NC LIFE AGENT FINAL ACTUAL EXAM WITH REAL QUESTIONS AND VERIFIED CORRECT ANSWERS ALREADY GRADED A+ 2026

NC LIFE AGENT FINAL ACTUAL EXAM WITH REAL QUESTIONS AND VERIFIED CORRECT ANSWERS ALREADY GRADED A+ 2026 What is the mathematical concept of probability that helps insurers estimate the statistical likelihood of mortality or morbidity losses at any given age? actuarial principle underwriting principle law of probability law of large numbers - Correct Ans-Law of large numbers From an insurance perspective, all the following statements regarding risk and loss are correct EXCEPT: Risk is defined as the chance of loss. The state of being subject to a loss is called loss exposure. Only speculative risk is insurable. A loss is defined as an unplanned reduction in economic value. - Correct Ans-Only speculative risk is insurable. All of the following are elements of an insurable risk EXCEPT: Any losses resulting from the insured peril must be definable as to time, cause, and location. The loss must be measurable. The insured peril must be outside of the insured's control. Losses resulting from the insured peril must be potentially catastrophic. - Correct Ans Losses resulting from the insured peril must be potentially catastrophic. Which of the following is an insurable risk? the possibility of becoming disabled and unable to earn an income the possibility of losing money gambling in Las Vegas the possibility of losing money in stock investments the possibility of one's home value decreasing due to a drop in market prices - Correct Ans-the possibility of becoming disabled and unable to earn an income An insurance company that primarily sells life insurance policies designed for burial and last expense purposes, and whose agents typically collect premiums in person, is known as a: risk retention group NC LIFE NC LIFE reinsurance company fraternal insurance company home service insurance company - Correct Ans-home service insurance company All of the following are characteristics of a mutual insurance company EXCEPT: They may issue policy dividends. They are governed by a board of directors. They are owned by stockholders. They have minimum financial capital requirements that must be met before they can conduct business. - Correct Ans-They are owned by stockholders. The Royale Insurance Company, domiciled in Toronto, Canada, transacts business legally in New York. In New York, Royale is classified as a(n): alien insurance company foreign insurance company unauthorized insurance company domestic insurance company - Correct Ans-alien insurance company Which insurance company function calculates company mortality and morbidity rates as well as the dividends on participating life insurance policies? underwriting division actuarial division claims division sales division - Correct Ans-actuarial division The Excalibur Insurance Company, domiciled in Iowa, transacts business legally in Nebraska. In Nebraska, Excalibur is a(n): foreign insurance company non-admitted insurance company alien insurance company domestic insurance company - Correct Ans-foreign insurance company Which insurance sales distribution arrangements is NOT affiliated with just a single insurance company but instead represents multiple companies? a sales agency that is managed by a general agent who is under contract with an insurance company to employ sales agents to represent that company a sales arrangement in which sales are made directly to consumers through mass media channels without the use of producers a sales office that is managed by a general manager who is an insurance company employee an independent sales office that is managed by a Personal Producing General Agent (PPGA) - Correct Ans-an independent sales office that is managed by a Personal Producing General Agent (PPGA) All of the following statements regarding the career agency distribution system are correct EXCEPT: NC LIFE NC LIFE The managerial form of career agency system uses company employees as the agency managers. There are two types, the general agency system and the managerial system. It uses agents who primarily if not exclusively represent one insurer. Personal producing general agents (PPGAs) are commonly hired to manage career agencies. - Correct Ans-Personal producing general agents (PPGAs) are commonly hired to manage career agencies. The insurance company function responsible for evaluating the insurable risks and assigning appropriate premium rates, is the: underwriting division claims division actuarial division sales division - Correct Ans-underwriting division The federal Risk Retention Act of 1986 contains guidelines for which of the following entities? risk retention groups Fraternal insurance companies surplus lines insurance companies reinsurance companies - Correct Ans-risk retention groups All of the following are characteristics of a stock insurance company EXCEPT: They may issue dividends. They are governed by a board of directors. They have minimum financial capital requirements that must be met before they can conduct business. They are owned by policyowners. - Correct Ans-They are owned by policyowners. Why would a large manufacturer choose to self-insure rather than buy an insurance policy from an insurance company? so they can pick and choose which losses they cover to shelter company cash from federal taxation to save insurance premiums by paying relatively minor losses out of company funds to avoid having to comply with state insurance laws dealing with employee benefits - Correct Ans-to save insurance premiums by paying relatively minor losses out of company funds Which of the following does NOT provide independent ratings of insurance companies' financial strength and claims-paying abilities? Moody's Standard & Poor's each state's Department of Insurance A.M. Best - Correct Ans-each state's Department of Insurance NC LIFE NC LIFE In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to do all the following EXCEPT: avoid all forms of rebating make sure all product recommendations are suitable for the customer seek opportunities to replace existing policies with newer products disclose all pertinent information concerning a proposed policy - Correct Ans-seek opportunities to replace existing policies with newer products The purpose for the Policy Summary, which must be given to every insurance applicant before an application is signed, is to: explain the step-by-step process involved in purchasing the recommended product disclose all the hidden costs associated with the policy being applied for provide buyers with details of the specific insurance contract they are considering for purchase explain the general features, benefits, and conditions of the type of insurance being considered - Correct Ans-provide buyers with details of the specific insurance contract they are considering for purchase In its fiduciary responsibility to its principal, a producer is required to do all the following EXCEPT: solicit business that is certain to be profitable to the insurer carry out authorized activities with reasonable care fully disclose to the insurer all pertinent information that affects the placement of an insurance policy fully account for premiums and submit them to the insurer on a timely basis - Correct Ans-solicit business that is certain to be profitable to the insurer The purpose for the Buyer's Guide, which must be given to every insurance prospect in the first meeting with a producer, is to: provide buyers with details of the insurance policy they are considering for purchase explain the general features, benefits, and conditions of the