All the following statements regarding stranger-owned life insurance (STOLI are correct, EXCEPT)

To be insurable a loss must

be definable, measurable, uncertain, and not catastrophic.

From an insurance perspective, the term exposure means

The extent to which an insurer is subject to a possible losses.

From an insurance perspective, underwriting is best defined as

the process of determining if an applicant is an insurable risk.

Lucy is applying for an individual health insurance policy. The application asks about her current health and whether she has any known medical conditions. Lucy discloses that she is diabetic, which would be considered which of the following?

A physical hazard is a physical characteristic, such as diabetes, that increases the chance of loss.

The insurance company function that is responsible for evaluating the insurable risks and assigning appropriate premium rates.

All the following are characteristics of a stock insurance company

they have minimum capital requirements that must be met before they can conduct business. they are governed by a board of directors. they may issue dividends.

Who provides independent ratings of insurance companies' financial strength and claims-paying abilities?

A.M. Best, Moody's, Duff and Phelps and Standard & Poor's are all well-known insurance company rating organizations.

All the following statements regarding reinsurance are correct

The insurer accepting some of the risk being transferred is known as the reinsurance company.
Reinsurance is a risk-sharing process used by insurance companies.
The insurer seeking to transfer some of its risk is known as the ceding company.

In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to do all the following:

Make sure all product recommendations are suitable for the customer.
Avoid all forms of rebating.
Disclose all pertinent information concerning a proposed policy.

Agents must act in the best interests of applicants and insureds. What does this require them to do?

give all important information about a proposed policy

The main purpose for errors and omissions insurance (E&O) is to

Cover damages that arise due to services a producer non-willfully failed to render.

The agent's contract does not create it.
A third party reasonably believes that the agent has it based on the reasonable statements and actions by the insurer and agent.
The insurer does not intend it.
The insurer is liable for an agent's acts when he or she is acting under apparent authority.

The purpose for the Policy Summary, which must be given to every insurance applicant, is to

Provide buyers with policy details of the insurance contract they are considering for purchase.

Which of the following best describes an agent's responsibilities?

An agent has to act in the best interests of insureds, applicants, and insurers.

Though not specifically cited in the producer's contract, the producer is expected to telephone prospects on the insurer's behalf to arrange sales appointments. This is an example of

A producer has a fiduciary responsibility to

Both the insurer and the customer.

ne party may receive a benefit that is entirely out of proportion to the consideration he or she is giving

one under which the benefit payable cannot be greater than the actual loss the contract owner incurs or the face amount of the policy, whichever is less. The insured's recovery under an indemnity policy is limited to his or her actual loss. Medica

In an insurance transaction, who gives consideration

both the applicant and the insurer

Tim had paid only four premiums on his health insurance policy when he was diagnosed with cancer. The insurance company paid more than $100,000 to cover the medical bills for his treatment during the next year. This situation demonstrates which of the following characteristics of insurance contracts?

For a life insurance contract to be enforceable, which of the following parties must be legally competent?

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?

made an offer to the insurer

In order to be grounds for ending a contract, what must a misrepresentation on an insurance application involve?

To protect his family in case he died prematurely, John applied for a $1 million life insurance policy. When he died two years later, the insurer paid $1 million in benefits, even though John was unemployed when he died. What is this type of insurance contract?

What will result if an insured decides to stop paying premiums for his or her insurance policy?

The insurance company is released from its promise to pay benefits and the contract expires.

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?

When holding insurance premiums and other funds, producers must act in what role?

Adam is a producer for ABC Insurance Co. He becomes a professor at the community college and no longer sells insurance, so ABC terminates his appointment on May 1. ABC must notify the Commissioner of Insurance of this termination by

Alex sold an insurance policy before his license lapsed and earned a commission on the sale. Is he entitled to a commission if the policy is renewed?

Yes, because he was licensed when the policy was sold.

Which penalty can the Commissioner impose if a person acts as an agent without a license?

