State: Michigan | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 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.
2. Which statement best describes premium payments in a Michigan contributory group life plan?
In contributory plans, employees share in the premium costs, with the employer paying a portion and the employee contributing the balance.
3. To participate in most qualified plans, an employee must generally meet which minimum requirements?
Common eligibility rules require age 21 and at least 1 year (or 1,000 hours) of service; other options are not standard requirements.
4. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
5. 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.
6. During the contestability period, misstatements of age or sex discovered can lead to which of the following?
Most policies have a contestability period (commonly two years); misstatements found can lead to rescission or adjustment of benefits.
7. Which of the following statements is true about the tax treatment of life insurance premiums when used to fund a buy-sell agreement?
Typically, premiums paid by a business for life insurance on the lives of owners under a buy-sell are not deductible as a business expense.
8. 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.
9. An underwriting class is best described as:
An underwriting class determines the premium rate category (e.g., standard, preferred, substandard) assigned to the applicant.
10. 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).
11. 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.
12. Michigan defines twisting as a practice where a policy is replaced with another by which means?
Twisting occurs when a producer persuades lapse or surrender of an existing policy to replace it with another by misrepresentation or an incomplete comparison of terms.
13. 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.
14. Which principle allows insurers to predict losses more accurately by pooling many similar exposures?
The law of large numbers states that as the sample size grows, the actual results approach the expected results, improving predictability of losses for pricing and reserves.
15. 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.
16. 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.
17. 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.
18. Misrepresentation of policy terms or benefits to induce a sale is considered an unfair trade practice.
Misrepresenting policy terms or benefits is a prohibited and unfair trade practice because it misleads the consumer.
19. Which of the following best describes the concept of insurable interest?
Insurable interest exists when the policyowner has a valid stake in the subject matter of the risk; it prevents wagering policies.
20. The premium is:
Premium is the price for the policy coverage paid by the insured or policyowner.
21. Advertising life insurance products with false or misleading claims constitutes an unfair trade practice.
False or misleading advertising about policy features or benefits is prohibited to protect consumers from deceptive marketing.
22. 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.
23. In a typical defined contribution plan, which part vests immediately and which may vest on a schedule?
Employee deferrals (employee contributions) are always 100% vested when contributed, while employer contributions vest according to the plan's schedule.
24. 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.
25. 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.
26. Which statement best describes the liquidity purpose of life insurance in estate planning for a business owner?
Life insurance can provide liquidity to cover estate taxes and buy out the business owner's stake so the business can continue without forced sales.