type of insurance being considered explain the step-by-step process involved in purchasing the recommended product advise the buyer to consider an alternative to the insurance product being considered - Correct Ans-explain the general features, benefits, and conditions of the type of insurance being considered Medical expense insurance policies are what type of contract? indemnity contract bilateral contract commutative contract valued contract - Correct Ans-indemnity contract Statements that are guaranteed to be true, such as an insurer's promise in the policy, are called: warranties NC LIFE NC LIFE representations petitions declarations - Correct Ans-warranties Steven is filling out an application for life insurance. The application asked whether he had ever had heart problems. Steven intentionally skips this question even though he had heart surgery three years ago because he is afraid his application will be denied. What is the term for Steven's failure to give his entire medical history? waiver breach of contract concealment estoppel - Correct Ans-concealment In an insurance transaction, what does the applicant give as consideration? the promise to be a responsible policyowner the promise to follow the terms of the insurance contract the initial premium the promise to pay premiums during the entire policy period - Correct Ans-the initial premium How long from when an insurance contract is issued does an insurance company have to void a life insurance policy on the basis of fraud? 12 months 24 months 18 months 6 months - Correct Ans-24 months For a life insurance contract to be enforceable, which of the following parties must be legally competent? applicant insurer applicant and insurer applicant, insurer, and beneficiary - Correct Ans-applicant and insurer In order to be grounds for the insurer to void a contract, an applicant's statements on an insurance application must involve: excessive details a broken warranty the deliberate withholding of material facts an incorrect statement - Correct Ans-the deliberate withholding of material facts Which of the following parties makes an enforceable promise in an insurance contract? only the insurance company only the policyowner both the insurance company and the policyowner only the beneficiary - Correct Ans-only the insurance company NC LIFE NC LIFE An applicant for a $500,000 whole life insurance policy pays the initial premium along with his application. In this case, what has the applicant done? accepted a counteroffer from the insurer accepted an offer from the insurer made a counteroffer to the insurer made an offer to the insurer - Correct Ans-made an offer to the insurer If the parties disagree over the terms of an insurance contract, courts will typically interpret anything unclear in the contract in favor of which party? insurance company policyowner agent beneficiary - Correct Ans-policyowner Deliberately withholding material facts when applying for insurance is called: concealment waiver collusion twisting - Correct Ans-concealment Ambiguities in an insurance contract are most often interpreted in favor of the policyowner because insurance contracts are: aleatory conditional unilateral contracts of adhesion - Correct Ans-contracts of adhesion If an applicant for an insurance policy submits an application without the first premium, which of the following is correct? The applicant has invited the insurer to make an offer. The insurer has made an offer to the applicant. The applicant has made an offer to the insurer. The insurer may not make a counteroffer to the applicant. - Correct Ans-The applicant has invited the insurer to make an offer. Which of the following statements about utmost good faith in insurance contracts is correct? Only the insurer must act in utmost good faith. Both the insured and insurer must act in utmost good faith. Only the insured and the beneficiary must act in utmost good faith. Only the insured must act in utmost good faith. - Correct Ans-Both the insured and insurer must act in utmost good faith. Which of the following contract characteristics is unique to insurance contracts but NOT all contracts? NC LIFE NC LIFE legal purpose competent parties consideration unilateral - Correct Ans-unilateral The fact that ownership of a health insurance contract cannot be transferred to another party makes it what type of contract? personal unilateral conditional aleatory - Correct Ans-personal Jerry owns a life insurance policy with premiums payable directly to the insurer's home office. However, for the past five years Jerry has sent his payments to his agent, who then forwards them to the insurer. The insurer had accepted this arrangement but then tries to cancel Jerry's policy when it learns he had died while the premium was being forwarded by the agent. The insurer will probably not be able to cancel the policy in this case because of which of the following legal principles? - Correct Ans-estoppel Statements made on a life insurance application are considered: conditional promises warranties unconditional promises representations - Correct Ans-representations All the following types of insurance involve a personal contract EXCEPT: a disability income insurance policy a life insurance policy an automobile policy a medical expense insurance policy - Correct Ans-a life insurance policy What is the term for voluntarily giving up a known right? voidable conditional estoppel waiver - Correct Ans-waiver Smith and Thomas are licensed producers. Smith knows that Thomas is embezzling money from clients. However, Smith does not notify the Commissioner in order to protect his friend. What is the result? Smith will not be punished because he does not have a fiduciary duty to report the crime. Smith's license will be suspended for up to two years. Smith's license may be revoked. Smith can be sanctioned but not disciplined. - Correct Ans-Smith's license may be revoked. NC LIFE NC LIFE Emily solicits policies and accepts premiums from the public but is not licensed as an agent. She then turns over the applications and premiums to her husband, who is licensed. Which statement is correct? Emily has committed a felony. Emily is not required to be licensed to solicit policies and accept premiums. Emily has committed a Class 1 misdemeanor. Emily has not committed any type of unlawful act. - Correct Ans-Emily has committed a Class 1 misdemeanor. Best Insurance Company is incorporated in Canada and just applied for a license to transact insurance in North Carolina. Which type of insurer is Best Insurance Company considered in North Carolina? alien domestic foreign limited - Correct Ans-alien Emil, an agent licensed in North Carolina, moves to a new home on April 30. He is required to notify the North Carolina Department of Insurance by what date? October 31 May 10 May 7 May 30 - Correct Ans-May 10 Abby lives in Maryland, where she is licensed as an insurance agent. She wants to apply for a nonresident license in North Carolina. Which of the following conditions must she satisfy? She must move to North Carolina. She must show her license to be in good standing in Maryland. She must surrender her Maryland license. She must be sponsored by an agent licensed in North Carolina. - Correct Ans-She must show her license to be in good standing in Maryland. Acme Insurance and Apogee Insurance agree to offer different premium rates for persons of equal risk within a particular class. They also agree to limit benefits paid to insureds within this class if the insureds live in certain counties of North Carolina. What are Acme and Apogee engaging in? acceptable marketing and underwriting practices unfair and prohibited business practices false advertising insurance fraud - Correct Ans-unfair and prohibited business practices Terry is licensed in North Carolina as a life and health insurance agent. To maintain his license, how many hours of continuing education must he complete every two years? 