An insurer must notify its current customers of its privacy policies or practices at least once every how often?

A person who commits insurance fraud can be punished by all of the following:

Persons who are convicted of insurance fraud are subject to a fine of up to $50,000 for every violation, imprisonment for up to four years, or restitution.

When collecting personal financial or health information, an insurance company is required to do all of the following:

the insurer's privacy policies and practices, describe conditions under which the insurer may disclose this information to other parties, and provide methods for individuals to prevent this disclosure.

Which of the following is a requirement to obtain a resident producer's license?

To receive a resident producer's license, a person must submit an application, pay the required fees, complete a prelicensing program, pass the licensing exam, and not have been convicted of a crime involving dishonesty, fraud, or breach of trust. A person is not required to be appointed by at least two insurers.

Adam is a licensed insurance counselor in Michigan. Which statement best describes his authority?

He provides advice regarding insurance policies and charges a fee for such advice.

Frank, an insurance counselor, is about to meet with a new client to review the client’s insurance coverage. Before the meeting begins, Frank is required to do all of the following

Before rendering any counseling services, a counselor must prepare a written agreement to be signed by both the counselor and the client. This agreement outlines the work to be performed and the fee to be paid. It must also state that the fee cannot be waived and that the counselor will earn a commission from the insurer for placing insurance. A counselor must keep a copy of an agreement for at least two years.

Under what conditions may the commissioner waive the education requirements?

The Commissioner may waive the examination and prelicensing education requirements for applicants for limited lines licenses, persons who have been licensed as producers within the preceding 12 months, and applicants holding a degree with a concentration in insurance. The Commissioner may also waive the requirements for individuals holding certain designations, such as certified financial planner.

Which of the following is a reason for license suspension or revocation?

A producer's license may be suspended or revoked for failing to pay state income tax, having a license revoked in another state, and accepting insurance from unlicensed individuals. It is not unlawful to solicit relatives and friends for insurance.

Jeff is a licensed insurance producer in both New York and Michigan. He is charged with embezzlement in New York, and his first pretrial hearing is set for March 1. He must notify the Michigan Commissioner of Insurance of this charge within how many days of the hearing?

James is a licensed producer who lives in Michigan. He moves to a new town in the state. When must he notify the Michigan Department of Insurance of his move?

ter the Commissioner issued a cease and desist order, Agent Smith continued to offer illegal inducements to insurance prospects in violation of the order. Which penalty can the Commissioner impose?

a fine of up to $10,000 and license revocation

Nadir Insurance instructs its producers to omit certain information from their records of insurance transactions for the previous year. This information would give the Department of Insurance reason to expand any routine examination of Nadir if the Department knew about it. Which of the following is true about Nadir's instructions?

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?

Astrid, a licensed producer, meets with a prospective client to review his insurance needs. When Astrid senses that he is reluctant to buy the policy she recommends, she reminds him that the policy is protected by the Michigan Life and Health Insurance Guaranty Association. Which statement is true about Astrid’s conduct?

It is an unfair trade practice for anyone to use the existence of the Michigan Life and Health Insurance Guaranty Association, or the protections the association offers, for the purpose of selling insurance.

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?

twisting-A person cannot make a false or misleading statement or comparison about an insurance policy in order to induce someone to lapse, surrender, terminate, retain, or convert an insurance policy or buy a policy with another insurer.

Which of the following most accurately describes "insurable interest"?

Insurable interest is the relationship between the person applying for life insurance and the person whose life is to be insured. It is a necessary element in the issuing of a life insurance contract.

In life insurance, for how long must insurable interest exist?

With life insurance, insurable interest need exist only at the time the applicant enters into the life insurance contract.

What of the following best describes the meaning or purpose of insurable interest?

For insurable interest to exist, the person buying the insurance must suffer a loss when the insured dies. That loss can come from close familial ties or financial ties.

