NJ - Life Insurance Exam Questions and Complete Solutions Graded A+

NJ - Life Insurance Exam Questions and Complete Solutions Graded A+ 1) The full premium was submitted with the application for life insurance, & the policy was issued 2 weeks later as requested. When does the policy coverage become effective? a) As of policy delivery date b) As of the first of the month after the policy issue c) As of the policy issue date d) As of the application date - Answer: d) As of the application date 2) Which of the following is true regarding license cancellation and reinstatement? a) The producer must allow it to lapse. After that point, it can be reinstated any time within the next 2 years, provided that the continuing education requirements have been met b) The license needs to be returned to the Insurance Department. Once this occurs, it cannot be reinstated c) The producer must complete a brief interview with the Commissioner's Office. The license may then be reinstate within 1 year d) The license needs to be returned to the Insurance Department. It can be reinstated by filling out an application and paying a fee - Answer: d) The license needs to be returned to the Insurance Department. It can be reinstated by filling out an application and paying a fee 3) On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of: a) Twisting b) Defamation c) Misrepresentation d) Coercion - Answer: c) Misrepresentation 4) The Waiver of Cost rider is found in what type of insurance? a) Joint and Survivor b) Juvenile Life c) Universal Life d) Whole Life - Answer: c) Universal Life 5) Which rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance? a) Replacement rule b) Reinstatement rule c) Conversion rule d) Disclosure rule - Answer: a) Replacement rule 6) A contract between a producer and an insurance company: a) Is considered noncancellable b) Must be in writing and signed by both parties c) Can be in writing or a verbal agreement d) Must be signed by at least one party - Answer: b) Must be in writing and signed by both parties 7) Which of the following explains the policy owner's right to change beneficiaries, choose options, and receive proceeds of a policy? a) The Entire Contract Provision b) The Consideration Clause c) Assignment Rights d) Owner's Rights - Answer: d) Owner's Rights 8) What significance did Paul vs. Virginia have on the insurance industry? a) It was decided that insurance requires a separate federal regulatory agency from Securities products b) It was decided that insurance licenses should not be issued by the federal government and should instead be issued by individual states c) It was decided that insurance was not interstate commerce and could not be regulated by the federal government d) It was decided that insurance was interstate commerce and should therefore be regulated by the federal government - Answer: c) It was decided that insurance was not interstate commerce and could not be regulated by the federal government 9) Which of the following entities is held responsible for the contents of an insurer's advertisement on local TV station? a) The insurance company b) The Department of Insurance c) The TV station d) The Guaranty Association - Answer: a) The insurance company 10) An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n): a) Attending Physician Statement b) Inspection report c) Medical Information Bureau report d) Medical examination - Answer: b) Inspection report 11) A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this? a) Ordinary life policy b) Limited pay whole life c) Level term d) Term to specified age - Answer: c) Level term 12) An insured purchased a variable life insurance policy with a face amount of $50,000. Over the life of the policy, stock performance declined and the cash value fell $10,000. If the insured dies, how much will be paid out? a) $10,000 b) $40,000 c) $50,000 d) $60,000 - Answer: c) $50,000 13) Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? a) Jumping Juvenile b) Juvenile Premium Provision c) Waiver of Premium d) Payor Benefit - Answer: d) Payor Benefit 14) Which settlement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to the beneficiary at regular intervals? a) Life income b) Fixed amount c) Fixed period d) Interest only - Answer: d) Interest only With the "interest only" option, the insurer retains policy proceeds and pays interest on the proceeds to the beneficiary at regular intervals. The insurer will usually guarantee an interest rate and even pay in excess of the rate quoted. 15) Proceeds from life insurance policies are protected from the beneficiary's debts under all of the following circumstances EXCEPT: a) The amount of debt exceeds 50% of the policy's face value b) There are no circumstances under which proceeds are protected from the beneficiary's debts c) Some of the premiums were paid in an attempt to defraud creditors d) The amount of debt exceeds the policy's cash value - Answer: c) Some of the premiums were paid in an attempt to defraud creditors Life insurance proceeds are protected from the beneficiary's debts and liability. This, however, does not apply when any premiums are paid to defraud creditors. These will be owed with interest from the proceeds of the policy. 16) All of the following are requirements for life insurance illustrations EXCEPT: a) They must identify nonguaranteed values b) They must differentiate between guaranteed and projected amounts c) They must be part of the contract d) They must only be used as approved - Answer: c) They must be part of the contract An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values, but they must be specifically labeled as projected, not guaranteed values. 17) In a direct transfer, how is money transferred from one retirement plan to a traditional IRA? a) From the participant to the new plan b) From the original plan to the original custodian c) From trustee to trustee d) From trustee to participant - Answer: c) From trustee to trustee In a direct transfer, the distribution is made directly from the trustee of the first plan to the trustee or administrator/custodian of the IRA plan. 18) All of the following are TRUE statements regarding the accumulation at interest option EXCEPT: a) The policyholder has the right to withdraw the accumulations at any time b) The interest is not taxable since it remains inside the insurance policy c) The annual dividend is retained by the company d) The interest is credited at a rate specified by the policy - Answer: b) The interest 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. 