30 NC LIFE NC LIFE 24 12 40 - Correct Ans-24 The Commissioner may issue a learner's permit authorizing a person to act as an adjuster for up to how many days? 90 45 30 60 - Correct Ans-90 Anthony becomes an agent for Acme Insurance Company. Acme must file a notice of appointment with the Commissioner within how many days? 15 10 31 30 - Correct Ans-15 To qualify for an insurance agent's license, a person must have all of the following EXCEPT: licensing fee 18 years of age good reputation and character college degree - Correct Ans-college degree The Commissioner of Insurance cannot suspend or revoke an agent's license for which of the following reasons? accepting insurance from an unlicensed individual forging an individual's name on an insurance application failing to meet projected sales goals having an agent's license denied or suspended in another state - Correct Ans-failing to meet projected sales goals Larry, Brian, Susan, and Jennifer just started working for AllPro Insurance Company in North Carolina. Based on their job descriptions below, which of them is NOT acting as a producer? Susan, who collects insurance premiums for AllPro Brian, who is a vice president in AllPro's human resources department and does not receive commissions Larry, who receives insurance applications from the public Jennifer, who solicits insurance policies for AllPro and receives commissions - Correct Ans-Brian, who is a vice president in AllPro's human resources department and does not receive commissions Which remedy does the Commissioner have if a person has violated the Insurance Information and Privacy Protection Act? NC LIFE NC LIFE fine of up to $20,000 criminal sanctions cease and desist order license termination - Correct Ans-cease and desist order When collecting personal financial or health information, an insurance company is required to do all of the following EXCEPT provide methods for individuals to prevent disclosure of the information. provide individuals with copies of documents disclosed to other parties. notify individuals about the company's privacy practices. describe conditions under which the company may disclose the information to other parties. - Correct Ans-provide individuals with copies of documents disclosed to other parties. An insurer must notify its current customers of its privacy policies or practices at least once every how often? 6 months 12 months 24 months 18 months - Correct Ans-12 months Statewide Insurers wants to obtain an investigative consumer report about an applicant because of questions it has regarding the individual's credit history. What must Statewide do before it can obtain a report? notify the applicant that he has the right to prepare his own report obtain the applicant's signed consent before obtaining the report notify the applicant that he has the right to be interviewed in connection with the report require the applicant to sign an affidavit attesting to the truth of the statements in the report - Correct Ans-notify the applicant that he has the right to be interviewed in connection with the report During the application process, ABC Insurers receives personal and confidential information about Tom, who is applying for a life insurance policy. In which of the following circumstances must ABC Insurers obtain Tom's written authorization before disclosing this information? before disclosing information to law enforcement agencies who are investigating insurance fraud before disclosing information to third parties for telemarketing and sales purposes before disclosing information to a consumer reporting agency before disclosing information in response to an administrative order - Correct Ans before disclosing information to third parties for telemarketing and sales purposes When comparing her insurance company's policies to those of Zenith Insurance, Melanie makes a misleading statement to convince an insurance prospect to terminate a policy with Zenith and buy one from Melanie's company. What activity has Melanie engaged in? NC LIFE NC LIFE twisting unfair discrimination defamation rebating - Correct Ans-twisting Which of the following is NOT an unfair claims settlement practice if committed by an insurance company in North Carolina? failing to promptly acknowledge communications about claims offering to settle claims for less than due to encourage litigation raising policy defenses to reduce a claim failing to promptly settle a claim for which liability is uncertain - Correct Ans-failing to promptly settle a claim for which liability is uncertain When meeting with a prospect to discuss life insurance, Agent Tyler makes disparaging comments about the financial stability and reputation of a competitor to dissuade the prospect from purchasing its policies. Which unfair trade practice has Agent Tyler committed? coercion rebating unfair discrimination defamation - Correct Ans-defamation Agent Johns started offering potential clients courtside tickets to a professional basketball game in exchange for purchasing a life insurance policy. Which ethical sales practice has Agent Johns violated? rebating controlled business churning replacement - Correct Ans-rebating Which of the following is NOT true about fraternal benefit societies? They exist for profit solely for the benefit of their members. They operate on a lodge system. They have no capital stock. They have a representative form of government - Correct Ans-They exist for profit solely for the benefit of their members. Which statement regarding the licensing of fraternal benefit society agents is TRUE? They are not required to be licensed as agents. They must be licensed as agents but are not required to take the licensing exam. They must be licensed as special agents only. They must comply with the same licensing requirements that apply to resident and nonresident agents. - Correct Ans-They must comply with the same licensing requirements that apply to resident and nonresident agents. NC LIFE NC LIFE Beatrice is a member of the Supreme Lodge fraternal benefit society. What must Beatrice do before she can sell insurance on its behalf? obtain a surplus lines license become a licensed agent with a specialty in fraternal lines insurance comply with the same general licensing requirements that apply to resident agents obtain a restricted agent's license - Correct Ans-comply with the same general licensing requirements that apply to resident agents All the following statements regarding the North Carolina Life and Health Insurance Guaranty Association are correct EXCEPT: The purpose of the Insurance Guaranty Association is to protect policyholders when an insurance company becomes insolvent. Benefits paid to claimants and policyholders are subject to limits. All insurance companies licensed to sell insurance in North Carolina must be members of the North Carolina Life and Health Insurance Guaranty Association. An agent may use the existence of the Guaranty Association to assure a claimant that his policy will be protected even if the insurer becomes insolvent. - Correct Ans-An agent may use the existence of the Guaranty Association to assure a claimant that his policy will be protected even if the insurer becomes insolvent. Jack's beneficiaries were unable to collect the $250,000 in