Life License Practice Test 1 - Questions and Answers Nonforfeiture values guarantee which of the following for the policyowner? That the cash value will
... [Show More] not be lost. Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered. When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will Issue the policy anyway and pay the face value to the beneficiary. The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for. The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a Convertible Term Policy. A convertible term policy has a provision that allows the policyowner to convert to permanent insurance. Which of the following best defines target premium in a universal life policy? The recommended amount to keep the policy in force throughout its lifetime. The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime. Which of the following is NOT true regarding the annuitant? The annuitant cannot be the same person as the annuity owner. While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person. When is the earliest a policy may go into effect? When the application is signed and a check is given to the agent. The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for. All of the following are TRUE statements regarding the accumulation at interest option EXCEPT The interest credited under this option is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it. Which is true about a spouse term rider? The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance. An insured purchases a policy in 2008 and died in 2013. The insurance company discovers at that time that the insured concealed information during the application process. What can they do? Pay the death benefit. The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact. An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age. According to the entire contract provision, what document must be made part of the insurance policy? Copy of the original application. An insurance contract must contain a copy of the original application. A life insurance policy has a legal purpose if both of which of the following elements exist? Insurable interest and consent. To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent. Which of the following is called a "second-to-die" policy? Survivorship life. Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. An employer has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called? Profit sharing plan. A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualified plans, but company profit isn't an issue with them. What does "liquidity" refer to in a life insurance policy? Cash values can be borrowed at any time. Liquidity in life insurance refers to availability of cash to the insured through cash values. The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life. All of the following are examples of third-party ownership of a life insurance policy EXCEPT An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan. A collateral assignment is the transfer of some or all of the death benefits of the policy to a creditor as security for a loan, but does not give the creditor the rights of ownership. In the event of the insured's death, the creditor would only be able to recover that portion of the policy's proceeds equal to the creditor's remaining interest in the loan. All of the following are personal uses of life insurance EXCEPT Estate liquidation. Personal uses of life insurance include survivor protection, estate creation and conservation, cash accumulation, and liquidity. The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application? Return to the applicant for completion. Any unanswered questions need to be answered before the policy is issued. If the insurer receives incomplete applications, they need to be returned to the applicants for completion. In a life settlement contract, whom does the life settlement broker represent? The owner. Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners. Which of the following is INCORRECT concerning a noncontributory group plan? The employees receive individual policies. The employer receives a master policy, and employees receive a certificate of insurance. [Show Less]