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UTAH HEALTH AND LIFE INSURANCE EXAM QUESTIONS
AND ANSWERS ALREADY PASSED
"Gramm-Leach-Bliley Act (GLBA) - CORRECT ANSWER Consumer - An individual about whom a
company collects information is a consumer. Customer - A customer is a consumer that has developed an ongoing relationship with a financial institution."
"Privacy Notices must explain: - CORRECT ANSWER What info the company gathers about the
customer. Where that info is shared How the company safeguards that info"
"Appointments - CORRECT ANSWER All producers must be appointed by at least one insurer."
"Rebating - CORRECT ANSWER Offering valuable consideration, other than that which is
offered in the contract as an inducement to purchase a policy is illegal."
"Coercion - CORRECT ANSWER Forcing a person to buy insurance through a particular
company or producer."
"Unfair Discrimination - CORRECT ANSWER It is illegal to unfairly discriminate between
individuals of the same class and equal life expectancy in the rates, dividends, benefits, or terms of any life or life annuity contract. Unfairly discriminate between neighborhoods within a municipality and of essentially the same hazard. Use sexual orientation in the underwriting process or in the determination of insurability."
"A producer cannot share commissions with: - CORRECT ANSWER Someone that is not a life
insurance agent. Monies may not be commingled with the producer's personal funds."
"Insurance Fraud: - CORRECT ANSWER Anyone who knowingly misappropriates insurance
premiums, makes any material false statement of an insurance application, or makes a false insurance claim commits insurance fraud."
"McCarran Ferguson Act - CORRECT ANSWER The fed govt had the right to regulate the
business of insurance but only to the extent that such business is not regulated by state law
(which most are) They did this with the intent of not having to regulate them against the provisions of the fed antitrust laws."
"Notice to Applicant - CORRECT ANSWER Notifies the applicant that a report will be ordered
concerning their past credit history and any other life or health insurance for which they have previously applied."
"Consumer Reports - CORRECT ANSWER Information on a person's credit, character,
reputation, or habits."
"Third-Party Ownership - CORRECT ANSWER Businesses that own policies on key employees."
"Morality Rate - CORRECT ANSWER The number of deaths per 1,000 people."
"Level Premium - CORRECT ANSWER Set amount premium with out increasing or decreasing
over the policy"
"Premium Mode - CORRECT ANSWER Simply the frequency with which a policy premium will
be paid."
"Human Life Vale Approach - CORRECT ANSWER Focuses on an individual's future stream of
income. It considers such things as annual salary and expenses, years remaining until retirement, and future value of current dollars. (how much will the insured make?)"
"Needs Approach - CORRECT ANSWER This technique focuses on the needs of survivors. It
considers such things as funeral expenses, final illness, continuing family income needs, children's education, retirement income etc. (How much will the survivor need?)"
"Buy -Sell agreement - CORRECT ANSWER Legal document outlining the business
continuation plan."
"A stock purchase plan - CORRECT ANSWER A price is determined and each stockholder
agrees to purchase a proportionate share of the deceased shareholder's stock."
"Stock redemption plan - CORRECT ANSWER The corporation is the owner, beneficiary, and
premium payor of the life insurance policies and the corporation agrees to purchase the deceased's stock"
Any withdrawal of cash value will reduce both the Face Value of the policy and the amount of cash value available."
"Advantages and Uses of Whole Life Policies - CORRECT ANSWER The principal advantage of
whole life is that it is permanent insurance and can be used to satisfy permanent needs such as the cost of death, dying and final burial expenses. The level premium allows the PO to know exactly what the cost of insurance will be and offers a form of forced savings. Whole life builds a living benefit through its guaranteed cash value, which enables to PO to use some of this cash for emergencies, as a supplemental source of retirement income, and for other living needs."
"Adjustable Life Insurance - CORRECT ANSWER Adjustable Life insurance is a policy that offers
the PO the option to adjust the policy's face amount, premium, type of protection, and/or length of protection, without having to complete a new application or actually exchange policies. The flexibility of adjustable life is accomplished by allowing conersion from one form of insurance to another, and by making appropriate premium adjustments, if necessary."