proceeds under his life insurance policy because of the insurer's insolvency. What amount will his beneficiaries typically be able to collect if the policy is covered by the Life and Health Insurance Guaranty Association? $300,000 $200,000 $250,000 $100,000 - Correct Ans-$250,000 Zelda, a producer selling health insurance, assures a prospective applicant that the insurance company she represents is backed by the protections of the North Carolina Life and Health Insurance Guaranty Association. Which of the following statements is correct regarding this kind of assurance? It is required when selling to Medicare-eligible individuals. It is highly regulated by the Insurance Department. It is recommended when selling health insurance. It is prohibited at all times - Correct Ans-It is prohibited at all times. The requirement that an insurable interest must exist when life insurance is purchased is intended to prevent people from doing which of the following? designating an ineligible person as the policy beneficiary overusing life insurance using life insurance to fund future cash needs using life insurance as a speculative investment on another person's life - Correct Ans using life insurance as a speculative investment on another person's life NC LIFE NC LIFE All of the following are automatically deemed to represent an insurable interest EXCEPT: ABC Corp. (the applicant) and its key executive Frank (the applicant) and his elderly neighbor Karen (the disabled applicant, age 28), and her father who cares for her. Sue (the applicant) and her husband - Correct Ans-Frank (the applicant) and his elderly neighbor All the following uses for life insurance in a business represent a valid insurable interest, EXCEPT: Life insurance bought by businesses to cover the lives of their key employees or owners. Life insurance purchased by business partners to provide funds that can be used to buy out the business interest of the one who dies. Life insurance purchased on an important customer to make up for the financial losses that might occur when that customer dies. Life insurance used to provide funds in the event an insured key employee or partner dies - Correct Ans-Life insurance purchased on an important customer to make up for the financial losses that might occur when that customer dies. When must insurable interest exist for a life insurance policy to be valid? Insurable interest must exist only at the time of the insured's death for a life insurance policy to be valid. Insurable interest is never required for a life insurance policy to be valid. Insurable interest must always exist for a life insurance policy to be valid. It is only necessary for insurable interest to exist at the time the applicant applies for a life insurance contract. - Correct Ans-It is only necessary for insurable interest to exist at the time the applicant applies for a life insurance contract. Which of the following most accurately describes "insurable interest" in a life insurance policy? Insurable interest is the financial relationship at the time of application between the person applying for life insurance and the person whose life is to be insured. Insurable interest is the relationship between the person paying for the insurance and the designated beneficiary. Insurable interest is the relationship between the person applying for insurance and the insured at the time of the insured's death. Insurable interest is the primary factor in determining how much life insurance the insurer will issue on a person. - Correct Ans-Insurable interest is the financial relationship at the time of application between the person applying for life insurance and the person whose life is to be insured. In life insurance, for how long must insurable interest exist? If no insurable interest exists when a policyowner buys a life insurance policy, the contract may still be enforced. It must continue for the life of the policy. NC LIFE NC LIFE Insurable interest must exist only at the time the applicant enters into a life insurance contract. It must exist when a claim is submitted. - Correct Ans-Insurable interest must exist only at the time the applicant enters into a life insurance contract. All the following reasons that a business might buy life insurance represent a valid insurable interest, EXCEPT: to insure liquidity in case one of the owners or key employees dies to provide insurance coverage for large-volume customers to insure partners' lives to provide funds to buy out a deceased partner's interest to insure the lives of key employees or owners - Correct Ans-to provide insurance coverage for large-volume customers Which of these personal relationships does NOT automatically constitute insurable interest? spouses in each other children in their parents or grandparents neighbors in each other people in themselves - Correct Ans-neighbors in each other Under group insurance coverage, one policy covers a number of people. Who owns these group polices? representatives of the sponsoring companies the organization that represents the group and which sponsors the coverage the insureds the insurance company who issues the policy - Correct Ans-the organization that represents the group and which sponsors the coverage Dan owns a fixed whole life insurance policy. What type of death benefit is Dan guaranteed? The policy guarantees a fixed death benefit amount. The amount depends on the number of premium payments Dan has made. The policy has no guaranteed death benefit. The policy guarantees a death benefit will be paid, but not the amount. - Correct Ans The policy guarantees a fixed death benefit amount. Harry and Connie each want to buy life insurance that will provide a guaranteed death benefit whenever they die, will generate a guaranteed cash value they can access while living, and even return excess premiums to them. Which of the following would best fit this couple's needs? group life insurance variable life insurance term life insurance participating whole life insurance - Correct Ans-participating whole life insurance Which one of the following statements about term life insurance is correct? NC LIFE NC LIFE The policy pays a death benefit only if the insured dies during the term. It is permanent insurance. It is intended to cover the insured to age 120. A cash value accumulates in term life policies. - Correct Ans-The policy pays a death benefit only if the insured dies during the term. Which of the following most accurately describes the basic function of a life insurance policy's net premium? The net single premium is the amount required to cover the policy's promised benefits, without accounting for the insurer's policy-related expenses. The net premium is the amount actually charged to the policyowner. The net premium is the amount an individual actually pays to provide all the benefits promised in the policy regardless of premium mode. The net premium represents the insurer's mortality charge. - Correct Ans-The net single premium is the amount required to cover the policy's promised benefits, without accounting for the insurer's policy-related expenses. How do actuaries compensate for the cost of running the business when determining the gross premium charged to the policyowner? They assume a higher rate of interest than actually expected, which provides a safety margin by increasing the gross premium. They increase the mortality charge, increasing the net premium. They assume there will be fewer deaths than their past mortality experience would predict, which provides a safety margin by increasing the gross premium. They add an expense