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All of the following are included within the Insurance Commissioner's duties EXCEPT a) Conducting investigation of all domestic insurers. b) Reviewing the insurers' annual reports. c) Writing North Carolina insurance laws. d) Reporting any violations of insurance laws to the Attorney General. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. c) Writing North Carolina insurance laws. Writing insurance law is not the Insurance Commissioner's responsibility, but enforcing the law is. Which of the following insurance providers must be nonprofit and sell insurance only to its members? a) Reciprocal b) Fraternal c) Service d) Mutual b) Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society. A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that? a)Second-to-Die b)Family Income Policy c)Joint Life Policy d)Survivorship Life Policy c)Joint Life Policy Joint life policies cover the lives of two insureds; rates are blended. Upon the death of the first insured, the policy ends. The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
NC Life Insurance Practice Exam Questions With 100%
Correct Answers 2024
a)$ b)$50,000 (50% of the policy value) c)$100, d)$300,000 (triple the amount of policy value) c)$100, The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit. In term policies, what happens to the premium throughout the term of the policy? a) Premium gradually increases. b) Premium gradually decreases. c) Premium fluctuates. d) Premium always remains level. d) Premium always remains level. There are three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term: Level, Increasing, and Decreasing. Regardless of the type of term insurance purchased, the premium is often level throughout the term of the policy. An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a) Representation b) Adhesion c) Consideration d) Good faith c) Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
a) 15 b) 30 c) 31 d) 45 a) 15 When any company under any insurance policy requires a written proof of loss after notice of the loss has been given by the insured or beneficiary, the company must furnish a blank form within 15 days. Which is true about a spouse term rider? a) The rider is usually level term insurance. b) Coverage is allowed for an unlimited time. c) The rider is decreasing term insurance. d) Coverage is allowed up to age 75. a) The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age
- A spouse term rider (just like any other insured rider) is usually level term insurance. 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)Level term b)Term to specified age c)Ordinary life policy d)Limited pay whole life a)Level term A 20-year term policy is written to provide a level death benefit for 20 years. 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 option b)Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy. Which of the following is NOT true regarding the accumulation period of an annuity? a)It is also known as the pay-in period. b)It would not occur in a deferred annuity. c)It is the period during which the annuity payments earn interest. d)It is the period over which the owner makes payments into an annuity. b)It would not occur in a deferred annuity. The "accumulation period" is the period of time over which the annuity owner makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred (which would be the case in a deferred annuity). Life insurance death proceeds are a)Taxed as ordinary income. b)Generally not taxed as income. c)Taxable to the extent that they exceed 7.5% of the beneficiary's adjusted gross income. d)Taxed as a capital gain. b)Generally not taxed as income. Life insurance death benefits are generally not taxed as income. Which of the following is TRUE regarding an indeterminate premium whole life policy? a) The premium is lower in the first year of the policy; then it is gradually raised every year. b) The premium is level throughout the life of the policy. c) The premium is usually higher in the first few years of the policy. d) The premium can be raised up to a guaranteed maximum rate. d) The premium can be raised up to a guaranteed maximum rate.
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? a)Reduction of premium b)Paid-up addition c)Accumulation at interest d)Cash option a)Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year. An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? a)Inspection Report b)Medical Information Bureau's report c)Agent's Report d)Underwriter's Report a)Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act. Two attorneys operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose a)403(b) plan. b)401(k) plan. c)HR-10 (Keogh Plan). d)Section 457 Deferred Compensation Plan. c)HR-10 (Keogh Plan). HR-10 (Keogh Plans) are plans specifically for self-employed and their employees.