"Variable Life - CORRECT ANSWER AKA Variable Whole Life. also developed because of low
returns earned by traditional cash value policies. Policy has 2 elements, Death protection and savings/investment element. Instead of cash values being linked to interest rates, they are backed by equity investments and securities that are not guaranteed. They have the following characteristics: guaranteed minimum death benefit (actual death benefit may be higher and will vary with the success of the investments.) They have cash values that are not guaranteed. Contracts are regulated as securities. For fully guaranteed contracts (such as whole life insurance), an insurer maintains a general account, also called a general asset, that consists primarily of safe and conservative investments (such as high grade bonds, real estate, and CDs.) The safety of those investments makes it possible for the insurer to guarantee its policies. In contrast, an insurer must establish a separate account, also called a separate asset, for its variable products. Premiums paid for variable life insurance must be put into the insurers separate account. There is considerable risk, and there are no guarantees as to its future value."
"Variable Policies have: - CORRECT ANSWER A level premium and Variable death benefit."
"Variable Universal Life - CORRECT ANSWER This product blends a combination of the variable
and universal life insurance concepts. The policy has elements of variable life insurance because it is backed by equity investments."
"Family income policies - CORRECT ANSWER Not commonly sold, but sometimes appear on
state license exams. combines whole life insurance with decreasing term coverage. Provides an income to be paid upon the death of the bread winner."
"Family Maintenance Policies - CORRECT ANSWER Combines ordinary life insurance and level
term insurance. It affords the payment of a monthly income during a stated period, as selected by the insured. Monthly income is payable from the date of death to the end of the preselected period."
"The Family Policy (Family Protection Policy) - CORRECT ANSWER Consists of whole life on the
breadwinner and convertible term on the spouse and children. Once issued, additional children are automatically included at no extra cost."
"Joint Life Policies - CORRECT ANSWER Whole Life contract written with two or more persons
as named insureds. The policy is issued on two lives with the insured amount payable on the death of the first insured."
"Grace Period - CORRECT ANSWER This is the period of time following the date that each
premium is due during which the insurance policy remains in force and coverage is provided, even though the premium has not yet been paid. Generally grace period is 31 days."
"Incontestability Clause - CORRECT ANSWER States that after a specified period of time, (two
years), the insurer may not dispute or contest the validity of the contract or the statements. After the contract has been in effect for a specific length of time, the insurance company agrees not to challenge any statements made by the applicant on the application."
"Suicide Clause - CORRECT ANSWER When this is inserted in a life insurance contract, death
by suicide is not covered during the policy's first two years. If suicide occurs in this initial 2 year period, premiums are refunded but no face amount (death benefit) is paid. Following the 2 years period, coverage is provided."
"Return of Premium - CORRECT ANSWER It allows the insured to receive the face amount on a
term policy as well as what he/she had paid in premiums. Costs more."
"Cost of Living - CORRECT ANSWER The purpose of a cost of living rider is to increase the death
benefit to keep pace with inflation, tied to the CPI (consumer price index.) No proof of insurability is required."
"Accelerated Benefits - CORRECT ANSWER Allows the PO to receive their benefit earlier if they
have a chronic disease (AIDS, Cancer, heart disease, Alzheimer's) This will help the insured pay bills, food, rent, med services as they treat their stressful last months."
"Tax considerations (cash surrender value) - CORRECT ANSWER If you surrender a policy for
its cash value, the amount that exceeds what you paid in premiums is taxed. If you surrender an amount from your cash value that does not exceed what you have already paid in premiums then that money is NOT taxable."
"`Policy loans - CORRECT ANSWER NOT taxable as income because they are treated as a debt
against the policy."
"MEC (Modified Endowment Contract) - CORRECT ANSWER A life insurance policy that fails
the seven pay test will be considered an MEC, which makes the policy subject to less favorable tax treatment."