load, which includes a safety margin factor, to the net premium to produce the gross premium. - Correct Ans-They add an expense load, which includes a safety margin factor, to the net premium to produce the gross premium. Alice wants to spread her life insurance premiums over the year, rather than pay a single annual premium. She asks her agent what that would mean in terms of the sum of premiums paid. Which of the following is the correct response? The sum of premiums will be higher than if she paid a single annual premium. The sum of premiums may be higher or lower than the single annual premium, depending on whether the annual premium is paid at the start or end of the policy year. Whichever mode of premium she chooses, the sum of premiums over the course of the year is the same. The sum of premiums will be lower than if she paid a single annual premium. - Correct Ans-The sum of premiums will be higher than if she paid a single annual premium. An insurance company is developing a new product. Which of the following is the actuaries' most important responsibility? determining the actual premium to be charged to an applicant for the new product assuring that the new product will appeal to average consumers designing the product's features and benefits determining the basic premium rates for the new product - Correct Ans-determining the basic premium rates for the new product NC LIFE NC LIFE In setting premiums for a new policy, when do actuaries assume those premiums will be paid? They will be paid in full at the beginning of the policy year. They will be paid in full at the end of the policy year. They will be paid monthly. They will be paid in full in the middle of the policy year. - Correct Ans-They will be paid in full at the beginning of the policy year. Carl is a policyowner who prefers to pay premiums monthly rather than annually. How will Carl's insurance company adjust his premium to accommodate this request? The insurer divides the annual premium by 12 and then adds a modest charge. The insurer divides the annual premium by 12 and then reduces the premium amount to reflect the fact that premiums will be paid throughout the year. The insurer divides the annual premium by 12 and then adds a modest charge in the first policy year after which premiums equal the annual premium divided by 12. The insurer simply divides the annual premium by 12. - Correct Ans-The insurer divides the annual premium by 12 and then adds a modest charge. All the following statements about the net premium for a traditional life insurance policy are correct EXCEPT: The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment. Calculating the net single premium is the first step in calculating the gross premium charged to the policyowner. The net premium is the insurer's estimated cost to provide the policy benefits without accounting for the insurer's expenses. - Correct Ans-The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment. All the following statements regarding life insurance level premiums are correct EXCEPT: The policyowner pays the same premium amount each time it is due for as long as the policy is in force. The premium amount does not change even though the risk to the insurer increases over time. The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy. For most types of permanent life insurance policy, premiums remain level regardless of the mode of premium selected. - Correct Ans-The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy. All of the following statements regarding life insurance premium modes are correct EXCEPT: NC LIFE NC LIFE The sum of premiums paid monthly over the course of a year will be greater than the annual premium for that policy. There is no additional cost for paying premiums more frequently than annually. common premium modes include monthly, quarterly, and semi-annually Actuaries base premium calculations on the assumption that the premium will be paid annually, at the start of the policy year. - Correct Ans-There is no additional cost for paying premiums more frequently than annually. Which one of the following statements best describes if and when a traditional whole life insurance premium may change under the level premium concept? Premiums may vary each time they are due based on the insured's current insurability. Premiums may change if the risk to the insurer increases over time. Premiums are either fixed or flexible at the option of the insurer. Premiums are set and remain fixed over the full term of the premium-paying period. - Correct Ans-Premiums are set and remain fixed over the full term of the premium paying period. Which of the following best describes the premium tax insurance companies must pay when they receive premiums? It is a federal tax that is collected at the state level by all states. It is federal tax paid to the U.S. Treasury. It is a state tax imposed by relatively few states. It is a state tax imposed by all states. - Correct Ans-It is a state tax imposed by relatively few states. Which of the following do variable life insurance premiums generally include to cover the cost of managing the investment element of the contract? compensation fee maintenance fee premium surcharge quarterly administrative fee - Correct Ans-maintenance fee Actuaries base traditional life insurance premiums on all of the following factors, EXCEPT: mortality sales projections interest rates expenses - Correct Ans-sales projections Loading reflects the costs that the insurance company can expect to pay for its operations. These costs include all of the following, EXCEPT: mortality costs employee benefits the insurance company's employee salaries commissions paid to the insurer's agents - Correct Ans-mortality costs NC LIFE NC LIFE Stephanie is a policyowner who pays premiums monthly. How does her insurer cover the cost of sending her more frequent premium notices? The insurer views the lost earnings as a cost of doing business. The insurer charges higher premiums. The insurer charges a one-time lost-earnings fee. The insurer imposes policy loan restrictions. - Correct Ans-The insurer charges higher premiums. Actuaries calculate net life insurance premiums based on which of the following? morbidity and interest assumptions interest and expense assumptions mortality and interest assumptions mortality and expense assumptions - Correct Ans-mortality and interest assumptions In a third-party life insurance contract, the parties to the contract are the: the owner, the insured, and the beneficiary the owner, the insured, and the insurance company the insurance company, the owner, and the beneficiary the insured, the beneficiary, and the insurance company - Correct Ans-the owner, the insured, and the insurance company The primary reason for using third-party ownership in personal life insurance for estate planning purposes is to: remove the life insurance proceeds from the insured's estate and thus reduce the value of the taxable estate convert the life insurance proceeds from an estate taxable asset to an income taxable asset reduce the tax rate used in calculating the estate tax transfer the estate tax liability from the owner to the beneficiary - Correct Ans-remove the life insurance proceeds from the insured's estate and thus reduce the value of the taxable estate All the following statements regarding stranger-owned life insurance (STOLI) are correct EXCEPT: STOLI and investor-owned life insurance (IOLI) are the same thing. The insured retains the right to designate the policy's beneficiary. STOLI is financed through premium loans during the first several years, until it is