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Arizona Life Insurance Exam Answers
a whole life policy that provides a choice of dividend options include the following statement about dividends
they accrue at a guaranteed rate
they are deferred for one year
they are not guaranteed
they are guaranteed after the first year
When there is a named beneficiary on a life insurance policy, the death benefits
1. are directed to a trustee if the insured has any outstanding debts
2. are paid directly to the insured`s creditors, with any remaining balance forwarded to the beneficiary
3. are paid directly to the beneficiary, minus any debt claims by the insured`s creditors
4. are paid directly to the beneficiary without interference from the insured`s creditors
What determines how much an annuitant is paid for a variable annuity
1. varies according to how many outstanding annuitant is paid for a variable annuity
2. payments fluctuate as annuitant gets older
3. the market value variations of the securities backing it
4. varies according to the insurers investments in its general account
A terminated employee has how many days upon termination to convert group life insurance coverage to an individual policy
10 days
15 days
30 days
31 days
Rick owns a variable universal life insurance policy and chooses a variable death benefit option. what will typically happen to the death benefit as a result of this section
1. remain the same
2 decrease but never increase
3 increase but never decrease
4 fluctuate with changes in the cash amount
The policy provision that permits an employee to change from group life insurance to an individual policy is called
1 assignment provision
2 conversion provision
3 certificate provision
4 modification provision
when the deferred annuity is surrendered, who must sign the authorization to do so
owner
annuitant and beneficiary
annuitant
all parties involved
Which of the following is NOT a valid contract exchange?
1. an annuity exchanged for a life insurance policy
2 an annuity exchanged for another annuity
3 a life insurance policy exchanged for another life insurance policy
4 a life insurance policy exchanged for another annuity
which of these statements regarding the extended term insurance nonforfeiture option in a life policy is accurate
evidence of insurability is required
coverage remains until death of the insured
the premium to purchase the coverage comes from the policy`s cash value
cash value will continue to grow
A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured death
total premiums paid plus the policy face amount
face amount plus interest
interest acquired plus total premiums paid
face amount minus any outstanding loan balances
which of these is NOT considered the responsibility of a producer during the underwriting process
collecting additional medical information if needed
promptly sending the completed application to the insurance company
forwarding any material personal observations to the insurer
selecting the final approval date
which of the following is NOT guaranteed in a whole life policy
settlement options
nonforfeiture options
dividend scale
policy loan values
all of these duties that a producer may be required to perform when delivering an insurance policy EXCEPT
acquire a statement of good health signature
gather the initial premium
review policy with applicant
leave a conditional receipt with client
laura added a children`s rider to her life insurance policy. what type of coverage was added
level term
increasing term
decreasing term
juvenile term
what would be the disadvantage of naming a trust as a beneficiary of a life insurance policy
trusts cannot be formed for life insurance purposes
trust administrations fees would reduce policy proceeds
trusts cannot be used if a minor is the beneficiary
trustee must be a bank or brokerage
what does a fixed life annuity offer protection against
inflation
premature death
inadequate retirement planning
savings depletion due to longevity
A trustee-to-trustee transfer of rollover funds in a qualified plan allows a participant to avoid
mandatory income tax withholding on the amount transferred
paying transfer fees
paying trustee fees
ever paying income taxes on the distributions
what happens when a policy owner borrows against the cash value of his life insurance policy
the policy proceeds would be reduced by the outstanding loan balance
no additional loans can be taken out in the future
the amount borrowed is added to the policy owners gross income for tax purposes
the interest on the loan is tax deductible
straight whole life insurance can be accurately described in all of these statements EXCEPT
policy protection normally expires at age 65
nonforfeiture values are available to the policy owner
provides level protection with level premiums
cash value loans are permitted
which statement regarding the joint and survivor life insurance settlement options is NOT true
age of beneficiaries plays a factor when determining the payment amounts
income continues until the last beneficiary dies
two or more beneficiaries can be paid
the amount of each installment is larger than the single life income option
which statement regarding universal life insurance in correct
cash value accumulations have a guaranteed minimum interest rate
policy owner can change the face amount but not the premium
policy owner can change the premium but not the face amount
partial withdrawals cannot be made from the policy`s cash value
which of the following statements about universal life insurance in NOT true
death benefit can be increased
premiums are flexible
universal life insurance normally has a minimum guaranteed cash value for duration of the policy
the cash value interest rate must equal or exceed a guaranteed minimum value
contributions made by an employee to a qualified retirement plan are required to be
subject to income taxes
fully refundable
nonforfeitable
subject to a vesting schedule
Taxable income may be the result from all of these modified endowment contract (MEC) tranasactions except for