"Annuities - CORRECT ANSWER 10% tax penalty on deferred annuities when withdrawal
before age 59 1/2"
"Accumulation Period - CORRECT ANSWER Annuity Period"
"Nonforfeiture Options - CORRECT ANSWER Surrender - bail out provision if interest rates
drop a certain amount within a certain time period."
"Immediate Annuity - CORRECT ANSWER Deferred Annuity (payout begins within 12
months)"
"Annuity Premiums - CORRECT ANSWER 1) Single Premium
- Level Premium
- Variable Premium"
"Premium Determination - CORRECT ANSWER Age, sex, assumed int rate, income
amount/payment guarantee, Loading" "What is the maximum amount of coverage that Utah Life and Health Insurance Guaranty
Association (ULHIGA) will pay? - CORRECT ANSWER $500,000"
"An insurer wants to begin underwriting procedures for an applicant. What source will it consult
for the majority of its underwriting information? - CORRECT ANSWER Application"
"Which of the following entities protects policyowners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial
impairment? - CORRECT ANSWER Insurance Guaranty Association"
"An insurer wants to obtain information from investigators regarding an applicant for insurance.
What must the insurer do in order to legally acquire this information? - CORRECT ANSWER
Present the insured with a Disclosure Authorization Notice."
"Which of the following would be considered a nonmedical insurance application? - CORRECT
ANSWER An application on which the medical information is completed by the applicant and
the agent only." "Why should the producer personally deliver the policy when the first premium has already been
paid? - CORRECT ANSWER To help the insured understand all aspects of the contract."
"What is the purpose of the buyer's guide? - CORRECT ANSWER To allow the consumer to
compare the costs of different policies." "All of the following are duties and responsibilities of producers at the time of application
EXCEPT... - CORRECT ANSWER Change any incorrect statement on the application by
personally initialing next to the corrected statement." "Which of the following is the basic source of information used by the company in the risk
selection process? - CORRECT ANSWER Application"
"All of the following are requirements for life insurance illustrations EXCEPT? - CORRECT
ANSWER They must be part of the contract."
"Which of the following will be included in a policy summary? - CORRECT ANSWER Premium
amounts and surrender values." "Most agents try to collect the initial premium for a submission with the application. When an
agent collects the initial premium from the applicant, the agent should issue the applicant a... -
CORRECT ANSWER Premium receipt."
"If an insurance company makes a statement that its policies are guaranteed by the existence of
the Insurance Guaranty Association, that would be considered... - CORRECT ANSWER An
unfair trade practice." "An individual wants to purchase a life insurance policy. His agent asks if the transaction will involve replacing any existing life insurance policies. If the customer replies, "Yes," which of the
following best describes the agent's next step? - CORRECT ANSWER The agent must provide a
replacement notice to the applicant." a mandatory second surgical opinion provision typically would encourage all of the following
except - CORRECT ANSWER higher total health plan cost for an employer"
"ambulatory services under case management provisions try to monitor - CORRECT ANSWER
The cost-effectiveness of outpatient services" "which type of health insurance should be purchased by a person who wants coverage for
hospital bills in the event of accidental injury? - CORRECT ANSWER medical expense"
"which one of the following factors is considered indetermining the amount payable under the
interest only settlement option in life insurance policies? - CORRECT ANSWER the amount of
the policy proceeds"
"a withdrawal from a deferred annuity must be authorized by - CORRECT ANSWER the owner"
"All of the following factors influence the benefit payment amount under a life income annuity
except - CORRECT ANSWER the annuitants age on each contract anniversary"
"group term life insurance can be provided at low rates for all of the following reasons except -
CORRECT ANSWER It accumulates cash values in an efficient matter"
"when a terminated employee elects the conversion option under a group life insurance plan, the
new policy premium is based on the - CORRECT ANSWER Insurer's current rates for other
individual applicants" "which rider is included in a policy with whole life insurance on the principal, insured and term
insurance on the insured's spouse and children? - CORRECT ANSWER family rider"