transferred from the insured to the investors. STOLI is an arrangement in which investors convince an individual to purchase a life insurance policy on himself which is transferred to the investor in exchange for a sum of money. - Correct Ans-The insured retains the right to designate the policy's beneficiary. Robert is purchasing a life insurance policy in which he is the insured. If he wants to keep the policy proceeds out of his estate for tax purposes, all of the following arrangements would help him meet that goal EXCEPT: NC LIFE NC LIFE designate an irrevocable life insurance trust to be the owner and beneficiary of the policy designate an irrevocable life insurance trust to be the owner and Robert's estate to be the policy beneficiary designate an adult son to be the owner and allow him to designate a beneficiary other than Robert's estate purchase the policy as the owner, but then transfer policy ownership to a third party at least three years before his death - Correct Ans-designate an irrevocable life insurance trust to be the owner and Robert's estate to be the policy beneficiary With respect to third-party ownership of life insurance in the personal insurance market, all the following statements are true EXCEPT: Third-party ownership is common in estate planning. The insured has the right to name the beneficiary. Third-party ownership is the basis of stranger-oriented life insurance (STOLI). Policy ownership can be transferred to anyone without there having to be an insurable interest between that person and the insured. - Correct Ans-The insured has the right to name the beneficiary. Who normally owns life insurance that is used to meet business insurance needs? the employees the insured the business jointly with the insured the business - Correct Ans-the business Under the standard bring-back rule, assets transferred out of a decedent's estate will be valued in the estate if the transfer occurred within how many years before death? 3 years 7 years 5 years 4 years - Correct Ans-3 years All of the following statements about key person life insurance are correct, EXCEPT: Upon the insured employee's death, the employee's surviving family receives the policy's death benefit. Key person, or key employee, life insurance is an example of third-party ownership. Life insurance used as key person life is normally owned by the business rather than the insured. The business applies for, owns, and is the beneficiary of the policy covering the life of a key employee. - Correct Ans-Upon the insured employee's death, the employee's surviving family receives the policy's death benefit. Anne, a life insurance applicant, wants to change an answer that she gave on the application. She should do which of the following? Cross out and initial the incorrect entry, and enter the correct information next to it. Erase the original entry and enter the correct information. NC LIFE NC LIFE Cover up the incorrect entry and write the correct information over it. Attach a note to the application explaining what she intended to answer. - Correct Ans Cross out and initial the incorrect entry, and enter the correct information next to it. All of the following statements regarding the money laundering process and anti-money laundering efforts are correct EXCEPT: Money laundering is the process of integrating illegally obtained money into the legal monetary system in a way that hides its illegal origins. There are three basic levels of the money laundering process: placement, layering, and integration. Permanent life insurance can be used to launder money. Insurance companies are exempt from the need to create and maintain anti-money laundering programs. - Correct Ans-Insurance companies are exempt from the need to create and maintain anti-money laundering programs. All of the following statements about binding receipts are correct EXCEPT: If underwriters determine the applicant is uninsurable, then a binding receipt terminates coverage when that determination is made. Binding receipts are the most common type of premium receipt used with life insurance sales. A binding receipt guarantees coverage from the time the applicant completes the application through the underwriting process, even if the applicant is found to be uninsurable. An alternative to a binding receipt is the temporary insurance agreement. - Correct Ans Binding receipts are the most common type of premium receipt used with life insurance sales. In-person delivery of a whole life insurance policy gives the producer the opportunity to do all of the following, EXCEPT: get any required delivery forms, discuss any exclusions, and explain any substandard ratings review coverage to determine if the policyowner wants to increase the policy's face amount explain that the free-look period begins at that moment, giving the policyowner ten days (in most states) to return the policy for a full premium refund explain policy benefits, terms, and riders - Correct Ans-review coverage to determine if the policyowner wants to increase the policy's face amount Which of the following statements regarding the replacement of a life insurance policy is correct? the new policy may be cancellable by the insurer replacement can be achieved without requiring the applicant to prove insurability once again replacing a policy will require the insured to go through a new contestability period replacing a policy usually results in a lower premium - Correct Ans-replacing a policy will require the insured to go through a new contestability period NC LIFE NC LIFE In cases where an existing life insurance policy is going to be replaced by new life insurance policy, the producer must do all the following EXCEPT: give the applicant a "Notice to Applicants Regarding Replacement of Life Insurance" sign a form assuming full responsibility for any consequences that may result from the replacement list all existing life insurance policies that will be replaced give the applicant a policy comparison statement signed by the producer - Correct Ans sign a form assuming full responsibility for any consequences that may result from the replacement By submitting an application for life insurance without the first premium, Larry is doing which of the following? negotiating for lower premiums inviting the insurer to make an offer suggesting that the insurer should not issue the policy for some reason making the policy's effective date earlier than it would be if the initial premium was paid with the application. - Correct Ans-inviting the insurer to make an offer All of the following must sign life insurance applications, EXCEPT: the insured (if not the applicant) the agent the beneficiary the applicant - Correct Ans-the beneficiary Which of the following statements about backdating life insurance applications is correct? Backdating has no impact on the policy's premium, but it does result in the policy being issued with a cash value. The purpose for backdating an application is to qualify for a better underwriting classification. Only the insurance company, not the producer, can authorize the backdating of specific applications. Insurers normally allow an applicant to backdate a policy by up to 2 years. - Correct Ans-Only the insurance company, not the producer, can authorize the backdating of specific applications. Which of the following statements regarding the practice of backdating a life insurance application is correct? The producer has the authority to approve the backdating of policy applications. Most states allow a policy application to be backdated up to 12 months. The policyowner is not required