19) A person takes out a loan in order to pay off his house. He dies several years later, having paid off only a small portion of the debt. Which of the following is true? a) If the lender has credit insurance, this amount will be paid to the lender b) The state government will pay the balance to the lender c) The lender will not recover this money d) The federal government will pay the balance to the lender - Answer: a) If the lender has credit insurance, this amount will be paid to the lender Credit life insurance on the life of a debtor that will pay off the outstanding loan balance in the event of the borrower's death. 20) An insurance producer is acting as a broker when he or she negotiates for an insurance contract on behalf of: a) Another insurance producer b) A client c) A financial institution d) The insurer - Answer: b) A client When an insurance producer negotiates for an insurance contract on behalf of a client, the producer is acting as a broker. 21) Items stipulated in the contract that the insurer will not provide coverage for are found in the: a) Consideration clause b) Exclusion clause c) Insuring clause d) Benefit Payment clause - Answer: b) Exclusion clause Exclusions are restrictions of coverage stated in the policy. 22) All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT: a) Gender b) Occupation c) Education d) Age - Answer: c) Education Education is not an underwriting factor nor is it information included on the application. 23) When an insurance producer negotiates for an insurance contract on behalf of a client, the producer is acting as a(n): a) Solicitor b) Consultant c) Agent d) Broker - Answer: d) Broker When an insurance producer negotiates for an insurance contract on behalf of a client, the producer is acting as an insurance broker. 24) An insurance producer refused to comply with a subpoena. What would be the producer's penalty for this violation? a) Imprisonment up to 6 months b) A fine up to $5,000 c) A fine and imprisonment d) A fine up to $10,000 - Answer: b) A fine up to $5,000 Failing to or refusing to comply with a subpoena will result in a fine up to $5,000 for the first offense, and up tp $10,000 for each subsequent offense. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to: a) Purchase a single premium policy for a reduced face amount b) Purchase a term rider to attach to the policy c) Pay back all premiums owed plus interest d) Receive payments for a fixed amount - Answer: a) Purchase a single premium policy for a reduced face amount During policy solicitation, an insurer exaggerates the financial condition of one of its competitors, and makes it sound worse that it is. This is an example of? a) Twisting b) False advertising c) Controlled business d) Defamation - Answer: d) Defamation Which of the following will NOT be included in the buyer's guide? a) Explanation on how to choose the amount and type of insurance b) Basic information about life insurance policies c) Specific information about the policy d) Comparison of policy costs - Answer: c) Specific information about the policy To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of a loss. This is called: a) Indemnity b) Exposure c) Pure loss d) Insurable interest - Answer: d) Insurable interest All of the following statements about mutual insurance companies are correct EXCEPT a) Mutual companies issue policies referred to as participating b) Policy dividends issued by mutual companies are guaranteed and not taxable c) Dividends allow policyholders to share in a mutual company's divisible surplus d) Dividends are a return of unused premiums - Answer: b) Policy dividends issued by mutual companies are guaranteed and not taxable If a life insurance company uses HIV testing as a part of its underwriting, when must an applicant be notified of the procedure? a) Prior to ordering a physical examination b) Prior to solicitation of the policy c) Prior notice is not required d) Prior to performance of the test - Answer: d) Prior to performance of the test Which of the following would be considered a violation of Life Insurance Advertising regulations? a) Calling a variable insurance policy an investment plan b) Not guaranteeing dividends c) Making oral sales presentations d) Informing the applicant the sole subject of the sale is insurance - Answer: a) Calling a variable insurance policy an investment plan. If an insurance company issues a policy even though some questions on the application were unanswered, when can the insurer get the answers to those questions? a) Within 3 months of issuing the policy b) Within 30 days of issuing the policy c) At any time within the incontestable period d) Never; the insurer has waived its right to answer those answers by issuing the policy - Answer: d) Never; the insurer has waived its right to answer those answers by issuing the policy. If an insured dies, and it is discovered that the insured misstated their age or gender, the life insurance company will: - Answer: Adjust the death benefit to what the premium would have purchased at the actual age or gender An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? a) Second-to-Die b) Common Disaster c) Accidental Death d) Survivor Life - Answer: b) Common Disaster Who might receive dividends from a mutual insurer? a) Policyholders b) Subscribers c) Stockholders d) Agents - Answer: a) Policyholders The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case what will the policy beneficiary receive? a) $0 b) $50,000 (50% of the policy value) c) $100,000 d) $300,000 (triple the amount of policy value) - Answer: c) $100,000 Which of the following best describes what the "annuity period" is? a) The period of time from the accumulation period to the annuitization period b) The period of time during which money is accumulated in an annuity c) The period of time from the effective date of the contract to the date of its termination d) The period of time during which accumulated money is converted into income payments - Answer: d) The period of time during which accumulated money is converted into income payments A candidate for a producer license passed his licensing exam 6 months ago but has not applied for a license yet. Which of the following is true? - Answer: The candidate has 6 more months to apply for a license If a producer