Which of these personal relationships does NOT automatically constitute insurable interest?

general, neighbors do not have insurable interest in each other.

In a participating policy, the insurance company pays the policyowner a dividend out of which of the following?

Insurance companies do pay dividends out of the company's earnings that are available for distribution (the divisible surplus).

Life and health insurance can be classified as participating or non-participating. This classification determines which of the following?

The participating/non-participating classification determines whether the policy pays its owner a dividend.

Sylvia's insurer guarantees a fixed death benefit for the policy she owns. Based on this, which one of the following benefits is also most likely guaranteed with this policy?

Sylvia's policy does guarantee a minimum rate of return on the policy's cash value.

When may an insurer cancel either whole life or term life insurance?

The insurer may cancel either type of life insurance policy if the policyowner does not pay the premiums.

What is the actuary's first step in determining the premium to charge for a policy?

Calculate the net single premium.

Carl is a policyowner who does not want to pay premiums annually. How does Carl's insurance company adjust his premium when it allows him to pay more frequently?

The insurer increases the modal premium so that the sum of premiums exceeds the annual premium.

Actuaries base traditional life insurance premiums on all of the following factors

expenses interest rates mortality (or morbidity)

Which one of the following do actuaries use to predict the likelihood of an individual dying at any certain age in the premium rate-making process?

Mortality is the element of premium rate-making that reflects the rate of death of prospective insureds.

All the following statements regarding stranger-originated life insurance (STOLI) are correct

STOLI and investor-originated life insurance (IOLI) are the same thing. 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.

In personal insurance, what is the disadvantage to third-party ownership?

The insured has no right to name the beneficiary.

Robert is suffering from a terminal illness. He wants to keep his life insurance out of his taxable gross estate. Which of the following arrangements would help him meet that goal?

To keep death benefits out of the insured's federal gross estate, a third-party trust can apply for and own the policy from the beginning.

Under the standard bring-back rule, assets transferred out of a decedent's estate will be valued in the estate if done within how many before death?

With respect to life insurance policy cost comparison methods, the primary difference between the traditional net cost method and the interest adjusted net cost method is

One method recognizes the interest that the insurer credits the cash value while the other does not.  Both methods are used for comparing permanent life insurance policies.

l the following are federal laws or related rulings that have a direct impact on anti-money laundering requirements

USA PATRIOT Act FinCEN final rules of 2005 Bank Secrecy Act

the following statements about agent/producer responsibilities are correct

Agents must always act ethically and professionally in all dealings with policyowners and future policyowners. The manner in which the agent conducts business reflects the insurance company and directly impacts the agent's ultimate success. To policyowners, the agent who sold them their insurance coverage represents the insurer.

The insurance coverage provided under a temporary insurance receipt is

temporary term insurance.

The Fair Credit Reporting Act (FCRA) generally requires insurers that seek a credit report to notify the applicant of the request within

3 days of requesting the report.

What is the form in which the MIB sends its reports to insurers?

Jim's life insurance application is the first source of information an underwriter reviews. An accurate and complete application provides critical information about which of the following?

the applicant's personal data and health

Which one of the following best describes the restrictions an insurer must operate under when using information from the Medical Information Bureau (MIB)?

Insurers cannot rate or decline a life insurance risk based solely on MIB information.

Frank, an applicant for life insurance who is a substandard risk, can expect to pay a premium that is best described as which of the following?

generally higher premiums than for a standard risk

Who normally pays for medical exams or lab tests that insurance companies request?

All other factors being equal, which of the following applicants can expect to pay the lowest premium for a given face amount of life insurance protection?

Preferred risks generally enjoy lower rates (all other factors being equal) than standard risks, reflecting the lower risk they represent to the insurer.

What happens to Peter's signed application after it has been submitted to the insurer?

It becomes part of the contract between the insurer and the policyowner.

The basic purpose for the re-entry option with a renewable term life insurance policy is to let the policy owner

renew the policy at lower current rates than would be the case in a standard policy renewal.