to pay back premiums from the backdated issue date to the present. The policy premium is lower than it would be if the policy was issued with the actual date the application was signed. - Correct Ans-The policy premium is lower than it would be if the policy was issued with the actual date the application was signed. NC LIFE NC LIFE Replacement occurs if a life insurance policy is purchased and, in conjunction, any of the following happen EXCEPT: The existing policy is surrendered. The existing policy is amended with a reduction in benefits. The existing policy is converted to reduced paid-up insurance. The existing policy's beneficiary designation is changed. - Correct Ans-The existing policy's beneficiary designation is changed. Which of the following statements regarding life insurance policy cost comparison methods is correct? There are two types, the traditional net cost method and the interest-adjusted net cost method, and both types are used equally. There are two types, the traditional net cost method and the interest-adjusted net cost method, and the traditional net cost method is most commonly used today. There are two types, the traditional net cost method and the interest-adjusted net cost method, and most states forbid either type from being used. There are two types, the traditional net cost method and the interest-adjusted net cost method, and the interest-adjusted net cost method is most commonly used today. - Correct Ans-There are two types, the traditional net cost method and the interest adjusted net cost method, and the interest-adjusted net cost method is most commonly used today. Insurers will decline applicants with very high substandard risk ratings. What percentage of applicants do insurers reject? about 5 percent Practically speaking, no applicants are rejected as uninsurable. about 10 percent about 2 percent - Correct Ans-about 2 percent What happens to a signed application after the applied-for policy is issued? It is destroyed. It becomes property of the state. It becomes part of the contract between the insurer and the policyowner. It is sent to the MIB for permanent storage. - Correct Ans-It becomes part of the contract between the insurer and the policyowner. In what form does the MIB present its information to insurers? a written report, which includes an underwriting recommendation, detailing the MIB's findings on the applicant a telephone call from a MIB analyst discussing the MIB's findings on the applicant a posting on the MIB website describing the applicant's medical history numeric codes, indicating risks identified in previous applications, that are communicated electronically - Correct Ans-numeric codes, indicating risks identified in previous applications, that are communicated electronically NC LIFE NC LIFE A life insurance application's main purpose is to provide underwriters with information regarding: the applicant's personal risk data and health the reason for the requested coverage the type of policy being applied for the applicant's wealth - Correct Ans-the applicant's personal risk data and health Bob bought a $100,000 ten-year level term insurance policy on March 1, 2012. What will happen if he dies on April 1, 2022? The beneficiary of Bob's policy will be permitted to pay a one-month premium to extend the policy coverage to April 1, 2022, in which case he or she would be entitled to the $100,000 death benefit. Bob's beneficiary will not get any benefits. The beneficiary of Bob's policy will get $100,000. The beneficiary of Bob's policy will be entitled to the policy's cash value but not the death benefit. - Correct Ans-Bob's beneficiary will not get any benefits. Under the re-entry method, an insured can renew a level term life insurance policy at the end of the specified term at a lower rate than the guaranteed rate by doing which of the following? agreeing to convert to a permanent life insurance policy paying a premium surcharge proving that he or she is under age 50 proving insurability - Correct Ans-proving insurability Term life insurance is well suited for all the following needs EXCEPT: mortgage protection protection while the family children are living at home or attending college inexpensive protection until the policyowner can afford permanent life insurance a source of emergency cash for any financial need - Correct Ans-a source of emergency cash for any financial need The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policyowner: renew the policy at lower current rates rather than guaranteed renewal rates convert the term policy to a permanent life insurance policy reinstate the policy after it has lapsed for nonpayment of premiums without having to provide evidence of insurability renew the policy with a higher face amount without having to provide evidence of insurability - Correct Ans-renew the policy at lower current rates rather than guaranteed renewal rates A term life insurance policy in which the protection and premium amounts stay the same during the term period is known as: a level term policy a renewable decreasing term policy NC LIFE NC LIFE a decreasing term policy an increasing term policy - Correct Ans-a level term policy Which one of the following statements about term life insurance is most correct? Term life insurance is an inexpensive way to provide permanent lifetime coverage. Term life insurance builds a cash value. At any given age when issued, a level term policy will be less expensive than a permanent policy of the same face amount. Term life insurance cannot be converted to permanent coverage. - Correct Ans-At any given age when issued, a level term policy will be less expensive than a permanent policy of the same face amount. Amanda, age 45, bought a $50,000 ten-year renewable and convertible term life policy. Regarding this, all the following statements are correct EXCEPT premiums for this policy will be more than for a $50,000 ten-year renewable but non convertible term life policy. premiums for this policy will be more than for a $50,000 permanent life insurance policy. premiums for this policy will be more than for a $50,000 ten-year nonrenewable but convertible term life policy. premiums for this policy will be more than for a $50,000 ten-year nonrenewable and nonconvertible term life policy. - Correct Ans-premiums for this policy will be more than for a $50,000 permanent life insurance policy. All the following are standard types of term life insurance EXCEPT: annually renewable term variable term insurance level term insurance increasing term insurance - Correct Ans-variable term insurance Bill recently purchased an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is correct? Bill will pay a low initial fixed premium for several years, at which point there will be a one-time increase in the premium that is guaranteed to remain level thereafter. Bill's policy was issued with a premium that will be level for most of the policy period but may be reduced under certain conditions. Bill's policy was issued with a low introductory premium that may periodically increase over time, but which will never be higher than a guaranteed maximum rate. Bill's policy was issued with a high introductory premium that will be reduced as the insurer's actual experience is known. - Correct Ans-Bill's policy was issued with a low introductory premium that may periodically increase over time, but which will never be higher than a guaranteed maximum rate. From a regulatory perspective, all variable life insurance policies are considered: modified endowment contracts government-secured investments risk-free investments