"All of the following statements about provisions in a typical modification clause. any life
insurance policy are true except - CORRECT ANSWER the producer agent is granted the
authority to waive policy provisions"
"which qualified plan may be established by a business corporation? - CORRECT ANSWER A
Simplified Employee Pension (SEP)"
"All of the following statements about universal life insurance are true except - CORRECT
ANSWER premiums must be paid on a monthly basis"
"deferred annuities are normally purchased by individuals who - CORRECT ANSWER Want tax-
deferred growth for retirement funds" "If a life insurance policy is transferred to another person and exchange for valuable
consideration, then the death proceeds may - CORRECT ANSWER lose their income tax
exempt status"
"a misleading life insurance policy illustration may result from any of the following except -
CORRECT ANSWER reflecting the time value of money"
"the authority to select a settlement option under an individual annuity contract resides with -
CORRECT ANSWER the owner"
"once a contract is deemed to be a modified endowment contract (MEC), how long does it remain
so? - CORRECT ANSWER forever"
"a surviving spouse without dependent children is eligible for social security survivor benefits at
age - CORRECT ANSWER 60"
"Defamation - CORRECT ANSWER Making any statement, written or oral, that is false or
maliciously critical of the financial condition of an insurance company or a producer representing that company is illegal."
"Medical Information Bureau - CORRECT ANSWER Reports issued by the MIB are another
source of information which may aid the underwriter in determining whether or not to accept a risk. This is a non-profit trade association that maintains medical information on applicants for life or health insurance. Applicants or are denied coverage due to information in an MIB report must be given explanations and an opportunity to challenge information about their medical history that may be inaccurate."
"Changes in the Application - CORRECT ANSWER Any changes made to an insurance applicant
after it is completed must be initialed by the applicant."
"Classifications of Risks - CORRECT ANSWER Standard Risks - Reflects average exposures and
fall into a normal range. These risks can be insured for standard rates and premiums. Substandard Risks - Higher risked people that can still receive insurance for a higher premium. Preferred Risks - Below average risk and pay lower premiums Declined Risk - Insurer company has decided not to insure the applicant."
"Replacement - CORRECT ANSWER Is for the purchase of one life insurance policy to replace
another."
"Premium collection - CORRECT ANSWER Producer is encouraged to collect the insitial
premium with the application. The coverage is not effective until the policy is delivered and the initial premium has been paid."
"Conditional receipt - CORRECT ANSWER Usually makes the coverage effective as of the date
of application."
"Unconditional and Binding Receipts - CORRECT ANSWER The company liable for the risk from
the date of application, regardless of the applicant's insurability. This coverage lasts for specified time, or until the insurer issues the policy."
"Amendments - CORRECT ANSWER Insurer may amend (make changes) the policy's terms
depending on the results of the underwriting process."
"Convertible Term Policy - CORRECT ANSWER Allows a policy-owner to convert or exchange
the temporary protection for some form of permanent protection without evidence of insurability. The conversion must be made prior to expiration of the term. When a policy is converted, the premium will be based on attained age."
"Advantages and Uses of Term Insurance - CORRECT ANSWER One of the most common uses
is to provide a substantial amount of coverage at a minimum cost."
"Whole Life Insurance - CORRECT ANSWER Gets its name from the fact that the policy is
designed to provide coverage for the whole of life (usually up to age 100, although some mortality tables have been adjusted to age 120)."
"Permanent Insurance - CORRECT ANSWER Whole life is also called this because the maturity
date is beyond the life expectancy of most individuals. However a whole life policy actually consists of a combination of a savings element (the advancing cash value) and a decreasing amount of net insurance. When a whole life policy reaches its maturity date (age 100), the cash value would equal the face amount."
"Continuous premium Whole Life - CORRECT ANSWER Most common type of Whole life
insurance sold. These policies stretch the premium payments over the whole life of the insured. Often referred to as Straight life insurance."