dies or is rendered severely disabled, an unlicensed person can contract with another insurance producer to continue this person's insurance transactions for: a) 90 days b) 100 days c) 180 days d) 365 days - Answer: c) 180 days If a producer dies or is rendered severely disabled, a family member, associate, etc. can enter an agreement with another producer to continue the business. This agreement can last no longer than 180 days. What is the purpose of establishing a target premium for a universal life policy? a) To accumulate cash value faster b) To pay up the policy faster c) To cover all policy expenses d) To keep the policy in force - Answer: d) To keep the policy in force After a sudden death of producer M, his business partner, who is not a license producer, finds another producer who is willing to continue servicing the policies to M's clients. This agreement can last no longer than: a) 30 days b) 90 days c) 180 days d) 365 days - Answer: c) 180 days Which of the following types of insurance policies is most commonly used in credit life insurance? a) Increasing term b) Whole life c) Equity indexed life d) Decreasing term - Answer: d) Decreasing term If a life policy allows the policy owner to make periodic additions to the face amount at standard rates, without providing insurability, the policy includes a: a) Nonforfeiture option b) Guaranteed insurability rider c) Paid-up additions option d) Cost of living provision - Answer: b) Guaranteed insurability rider Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement? a) Term insurance only b) Permanent insurance only c) Universal life insurance only d) Any form of life insurance - Answer: d) Any form of life insurance A rider attached to a life insurance policy that provides coverage on the insureds family members is called the: a) Other-insured rider b) Change of insured rider c) Juvenile rider d) Payor rider - Answer: a) Other-insured rider The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance. Producer's and insurer's actions related to insurance transactions, from selling insurance to processing claims are referred to as: a) Licensee's responsibilities b) Agent's authority c) Insurance-related conduct d) Producer actions - Answer: c) Insurance-related conduct An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a) Adjustable life b) Term life c) Limited pay d) Universal life - Answer: d) Universal life Universal life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited. What is the purpose of a disclosure statement in life insurance policies? - Answer: To explain features and benefits of a proposed policy to the consumer. Which nonforfeiture option provides coverage for the longest period of time? a) Accumulated at interest b) Reduced paid-up c) Extended term d) Paid-up addition - Answer: b) Reduced paid-up. The reduce paid-up option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash value would be. Which of the following policies would have an IRS required corridor or gap between the cash value and the death benefit? a) Universal Life Option B b) Equity Indexed Universal Life c) Variable Universal Life d) Universal Life Option A - Answer: d) Universal Life Option A Universal Life Option A must maintain a specified "corridor" or gap between the cash value and the death benefit, as required by the IRS. If this corridor is not maintained, the policy is no longer defined as life insurance for tax purposes, and consequently loses most of the tax advantages that have been associated with life insurance. The maximum the Insurance Guaranty Association will pay to an individual for life insurance death benefit is? a) $500,000 b) $1,000,000 c) $100,000 d) $250,000 - Answer: a) $500,000 Why should the producer personally deliver the policy when the first premium has already been paid? a) To make sure the policy is not stolen or lost b) To help the insured understand all aspects of the contract c) To ensure the producer gets paid commission d) To find out how the family has been doing since the initial presentation - Answer: b) To help insured understand all aspects of the contract. An insurance company and insured are settling a lawsuit involving a life insurance policy. The insurer believes that the application would help to establish material facts in the face. Which of the following is true? - Answer: d) Applicants can only be used in court cases if they are attached to or endorsed upon the issued policy The National Do Not Call Registry was created by: - Answer: The Federal Trade Commission (FTC) and the Federal Communication Commission (FCC). Which of the following is an IRS qualified retirement program for the self-employed? - Answer: Keogh plan Which of the following is TRUE about nonforfeiture values? - Answer: They are required by state law to be included in the policy. Bill's license was revoked 2 years ago. How much longer will he have to wait in order to request his license to be reinstated? a) He can apply now b) 1 year c) 2 years d) 3 years - Answer: d) 3 years Which nonforfeiture option has the highest amount of insurance protection? a) Conversion b) Decreasing Term c) Reduced Paid-up d) Extended Term - Answer: d) Extended Term An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? - Answer: The individual may choose to convert to term or permanent insurance coverage. What is the purpose of a conditional receipt? - Answer: It is intended to provide coverage on a date earlier than the date of the policy issue. An insured receives an annual life insurance dividend check. What term best describes this arrangement? a) Cash option b) Reduction of Premium c) Annual Dividend Provision d) Accumulation at interest - Answer: a) Cash option. The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check. To cancel an insurance producer license, the producer must: - Answer: Send the license to the Insurance Department and request cancellation. A Universal Life insurance policy has two types of interest rates that are called: a) Option A and option B b) Fixed and Variable c) Minimum and Target d) Guaranteed and Current - Answer: d) Guaranteed and Current. What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? a) $1,000 b) $100 per violation c) Revocation of license d) $2,500 - Answer: d) $2,500 Within how many days must a producer report claims to the insurer? a) 5 business days b) 3 calendar days c) 3 business days d) 5 calendar days - Answer: a) 5 business days