a cash value loan is taken out
automatic premium loan provision is utilized
the policy is surrendered for less than what was paid into it
dividend is issued
which statement regarding the life insurance premium for a childrens rider is true
decreasing premium as each child becomes an adult
premium remains the same no matter how many children
increasing premium as additional children are born
no premium is normally charged for a childrens rider
which of the life insurance policies does NOT contain a cash value provision
modified whole life
universal life
decreasing term life
adjustable life
what is the tax treatment of benefit payments for a non-qualified annuity
benefit payments are always fully taxable
benefit payments are subject to taxes only prior to age 70 1/2
benefit payments must begin at age 59 1/2 to void a penalty
benefit payments received after 70 1/2 are always tax-exempt
The insurance coverage in a variable life insurance policy may vary based on the value of
the AM best rating the company has received
its underlying investments
the consumer price index
the total premiums paid
A life insurance policys waiver of premium rider has the ability to
waive the premium payments in the event the insured becomes financially insolvent
relieve the insured of preimum payments following an initial waiting period after the insured becomes totally disabled
provide a policy loan to cover the premium payments in the event the insured becomes totally disabled
waive the premiums on this policy as well as any other insurance policy belonging to the insured i the event of total disability
kevin has an existing life insurance policy and assigns it to another insurer for a new contract. how would this transaction be treated for tax purposes
as section 1035 exchange
as a transfer
as a rollover
as a section 1040 exchange
when would evidence of insurability be required for a person already covered with a variable universal life policy
when the premium is increased
when the policy has renewed
when the death benefit is increased
when policy is being converted to permanent coverage
which of these may NOT be deducted from premium payments or the cash value of a variable life insurance policy
mortality costs
administrative charges
investment management fees
federal premium taxes
A material change in a modified endowment contract (MEC) results in
the contract becoming void
a new contestable period
the seven pay test, adjustable for cash value, applies again
a tax penalty
which event triggers a deferred annuity to start making benefit payments to the annuitant
when he owner dies
when the contracts cash value exceeds the cost basis
when the contract is annuitized
cash surrender of the annuity
A business becoming incorporated is an example of risk ____.
eduction
severance
retention
transfer
A single premium deferred annuity sometimes contains a bailout feature. Which statement regarding this feature is correct?
If the interest rate falls below a specified level, the surrender charge is waived
If the interest rate rises above a certain level, the surrender charge is waived
It allows the Life and Health Guaranty Association to bailout the insolvent insurer
A reinsurer will make the remainder of the annuity payments if the original insurance company becomes insolvent
An individual participant personally received eligible rollover funds from a profit-sharing plan. What is the income tax withholding requirements for this transaction?
10% is withheld for income taxes
20% is withheld for income taxes
30% is withheld for income taxes
Nothing is withheld
Which of these is NOT an advantage of term life insurance?
The greatest amount of coverage can be provided for the initial premium paid
It can be provided as a rider to another policy
A cash benefit will be provided if the insured is alive at the end of the policy period
Temporary insurance needs can be met
Which of the following is a TRUE statement regarding universal life insurance?
Death benefits are normally taxable
Policy loans are not permitted
Premiums or face amount cannot be changed
Policy indicates how much of each premium is used toward company expense
Which type of life insurance policy allows a policyowner the choice of investments along with flexible premium payments?
Variable universal life
Modified endowment contract
Adjustable life
Graded premium whole life
How long does protection normally extend to under a limited pay whole life policy?
It depends on the performance of the underlying investment account
When premiums are no longer
required as stated in the contract
Until age 65
Until age 100
A life policy that has premiums that are lower than normal during the early years is called
Decreasing term
Modified life
Variable life
Limited-pay life
The annuitant in a single premium deferred annuity (SPDA)
receives immediate benefit payments
makes only one premium payment
can make tax-free withdrawals until the principal is recovered
is also the beneficiary
How can an insurance company minimize exposure to loss?
Risk concealing
Reinsuring risks
Reissuance
Risk assumption
What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?
Joint and survivorship
Survivorship life
Universal life
Joint life
What happens to the cash value of a market value adjusted annuity if it’s surrendered prior to the end of the stated guarantee period?
Subject to market value adjustment
Subject to no adjustments
Subject to a surrender charge only
Cash value is forfeited
What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?
All actions by the producer
Not responsible for any acts by the producer
Responsible for acts that involve misrepresentation only
Responsible for acts by the producer that are authority only
A life insurance producer’s underwriting duties may include
approving or declining a life insurance application
seeking additional information requested by the insurance company
ordering an MIB report
determining the rate classification of the applicant
Which of these annuity contract features is meant to discourage withdrawals and exchanges?