Term life insurance is well suited for all the following needs

mortgage protection insurance. protection while the family children are living at home or attending college. inexpensive protection until the policyowner can afford permanent life insurance.

Correct statements about term life insurance

Upon issue, it is generally less expensive than permanent insurance of comparable face amount. It pays a benefit only if the insured dies during the specified period. It offers protection for a specified, limited period.

Bob bought a $100,000 ten-year level term insurance policy on March 1, 2004. What will happen if he dies on March 10, 2014?

Bob's beneficiary will not get any benefits.

Under an indeterminate premium whole life policy, what happens to premium rates if an insurer earns more on its investments than was factored into the premium calculation?

Bill owns an indeterminate premium whole life insurance policy. Which one of the following statements about his policy is most correct?

Bill's premium will never be higher than the maximum level that the insurer guaranteed when it issued his policy.

Which one of the following statements about variable life insurance is correct?

Variable life policyowners can choose how to invest their policy's premiums and cash values.

All the following statements about ordinary whole life insurance are correct

The premium level is set higher than the actual mortality costs during the early years of the policy. Premiums never increase. The insured pays level premiums until he or she dies or reaches age 120, whichever comes first.

A policyowner owns a variable universal life insurance policy that offers a wide array of variable subaccounts. With respect to this policy, all of the following statements are correct

The variable subaccounts allow policyowners to participate in the investment performance of the assets underlying their contracts. Funds can be transferred from one subaccount to another without income tax consequences. They are not guaranteed by the insurer.

If a variable universal life policyowner chooses death benefit option 3, what will the benefit equal?

the policy's specified amount plus the total premiums paid

Cindy and Rich each bought a $100,000 universal life insurance policy from the same insurer, each with a ten-year surrender charge schedule. In year two, Cindy withdrew $5,000 from her policy. Rich withdrew $5,000 from his policy in year five. Which one of the following statements is most likely correct?

Cindy will probably pay a higher surrender charge than Rich.

Andrea owns a variable universal life insurance policy. She has been paying premiums for the last ten years. The policy's cash value is now $75,000. When her son enters college she stops making premium payments and pays tuition instead. After her son graduates, Andrea plans to start making premium payments again. Which one of the following statements is most correct, assuming Andrea wishes to keep the policy in force?

As long as the policy's cash value covers the monthly deductions for the cost of insurance and expenses, Andrea's policy stays in force.

The automatic premium loan (APL) provision does which of the following?

prevents a life insurance policy from lapsing if the policyowner fails to pay a premium

The following statements about life insurance cash value withdrawals are correct

A policyowner can withdraw amounts less than the full cash value. Universal life insurance policies allow withdrawals from their cash values. The policy continues in force as long as the values that remain in the contract can cover the monthly deductions.

Which of the following best describes a partial surrender of a permanent (non-universal) life insurance policy?

Under a partial surrender, the death benefit is reduced proportionately by the amount of the surrender.

If the policy loan amount plus interest owed is greater than the policy's cash value, which of the following will happen?

The insurer will cancel the policy

Which one of the following choices most correctly explains why a waiver of premium rider functions differently with a universal life insurance policy than with a traditional whole life policy?

Premium payment for a universal life policy is flexible, and premiums need not be paid consistently

John would like to buy life insurance to provide for his family in case he dies prematurely. To figure out how much life insurance John needs, the agent must look at all of the following,

risk profile. current income. assets and liabilities.

Jackie Jones is the Chief Financial Officer of Delta Industries and has been instrumental in the company's growth and success over the years. Because of the significant financial loss that Delta would suffer if she died, it purchased a key person insurance policy covering Jackie.

If Jackie dies, the insurer will pay most of the death benefit to Delta, with the remaining amount going to her heirs.

Which of the following statements best describes an annuity payout period?

It guarantees income will be paid for any period the owner wants.