Annually renewable term policies provide a level death benefit for a premium that a)Remains level. b)Fluctuates. c)Increases annually. d)Decreases annually. c)Increases annually. Annually renewable term policies provide a level death benefit for a premium that increases each year with the age of the insured. What are the two components of a universal policy? a)Insurance and investments b)Mortality cost and interest c)Separate account and policy loans d)Insurance and cash account d)Insurance and cash account A universal policy has two components: an insurance component and a cash account. The insurance component of a universal life policy is always annual renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the current rate, whichever is higher. A Universal Life Insurance policy is best described as a/an a)Annually Renewable Term policy with a cash value account. b)Variable Life with a cash value account. c)Whole Life policy with two premiums: target and minimum. d)Flexible Premium Variable Life policy. a)Annually Renewable Term policy with a cash value account. A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance. Which option for Universal life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured? a)Corridor option
d)Making a maliciously critical statement that is intended to injure another person b)Issuing sales material with exaggerated statements about policy benefits Misrepresentation is issuing, publishing or circulating any illustration or sales material that is false, misleading or deceptive as to policy benefits or terms, the payment of dividends, etc. This includes oral statements. Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? a)Premiums are taxable to the employee. b)Premiums are not tax deductible as a business expense. c)Premiums are tax deductible by the key employee. d)Premiums are tax deductible as a business expense. b)Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free. Any person who violates a cease and desist order of the Commissioner pertaining to consumer information privacy may be subject to which of the following penalties? a)Imprisonment for up to 5 years b)Imprisonment for up to 1 year c)A monetary fine up to $5,000 for each violation d)A monetary fine up to $10,000 for each violation d)A monetary fine up to $10,000 for each violation Violations of the cease and desist order pertaining to consumer information privacy will result in a monetary fine of not more than $10,000 for each violation. Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer then makes a matching contribution up to an amount equal to what percent of the employee's annual wages? a) b) c)
d)7 b) Under SIMPLE plans, participating employees may defer up to a specified amount each year, and the employer can then contribute up to an amount equal to 3% of the employees' annual compensation. Contributions and earnings are both tax-deferred until funds are withdrawn. In cases when an applicant for insurance is blind or deaf, the insurer underwriting the policy may do which of the following? a)Limit the amount or type of coverage available to the applicant b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. c)Charge a different rate for the same coverage based on increased risk. d)Refuse to insure the applicant because of adverse risk. b)Apply the same standards as are used for applicants whose sight and hearing are not impaired. Insurers cannot refuse to insure or refuse to continue to insure an individual, limit the amount, extent, or kind of coverage available to an individual, or charge an individual a different rate for the same coverage, solely because of blindness or partial blindness, or deafness or partial deafness. Which of the following Life Insurance policies would be considered interest sensitive? a)Increasing term b)Universal life c)Adjustable life d)Whole life b)Universal life As well as being a flexible premium policy, universal life is also an interest-sensitive policy. The insurer credits the cash value in the policy with a current (nonguaranteed) interest rate and backs the cash value with a contract (lower guaranteed) rate of interest. An insurance policy that only requires a payment of premium at its inception, provides insurance protection for the life of the insured, and matures at the insured's age 100 is called a)Graded premium whole life. b)Single premium whole life.
Failure to pay state income tax is a violation subject to license suspension or revocation; all the other examples are not. Which of the following is NOT true about a joint and survivor annuity benefit option? a)Payments stop after the first death among the annuitants. b)A period certain option may be included. c)This option guarantees income for two or more recipients. d)The surviving annuitant may receive reduced payments. a)Payments stop after the first death among the annuitants. A joint and survivor annuity will pay until the last annuitant has died; however, the surviving annuitant may receive reduced payments. An insured buys a 5-year level premium term policy with a face amount of $10,000. The policy also contains renewability and convertibility options. When the insured renews the policy in 5 years, what will happen to the premium? a)It will decrease for the new 5-year term since the insured is now a lesser risk to the company. b)It will increase each year during the next 5 years as the face amount increases each year. c)It will increase because the insured will be 5 years older than when the policy was originally purchased. d)It will remain the same for the new 5-year term. c)It will increase because the insured will be 5 years older than when the policy was originally purchased. The premium will remain level during the entire level premium term policy period. If the policy renews at the end of the term, the premium will be based on the insured's attained age at the time of renewal. Which of the following products requires a securities license? a)Equity Indexed annuity b)Deferred annuity c)Variable annuity d)Fixed annuity c)Variable annuity
A variable annuity is considered to be a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. For that reason, a person must hold a securities license in addition to a life agent's license in order to sell variable annuities. Which of the following best describes an insurance company that has been formed under the laws of this state? a)Sovereign b)Alien c)Foreign d)Domestic d)Domestic A company is domestic when doing business within the state in which it is incorporated. An employee is insured under her employer's group life plan. If she terminates her group coverage, which of the following statements is INCORRECT? a)The insured may choose to convert to term or permanent individual coverage. b)The insured would not need to prove insurability for a conversion policy. c)The insured may convert coverage to an individual policy within 31 days. d)The premium for individual coverage will be based upon the insured's attained age. a)The insured may choose to convert to term or permanent individual coverage. When group coverage is converted to an individual policy, the insurer will determine the type of coverage, usually permanent insurance. 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 a)Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.