"Example of Whole Life Insurance - CORRECT ANSWER 20-pay life means premium payments
for 20 years but lifetime (to age 100) protection. Life paid up at 65 means premium payments up to age 65 but lifetime protection. A 20 pay life policy matures at age 100 or upon the death of the insured, whichever comes first. The principle difference with limited-pay policies is simply the length of the premium paying period."
"Current assumption whole life policies - CORRECT ANSWER Known as Interest sensitive
whole life. Offer flexible premium payments that are tied into current interest rate fluctuations. Insurance company reserves the right to increase or decrease the premium within a certain range depending on interest rate fluctuations."
"Universal Life - CORRECT ANSWER Developed in response to the relatively low interest rates
(generally 3-5%) earned by traditional whole life insurance cash values, which made the whole life product less attractive during periods of high inflation. Makes Whole Life option less attractive during periods of high inflation. These policies pay higher interest rates during inflationary times. Also have greater flexibility because they allow PO to adjust the death benefits and/or premium payments. Similar to Whole life that it has death protection and cash value, but instead of being fixed and guaranteed amounts, the death protection resembles one-year renewable term insurance and the cash amount grows according to current interest rates."
"Two options available regarding the death benefit payable under a universal Life Policy -
CORRECT ANSWER Option 1 (or A): Provides a level death benefit equal to the policy's face
either premium is increased every year to cover the increased insurance amount, or the life insurance company makes assumptions about what it expects the increases to be at policy inception. Insured pays same premium over the life of the policy."
"Fixed Amount option - CORRECT ANSWER This allows the Beneficiary to receive a fixed
amount until the face amount and interest runs out. So instead of a period of years, like 10 per say, they just decide how much they want each month."
"Life Income Option - CORRECT ANSWER Pure life income option - provides installment
payments for as long as the primary beneficiary lives, with no return (refund) of principal guaranteed. Refund life income options - may take the form of a cash refund annuity or an installment refund annuity. Life income with period certain - occurs where installments are payable as long as the primary beneficiary lives, but should this beneficiary die before a predetermined number of years, the insurer will continue the installment to a second beneficiary until the end of a certain period. Joint and survivorship life income option - If at the death of the first party, the second party is still living, the installments are continued during the latter's lifetime."
"Nonforfeiture Options - CORRECT ANSWER Only available for life policies that accumlate
cash value. Types are Cash surrender value, entended term insurance, and reduced paid-up insurance."
"Riders (accidental death benefit) - CORRECT ANSWER Rider that is added just in case the
policy holder dies by accident. Beneficiaries receive double indemnity or double the face amount of the policy. Usually limited to age 60, 65, or in a few cases, 70. Payment will NOT be made by an insurer if death results from certain causes: illegal activities, war, aviation activites (except passenger travel on scheduled or commercial airlines) or accident that was involved in conjunction with illness disease, or mental infirmity."
"Waiver of Premium - CORRECT ANSWER Premium payments will be waived during the period
of disability."
"Disability Income Rider - CORRECT ANSWER The insurer guarantees the insured policy owner
a regular monthly income for as long as the insured remains totally and permanantly disabled."
"Payor Rider - CORRECT ANSWER Provides continuance of insurance coverage on the life of a
kid in the event of the death of total disability of the individual responsible for the payment of the premiums which normally is the parent or guardian."
"Annuity settlement options - CORRECT ANSWER 1) Life annuity - no refund
- Refund Life Annuity
- Annuity Certain - certain for period of time.
- Life Annuity Certain - Guaranteed for life but if you die too soon, still paid out through certain period.
- Joint Life, Survivorship and Joint Life annuities.
- Temp Annuity Certain"
"2 Tiered Annuity - CORRECT ANSWER Lump sump or payments available at Maturity"
Which of the following best describes the MIB? - CORRECT ANSWER The Medical Information
Bureau (MIB) is a nonprofit organization that maintains underwriting information on applicants for life and health insurance."
"All of the following are business uses of life insurance EXCEPT? - CORRECT ANSWER Funding
against general company financial loss."