Ann is beneficiary of an annuity owned by Jim. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?

Ann's right to any funds will be based on the income payout option Jim selected.

The amount a market value adjusted annuity (MVA) owner receives at withdrawal goes up or down depending on which of the following?

The amount the owner receives at withdrawal does not depend on the index amount.

Howard, 33, and Mary, 32, want to fund their 13-year-old daughter's college education. Which one of the following would be the most appropriate advice about using a deferred annuity for this purpose?

It is not recommended. Deferred annuities typically impose surrender charges on funds withdrawn during a contract's early years, and withdrawals from annuities before the owners reach age 59 may be subject to a tax penalty.

All the following statements about annuity death benefits are correct

If the owner or annuitant dies during the accumulation period, a beneficiary receives as a death benefit an amount at least equal to the amount invested in the contract. Deferred annuities offer the guarantee of a death benefit, which is distributed if the owner or annuitant dies during the accumulation period. Variable annuities guarantee a death benefit equal to at least the premium invested.

Sally is a 25-year-old clerk employed by Acme, Inc. Under Acme's employer-pay-all group life plan, Sally's coverage is $60,000. The premiums for what portion of that coverage are taxable to Sally?

A currently insured worker is eligible for which of the following Social Security benefits?

survivor death benefits only.

Steve decides to retire this year at age 69. What will happen when he applies for Social Security retirement benefits?

His benefits will be slightly higher than if he had retired at normal retirement age.

Which one of the following statements regarding Social Security disability benefits is most correct?

Social Security disability benefits are available to eligible workers at any age.

Failure to begin taking required minimum distributions (RMDs) from a qualified retirement plan when required can result is a penalty tax equal to

50 percent of the difference between the amount that was taken and the RMD amount that should have been taken.

all statement regarding defined contribution qualified plans are correct?

The retirement benefit, when paid, is usually fully taxable. Participants can choose to receive the benefit at retirement as a lump-sum payment. Participants can choose to receive the benefit at retirement as annuitized income.

How frequently must an insurer that issues variable annuities value the assets of the separate account used to pay benefits?

A person who wants to convert group life insurance coverage to an individual policy must apply for the policy and pay the first premium within how many days of leaving the group plan?

What is the primary purpose of the many tax-favored health insurance plans sponsored by the federal government?

to encourage people and employers to save for health-care expenses

If a person submits an insurance application without the first premium, which of the following statements is correct?

A completed application and a premium payment constitute an offer from the applicant. The insurer accepts the offer by issuing the contract as applied for.

A flat benefit amount is usually what percent of the full disability benefit?

All statement about maximum benefit periods in disability income policies are correct?

A longer maximum benefit period incurs a higher policy premium. Maximum benefit periods can range from one or two years to as long as the insured's lifetime. Disabilities caused by sickness or injury may have different maximum benefit periods under a policy.

A recurrent disability occurs while the disability income policy is in force and within how many months of an earlier, related disability?

A recurrent disability must begin within 6 months, not 12 months, of the previous, related disability.

All the following statements regarding the waiver of premium rider on a disability income (DI) policy are correct :

A disabled insured is usually required to pay the premium during the elimination period before premiums are waived. . The waiver of premium rider excuses the insured from paying the policy's premium only if the insured is totally disabled. The waiver of premium rider waives future premiums indefinitely as long as the insured remains disabled.

When does a waiver of premium rider release the insured from paying the policy's premium?

only when the insured is totally disabled

With what type of policies are guaranteed insurability riders typically associated?

disability income policies

A group long-term disability income plan (LTD) typically has a maximum benefit period of at least

An employee's evidence of coverage under an employer-sponsored group disability income (DI) plan is provided through a(n)

certificate of insurance.

Group short-term disability (STD) coverage typically has a maximum benefit period of

Which of the following best defines "disability" for purposes of qualifying for Social Security disability benefits?