Annuitization
Annual fees
Withdrawal penalty
Surrender charges
A Keogh plan is a(n)
unqualified retirement plan for large corporations
qualified retirement plan for the self employed
tax-exempt annuity for government workers
split dollar plan for key employees
A qualified profit-sharing plan is designed to
allow key employees to participate in the profits of the company
distribute a portion of company earnings to its employees
keep key employees from leaving the company
allow employees to elect company officers
What effect can a long-term care benefit rider have on a life insurance policy?
Increased cash value
Decreased cash value
Increased death benefit
Reduced death benefit
ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk
transference
retention
reduction
avoidance
Which of the following is NOT a reason for a business to buy key person life insurance?
The reduction in sales as a direct result from death of the key employee
A void in leadership if the key person were to die
The loss of company revenues while a replacement is being sought
An increased pension liability if the key employee dies
The insurance coverage in a variable life insurance policy may vary based on the value of
the AM Best rating the company has received
its underlying investments
the consumer price index
the total premiums paid
Which of the following could be a future use of the cash value that builds in a recently-purchased whole life insurance policy?
Convert the cash value to a paid-up term policy
Gives policyowner ability to borrow against funds within two years
Increases the policy’s face amount
Provide supplemental income in 35 years
An agent’s authority to bind an insurer to an insurance contract may be granted in the
agent’s contract and the insurance company’s appointment
agent’s license and insurance
company’s certificate of authority
buyer’s guide and policy summary
state guaranty association
An annuity’s accumulation period may
continue after the purchase payments stop
continue after the benefit payments start
continue after the annuitant dies
continue after the annuity has been surrendered
When would evidence of insurability be required for a person already covered with a variable universal life policy?
When the premium is increased
When the policy has renewed
When the death benefit is increased
When policy is being converted to permanent coverage
What is considered the collateral on a life insurance policy loan?
No collateral is needed
The policy’s cash value
The policy’s face value
The equity in a policyowner’s home
What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?
$0
$50,000
Under $50,000 initially, but decreases annually over time
Under $50,000 initially, but increases over time
Under the Law of Agency, the principal is considered to be
the producer
the insurer
the plan administrator
the insured
Which would be described as a beneficiary designation by class?
Children of the insured
Estate of the insured
Tertiary beneficiary
A specific named beneficiary
Which of these policies is considered a whole life policy?
Credit life
Single premium life
Renewable life
Convertible life
An insurance policy that can also be classified as a securities product is called
variable life
modified life
universal life
a Modified Endowment Contract
How does a continuous premium whole life policy differ from a limited payment whole life policy?
The time period in which premiums will be paid
The availability of cash value loans
The availability of nonforfeiture options
The settlement options
Which statement is INCORRECT about the interest-only settlement option in a life insurance policy?
Interest rate is guaranteed with a minimum rate
Interest on proceeds must be paid by the beneficiary
Interest is payable to a stated beneficiary
Interest must be paid at least annually
All of these are considered features of whole life insurance EXCEPT
Cash value accumulation
Permanent coverage
Initial premium is lower than for an equivalent amount of term insurance
Policy loans are allowed
Which benefit is normally payable to a life insurance policyowner when the insured’s life expectancy has been severely limited?
Reduced paid-up option
Accelerated (living) benefit
Return of Premium benefit
Extended term option
Who normally pays the premiums for group credit life insurance?
Creditor and borrower share the cost equally
Borrower
Creditor
Beneficiary
Which of these is NOT a common life insurance nonforfeiture option?
Reduced paid-up insurance
Extended term option
Cash surrender option
Life income annuity
An individual who purchases a modified life insurance policy expects
a higher rate of return
coverage for two people
an improvement in future income
a flexible face amount
Which of these is a true statement regarding survivor benefits under a qualified retirement plan?
Survivor benefits can only be waived with the written consent of a married employee’s spouse
Survivor benefits CANNOT be waived with the written consent of a married employee’s spouse
Survivor benefits are rarely included in small company plans
Survivor benefits do not apply to divorced employees
Which of the following would NOT be appropriate for an immediate annuity?
A lottery winner who opted for a lump-sum payment
A parent saving for a child’s college
A beneficiary collecting the face amount of a life insurance policy
Someone who just won a large settlement
A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to
purchase life insurance policies on his children as they are born
purchase life insurance on a spouse after becoming married
purchase additional life insurance at anytime
periodically purchase additional insurance
Which of the co-annuitants listed below would receive the largest monthly benefit payments in a joint and 100% survivor annuity?
Ages 70 and 72
Ages 60 and 80
Ages 71 and 73
Ages 69 and 71
How is a collateral assignment used in a life insurance contract?
