the insurer cannot void it due to statements (even false ones) made in the application, except for fraud.
Which provision allows a policyowner to restore a lapsed policy by paying overdue premiums and providing proof of insurability?
A. Grace Period
B. Reinstatement Provision
C. Waiver of Premium
D. Conversion Option
B. Reinstatement Provision
The reinstatement provision allows a lapsed policy to be reactivated, typically within three years of lapse, if the insured pays all past-due premiums (plus interest) and proves insurability.
The “grace period” in a life insurance policy is designed to:
A. Allow time for reinstatement
B. Prevent the policy from lapsing immediately after a missed premium payment
C. Allow the insured to skip a payment
D. Extend coverage indefinitely without payment
B. Prevent the policy from lapsing immediately after a missed premium payment
The grace period (usually 31 days) ensures that coverage continues even if a premium is late. If the insured dies during this period, the insurer still pays the benefit minus the overdue premium.
Under a life insurance policy’s misstatement of age provision, if the insured’s age was misstated, the insurer will:
A. Cancel the policy immediately
B. Adjust the death benefit to the correct amount based on true age
C. Void the policy for misrepresentation
D. Refund all premiums paid
B. Adjust the death benefit to the correct amount based on true age
The misstatement of age or gender provision prevents policy cancellation. Instead, the insurer adjusts the death benefit to reflect what the premiums would have purchased at the correct age or gender.
The waiver of premium rider does which of the following?
A. Waives all future premiums if the insured becomes disabled
B. Returns premiums if the insured dies during the grace period
C. Waives interest on policy loans
D. Pays double the death benefit upon accidental death
A. Waives all future premiums if the insured becomes disabled
The waiver of premium rider ensures that if the insured becomes totally disabled (typically for 6 months or more), the insurer waives future premiums while keeping the policy in force.
If a primary beneficiary dies before the insured, who receives the policy proceeds?
A. The insured’s estate
B. The contingent (secondary) beneficiary
C. The insurance company
D. The policyowner
B. The contingent (secondary) beneficiary
The contingent beneficiary (also called the secondary beneficiary) receives the death benefit only if the primary beneficiary predeceases the insured. If no contingent is named, the proceeds go to the insured’s estate.
A policyowner stops paying premiums on a whole life policy with cash value. The policy automatically uses the cash value to keep the policy in force. Which provision makes this possible?
A. Extended Term Option
B. Automatic Premium Loan Provision
C. Grace Period
D. Reinstatement Provision
B. Automatic Premium Loan Provision
The automatic premium loan (APL) provision prevents an unintentional lapse by automatically borrowing from the policy’s cash value to pay overdue premiums. The policy stays active as long as sufficient cash value remains, but the loan plus interest must eventually be repaid or it will reduce the death benefit.