A worker is unable to engage in any gainful employment, and has a disability that is expected to last at least one year or result in death.

Sheila owns a basic hospital plan with a supplementary major medical plan. She is hospitalized and incurs $10,000 in expenses, all of which are covered by her two plans. Her basic policy covers 100 percent of the first $3,000 of her costs. The supplementary plan has a $500 deductible. The basis for her supplementary plan benefit payments is $6,500. Which type of deductible does Sheila have?

Which of the following statements best describes health savings account (HSA) plans?

If the account holder takes money out of the fund but does not use it to pay qualified medical expenses, the withdrawal may be taxed.

What is the term for the amount payable for death under an accidental death and dismemberment (AD&D) insurance policy

In addition to a multiple indemnity rider, how else can an individual buy accidental death and dismemberment coverage?

as a single policy that covers only these risks

Nathan's single-insured dental plan limits the total benefit it provides in any one year. What is the typical range of this limit?

What must the recipient pay after the Medicare Part A deductible is paid?

daily hospital coinsurance or co-payment for the 61st to the 90th day

daily hospital coinsurance or co-payment for the 61st to the 90th day

If an applicant's assets are above the allowable limits for Medicaid, the applicant must nearly exhaust them to be eligible. What is this process of exhausting assets called?

Which of the following statements best describes the "pool of money" approach to benefits under a long-term care (LTC) insurance policy?

LTC policy benefits are defined as a total sum of money from which money can be drawn in any amount per year for as long as the money lasts.

Which of the following accurately describes differences between tax-qualified and non-tax-qualified long-term care insurance plans?

Medical necessity cannot be a benefit trigger under tax-qualified LTC plans

Group health plans provide a schedule of benefits that do not allow individual selection of coverage and benefits. A principal reason for this is to avoid:

What are groups whose members are not static but constantly changing, such as vacation cruise lines or commercial bus companies, called?

Joe is employed by Delta Motors, Inc., which sponsors a group health insurance plan for its employees. Joe participates in Delta's health plan. What should this plan be considered

Like a plan for group life insurance, group health insurance coverage is issued to the plan sponsor. What do the group sponsor and insurer have to indicate their agreement to this arrangement?

Which group plan does the Health Insurance Portability and Accountability Act (HIPAA) apply to?

group insurance plans that cover two or more people

Tom, a carpenter, applies for an individual disability income insurance policy. Which definition of total disability will the insurer probably use when issuing the policy?

n employer with fewer than ten employees applies for a group insurance policy that will provide medical expense benefits. Which of the following statements is correct?

e insurer may require the participants to complete a medical exam or provide evidence of insurability before it will issue a policy.

Group health insurance plans that base premium increases on the claims experience of multiple groups in a geographical region rather than the single group are known as what type of plan?

hich of the following most accurately describes the tax treatment of group disability income benefits?

The employee is taxed on a percentage of benefits equal to the percentage of premium the employer pays.

BBC Corporation employs 300 workers and offers a group health insurance plan for its eligible employees. Although the plan may exclude pre-existing conditions from coverage, it must cover them within how many months after the effective date of coverage?

Darlene failed to pay the premium on her individual health insurance policy, which was due on October 1. She can avoid lapsing the policy if she pays the premium before what date?

Which type of accident and health insurance policy provides that as long as the insured pays the premiums, the company cannot modify the premium, coverage, or any provisions of the policy?

A producer's commission for the sale of a Medicare supplement policy in the first year following its effective date cannot exceed what percentage of the commission paid for servicing the policy in the second year?

Three times a week, Ernest pays for a caretaker to come to his house and help him with everyday tasks such as bathing and eating. What type of care is Ernest receiving?

Custodial care is also known as personal care and includes assistance with the activities of daily living, such as bathing, dressing, walking, toileting, and eating.

What is the purpose of stranger

What is a Stoli in insurance?

What are Stoli transactions?

Can you take life insurance on a stranger?