Transfers permanent ownership rights to a creditor
Assigns complete ownership rights to a creditor
Transfers specific ownership rights to a creditor
Assigns ownership rights to the primary beneficiary
What could be the potential result of taking out a cash value loan under a life insurance policy?
Death benefit will be subject to income taxes if insured dies with an outstanding loan balance
Interest that accrues on policy loan is tax-deductible to the policyowner
Loan amount will be added to the policyowner’s gross income
Reduces the amount receivable upon surrender of the contract
Which statement regarding the cash value of a whole life insurance policy is correct?
Can be borrowed against, starting in the policy’s fifth year
Cash value accumulation is based on the performance of a separate investment account
Available to the policyowner when policy has been surrendered
Starts growing with the initial premium
During the liquidation phase of an annuity contract, to whom are the income benefits normally payable to?
Trustee
Beneficiary
Policyowner
Annuitant
Which of these statements is NOT true regarding a cash value loan against a life insurance policy?
Interest normally accrues on unpaid balances
Loan cannot exceed the policy’s cash value
Policy contract terms dictate the interest rate
Interest payments made by policyowner are deductible
Which of these is NOT considered to be a cost connected with an individual’s death?
Funeral expense
Tax liability
Business expenses
Probate costs
What is an insurance contract that identifies individuals by relationship to a specific organization?
Employer insurance
Group insurance
COBRA plan
Industrial insurance
According to the IRS, a company may NOT do which of the following in regards to funds in a qualified retirement plan?
Transfer the funds to a new custodian
Invest the funds in mutual funds
Transfer vested funds to terminated employees
Repossess the funds for business purposes
Which of the following is associated with an immediate annuity?
Tax-free benefit payments
Installment premium payments
Lack of an accumulation period
Lump-sum benefit
Scott has a life insurance policy in which the dividends are left with the insurance company. This particular policy may be paid up when the cash value plus accumulated dividends
equal the net single premium for the same face amount at the insured’s attained age
can purchase extended term coverage for a period of two years or more
equal the nonforfeiture value of the policy
can purchase a paid-addition
A life annuity feature which provides benefit payments for a minimum number of years, no matter when the annuitant dies, is called
fixed period
period certain
installment refund
straight life
What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?
Increases
Decreases
Not affected by inflation
Tied to stock index
Under which circumstance is the interest rate guaranteed within a market value adjusted annuity?
When the contract has been held for the period specified in the policy
For the entire length of the contract
Never
When the cash value has reached a stated minimum amount
When determining the accumulation value of a deferred annuity, the total is calculated by taking the premiums paid plus interest earned minus
bailout option charge
surrender charges
taxes owed
expenses and withdrawals
A retired couple would like to maximize the income derived from their combined life savings and have it payable until they both die. Which annuity would be their best choice?
Fixed annuity
Survivorship annuity
Joint life annuity
Joint and survivor annuity
The reason for backdating a policy is
to avoid being considered a substandard risk due to a recent cancer diagnosis
to obtain a premium rate based on an earlier age
to decrease the face amount
to decrease the Contestable period
What effect does interest income have upon insurance premiums?
Increases premium
Decreases premium
Levels the premium
Adjusts premium on a quarterly basis
A teacher recently retired at age 63 and has a tax sheltered annuity (TSA). Periodic deposits total $120,000 and the value of the contract is now worth $200,000. How much is taxed if the current value is surrendered today?
$200,000
$80,000
$120,000
$0
An employee requested that the balance of her 401(k) account be sent directly to her in one lump sum. Upon receipt of the distribution, she immediately had the funds rolled over into an IRA. What is the tax consequence of the distribution sent to this employee?
Distribution is subject to capital gains tax
Distribution is subject to ordinary income tax
Distribution is subject to a tax penalty
Distribution is subject to federal income tax withholding
When funds are transferred directly from one IRA to another IRA, what percentage of the tax is withheld?
10%
20%
30%
None
Which of the following would most likely purchase an immediate annuity?
Individual wishing to contribute to a tax-sheltered annuity
Individual wanting to accumulate an investment over time
Retiree having a lump sum to invest
Business needing an immediate tax write-off
A business may purchase an annuity for all of the following reasons EXCEPT
Structuring a liability settlement payment
informally funding a non-qualified deferred compensation plan
Accumulating assets on a tax-deferred basis
Providing a pension to employees
During the first two years a life insurance policy is in force, the insurer may contest a policy for all of the following reasons EXCEPT
Misstatement of age in the application
Material misrepresentation in the application
Fraud in the purchase of the policy
Material concealment in the purchase of a policy
An insurer will typically assess a back-end load on a deferred annuity that is cancelled during the early contract years. What is this back-end load referred to as?
Back-end assessment
Cancellation fee
Surrender charge
Tax penalty
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