State: Illinois | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. Which statement best describes the tax treatment of life insurance death benefits when paid to heirs or beneficiaries of a business owner?
Death benefits paid to beneficiaries are generally received income tax-free, though estate or other taxes may apply separately.
2. 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).
3. 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.
4. In a contributory group life plan, who generally pays for part of the premiums?
Contributory plans require employee contributions; the premium is shared between employer and employee according to plan terms.
5. Which settlement option provides guaranteed income for life to the beneficiary?
The life income option provides payments for the beneficiary's lifetime, often with or without a guaranteed period.
6. 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.
7. Illinois prohibits false or misleading advertising of life insurance products. Which example would be considered unfair advertising?
Advertising that misstates policy benefits or features, such as guaranteed dividends that do not exist, is false and unfair.
8. 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.
9. 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.
10. Which of the following describes a vesting schedule for employer contributions in a defined contribution plan?
Vesting refers to when an employee gains nonforfeitable rights to employer contributions. Typical schedules include 3-year cliff or 6-year graded vesting.
11. Which of the following is a physical hazard example?
Faulty electrical wiring is a physical hazard because it physically increases the risk of a peril, such as fire.
12. 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.
13. 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.
14. 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.
15. How is the exclusion ratio generally calculated for a nonqualified annuity?
Exclusion ratio = investment in contract / expected return. The 'expected return' is the anticipated amount to be returned over the life of the contract.
16. Which is the typical grace period length for life insurance premiums in most jurisdictions?
Most jurisdictions require a minimum grace period of 30 days for premium payments, allowing time to make the payment without lapse.
17. Which statement about survivor benefits is true?
A surviving spouse can receive up to 100% of the deceased worker's benefit if they wait until their own FRA; claiming earlier typically results in a reduced amount.
18. Which doctrine prevents a party from denying or asserting a claim after it has misrepresented facts or delayed action, based on prior conduct or representations?
The estoppel doctrine prevents a party from taking a position contrary to its prior conduct or statements if others relied on them.
19. An agent attempts to replace an existing life policy by misrepresenting the benefits of the new policy and failing to perform a meaningful comparison. This is known as:
Twisting is the unethical practice of inducing a policyowner to replace a policy through misrepresentation or inadequate comparison of policies.
20. 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.
21. In a qualified plan, what is an elective deferral?
Elective deferrals are the employee’s voluntary salary reduction contributions to the plan, often pre-tax.
22. 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).
23. Is accidental death and dismemberment (AD&D) coverage automatically included in a Illinois employer-sponsored group life policy?
AD&D may be added as a rider or optional benefit; it's not automatically included in all group life policies.
24. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
25. A policy illustration is typically used to show:
Policy illustrations display non-guaranteed elements like dividends or rate projections where applicable; actual results may differ.
26. If both the insured and the designated beneficiary die before settlement, the death benefit may be paid to
If both die before settlement, the death benefit may go to the insured's estate or to the contingent beneficiary, depending on policy terms and designations.