State: Georgia | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. Which characteristic makes life insurance a practical tool for funding a buyout in a closely held business?
Life insurance provides a liquid source of funds (cash value or death benefit) to fund a buyout, enabling the remaining owners to purchase shares.
2. Which factor directly affects life insurance premiums due to mortality risk and is commonly used in underwriting classifications?
Smoking status is a well-established factor that materially increases mortality risk and premium costs in underwriting.
3. Nonqualified annuity funds are contributed with after-tax dollars. Which portion of each distribution is NOT taxed?
The return of the investment in the contract (cost basis) is not taxed; the earnings portion is taxed as ordinary income.
4. Which statement accurately describes the taxation of a nonqualified (after-tax) annuity's distributions?
Nonqualified annuities are funded with after-tax dollars; the IRS uses an exclusion ratio to determine the tax-free portion, representing return of investment; the remaining portion is taxable as ordinary income.
5. The Government Pension Offset (GPO) reduces Social Security spousal or survivor benefits by what amount related to the government pension?
GPO reduces Social Security spousal or survivor benefits by two-thirds of the government pension amount for individuals receiving a government pension from non-covered work.
6. Subrogation in insurance is the process by which:
Subrogation allows the insurer to step into the insured's shoes to pursue recovery from a third party responsible for the loss, preventing the insured from collecting twice and helping keep premiums stable.
7. To reinstate a lapsed policy, what is typically required?
Reinstatement usually requires payment of back premiums with interest and evidence of insurability; additional conditions may apply per policy.
8. Death benefits paid to a beneficiary are generally tax-free, with exceptions such as transfers of value.
In most cases, life insurance death benefits are income-tax-free to the beneficiary; exceptions include transfers of value (e.g., sale of the policy).
9. How long is the typical grace period for a life insurance premium?
Most life insurance policies provide a 30-day grace period for late premiums; death benefits may be paid minus overdue premium if death occurs during the grace period.
10. If a named beneficiary is a minor, how are the proceeds most commonly paid?
Because minors cannot generally receive funds directly, proceeds are typically paid to a custodian under UGMA/UTMA or to a court-appointed guardian.
11. Who is typically the policyowner of a Georgia group life policy?
In group life insurance, the employer is the policyowner and the master policy is issued to the employer.
12. In a whole life policy, which statement is true?
Whole life premiums are level for life, and the policy builds cash value over time, part of which may be accessible via loans.
13. Under the state's contract law, which statement correctly describes concealment versus misrepresentation in terms of impact on a policy?
Both concealment and misrepresentation can affect validity or claims if the facts were material to risk assessment; the remedy depends on severity and timing under state law.
14. In a qualified retirement plan, which nondiscrimination concept is used to ensure broad-based participation beyond highly compensated employees?
Nondiscrimination tests (coverage and nondiscrimination tests) ensure that the plan does not disproportionately favor highly compensated employees and that non-highly compensated employees receive meaningful benefits.
15. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
16. A spendthrift clause in a life insurance policy primarily serves to
A spendthrift clause protects the beneficiary's proceeds from creditors and restricts improper assignments or transfers.
17. A participant’s employer contributions to a qualified plan become nonforfeitable after meeting a specific period of service. This is an example of?
Cliff vesting means that after a specified period of service, the employee becomes 100% vested in employer contributions all at once.
18. At the end of the grace period, if the premium remains unpaid, what usually happens to the policy?
If the premium is not paid by the end of the grace period, the policy typically lapses according to the policy terms.
19. Under HIPAA, who must authorize the release of medical information to the insurer?
Under HIPAA, a written authorization from the applicant is generally required for releasing medical information to the insurer.
20. Under Georgia's Unfair Trade Practices, misrepresenting the terms, benefits, or advantages of a policy is:
Misrepresenting policy terms or benefits is prohibited as an unfair trade practice.
21. If a critical illness policy lapses and is later reinstated, what is commonly required?
Lapsed policies may be reinstated, but typical terms require evidence of insurability and payment of any back premiums; a new waiting period may apply.
22. In underwriting, credit reports are most closely associated with assessing:
Credit reports provide information about an applicant's financial responsibility and stability, relevant to financial underwriting.
23. An underwriting class is best described as:
An underwriting class determines the premium rate category (e.g., standard, preferred, substandard) assigned to the applicant.
24. Which example best illustrates rebating in Georgia?
Rebating includes offering goods or services of value not specified in the policy to induce purchase.
25. Under the state's contract law, the principle of utmost good faith (uberrimae fidei) requires which of the following?
Utmost good faith requires full and honest disclosure of all material facts by both parties to ensure a fair contract and informed underwriting decisions.
26. In insurance, which term describes a specific cause of loss?
A peril is the actual event or circumstance that causes a loss (e.g., fire, theft).