that are as safe as ordinary life insurance NC LIFE NC LIFE investment securities - Correct Ans-investment securities In a current assumption whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation? Premiums decrease to a new rate supported by the actual investment experience. Premiums return to their original introductory rate. Premiums increase to a new rate supported by the actual investment experience. Premiums stay the same. - Correct Ans-Premiums decrease to a new rate supported by the actual investment experience. Variable life insurance policies offer all of the following EXCEPT: a guaranteed death benefit a variety of investment subaccount choices flexible premium payments a cash value - Correct Ans-flexible premium payments Which statement is correct with respect to the contract charges and fees charged by variable life and traditional whole life policies? Both charge investment advisory fees. Both base the premium on a mortality charge that reflects the insured's risk of death. Both charge account transfer fees. Both charge a fee for expenses incurred by the separate investment accounts. - Correct Ans-Both base the premium on a mortality charge that reflects the insured's risk of death. What typically happens to the face amount of an indexed whole life insurance policy over time? It increases every year at the same rate as the national inflation rate. It increases annually to reflect increases in the consumer price index. It increases annually as long as the insured continues to prove insurability. It increases annually based on a fixed rate specified in the policy. - Correct Ans-It increases annually to reflect increases in the consumer price index. Donna, age 40, buys a $200,000 straight whole life policy. On the same date, Kara, age 40, buys a $200,000 20-pay life policy. Which of the following statements is correct? The cash value of Kara's policy will build faster than Donna's policy after Kara's policy is paid up. Kara can make further premium payments once her policy is paid up while Donna cannot. Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down. Kara's policy will mature (endow) at a younger age than Donna's policy. - Correct Ans Kara's policy will build cash value quicker than Donna's policy while she is paying premiums, but once premiums stop, cash value growth will slow down. Which one of the following statements about indexed whole life insurance is correct? NC LIFE NC LIFE Its cash values may decrease as well as increase. It combines whole life insurance and term life insurance. The policyowner may adjust the policy premium up or down. There are two different premium plans available to indexed whole life policyowners, with one plan starting out with a lower premium than the other. - Correct Ans-There are two different premium plans available to indexed whole life policyowners, with one plan starting out with a lower premium than the other. The policy value that builds within a whole life insurance policy and is accessible by the policyowner while the insured is alive is called the: cash value face amount policy reserve death benefit - Correct Ans-cash value Which one of the following statements about variable life insurance is correct? With variable life insurance, it is the insurance company that assumes most of the investment risk. Variable life insurance policyowners can transfer funds between investment subaccounts and the insurer's general account. Variable life insurance policies do not guarantee a minimum death benefit. The death benefit under a variable life insurance policy will never be more than the stated minimum. - Correct Ans-Variable life insurance policyowners can transfer funds between investment subaccounts and the insurer's general account. Which one of the following statements most correctly describes how interest-sensitive whole life and current assumption whole life insurance differ? Current assumption whole life's premium can change over time, while the premium for interest-sensitive whole life does not change. Only current assumption policies include an interest crediting feature. Neither current assumption whole life nor interest-sensitive whole life permit changes to the policy's death benefit. Current assumption policies guarantee minimum cash values while interest-sensitive policies do not guarantee a minimum cash value - Correct Ans-Current assumption policies guarantee minimum cash values while interest-sensitive policies do not guarantee a minimum cash value. All of the following statements comparing whole life insurance and term life insurance are correct EXCEPT: Term life insurance is designed for temporary needs while whole life insurance is designed to cover the insured's entire life. Both whole life insurance and term life insurance build a cash value. Both whole life and term life insurance have level premiums, but only whole life guarantees a level premium for as long as the insured lives. Only term life insurance has a renewal provision. - Correct Ans-Both whole life insurance and term life insurance build a cash value. NC LIFE NC LIFE Cindy and Rich each bought a $100,000 universal life insurance policy from the same insurer, each with a ten-year back-end surrender charge schedule. In year two, Cindy withdrew $5,000 from her policy. Rich withdrew $5,000 from his policy in year five. Which of the following statements is most correct regarding surrender charges they may face? Neither Cindy nor Rich will pay a surrender charge. Cindy and Rich will pay the same surrender charge. Rich will have a lower surrender charge than Cindy. Cindy will have a lower surrender charge than Rich. - Correct Ans-Rich will have a lower surrender charge than Cindy. Variable life and variable universal life insurance are similar in all of the following ways EXCEPT: Both let the policyowner put funds in investment subaccounts. Both require fixed, set premiums. Both are considered securities. Both offer a death benefit that varies based on the performance of the subaccount investments. Variable life insurance policies have a fixed, set premium payable for the life of the policy. - Correct Ans-Both require fixed, set premiums. In a front-end loaded universal life contract, when does the insurer deduct a charge to cover the costs of administering the policy? once, when the first premium is paid from the cash value after the premium has been deposited to it from the premium payment before it is credited to the policy's cash value at the start of each policy year - Correct Ans-from the premium payment before it is credited to the policy's cash value Bob bought a universal life insurance policy with a $100,000 stipulated amount and chose an Option 2 (increasing) death benefit. At his death ten years later, the policy's cash value had increased to $50,000. What will his beneficiary receive? $200,000 $100,000 $50,000 $150,000 - Correct Ans-$150,000 All of the following statements regarding joint life insurance and survivorship life insurance are correct EXCEPT: Joint life insurance is especially popular in the estate planning market. Joint life insurance lets the surviving insured purchase an individual policy without having to prove insurability upon the first insured's death. Survivorship life insurance pays the death benefit upon the death of the second insured. NC LIFE NC LIFE Both joint life and survivorship life have a lower premium than two comparable individual policies covering the two insureds. - Correct Ans-Joint life insurance is especially popular in the estate planning market. A "jumping juvenile" whole life insurance policy typically incre