Which of the following is TRUE about a class designation? a)Beneficiaries must be part of the insured's immediate family. b)It is not allowed. c)It determines the succession of beneficiaries. d)Beneficiaries are not identified by name. d)Beneficiaries are not identified by name. A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive. Which of the following would be considered an advantage of owning term insurance? a)It provides the death benefit regardless of when the insured dies. b)It provides the greatest living benefits to the insured. c)It provides the highest amount of coverage for a temporary period of time. d)It provides the greatest cash value for a temporary period of time. c)It provides the highest amount of coverage for a temporary period of time. Term insurance has no cash value and provides no death benefit if the insured dies after the policy is expired; however, it provides the highest amount of protection for a temporary period of time. The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change? a)The death benefit can be increased only when the policy has developed a cash value. b)The death benefit can be increased only by exchanging the existing policy for a new one. c)The death benefit can be increased by providing evidence of insurability. d)The death benefit cannot be increased. c)The death benefit can be increased by providing evidence of insurability. The policyowner (insured) would need to prove insurability for the amount of the increase.
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? a)Conditional b)Personal c)Adhesion d)Unilateral c)Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written. What happens when a policy is surrendered for its cash value? a)The policy can be reinstated by paying back all policy loans and premiums. b)The policy can be converted to term coverage. c)Coverage ends and the policy cannot be reinstated. d)Coverage ends but the policy can be reinstated at any time. c)Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated. A group of 15 skydivers met at a seminar and began talking about life insurance during a break. Because it was expensive to get individual life insurance, they decided to band together to form a small group so that they could qualify for group life insurance. After they applied for group life insurance, they were rejected. Why? a)There are not enough people in the group to qualify for group life insurance. b)The group has not been established for long enough. c)The purpose of the group was to purchase life insurance. d)Their profession poses too high of a risk for the insurer. c)The purpose of the group was to purchase life insurance. In order to qualify for small group life insurance, a group must be formed for a purpose other than attaining life insurance. B just bought a new car, which he anticipates will be paid for 4 years from now. He also wants to buy a life insurance policy, but is financially limited until the car is paid off. Which of the following types of policies would be best for B?
c)The way proceeds are split between beneficiaries is decided by which type of policy is chosen. d)Life insurance policies may have only one beneficiary. b)The policyowner can specify the way proceeds are split in the policy. Equity indexed annuities a)Seek higher returns. b)Are more risky than variable annuities. c)Are security instruments. d)Invest conservatively. a)Seek higher returns. Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500. The interest earned on policy dividends is a)40% taxable, similar to a capital gain. b)Taxable. c)Nontaxable. d)Tax deductible. b)Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income. 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 d)Any form of life insurance
Any form of Life insurance may be used to fund a buy-sell agreement. When a licensee is accused of any act, omission, or misconduct that would subject the licensee to a license suspension or revocation, with the approval of the Commissioner, the license may be surrendered for a period of a)Time to be set by the Commissioner. b)90 days. c)6 months. d)1 year. a)Time to be set by the Commissioner. The Commissioner sets the time for a licensee suspension or revocation. An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a)The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. b)The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. c)One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. d)The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive. Which of the following will NOT be an appropriate use of a deferred annuity? a)Accumulating funds in an IRA b)Funding a child's college education c)Creating an estate d)Accumulating retirement funds c)Creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education. Unlike life insurance, annuities do not create an estate, but liquidate it.
