State: North Carolina | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. The practice of inducing a policyholder to replace an existing life insurance policy with a new policy by misrepresentation or omission of pertinent facts is known as?
This conduct is commonly referred to as twisting, which involves misleading replacements to shift the policy or pay more for inadequate coverage.
7. Which of the following is a qualified retirement plan under the Internal Revenue Code?
401(k) plans are classic examples of qualified plans; nonqualified plans do not receive the same federal tax treatment and ERISA protections.
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. Under the state's conditional receipt provisions, when does temporary coverage typically begin if the premium is paid with the application?
A conditional receipt provides temporary coverage from the date of the application/receipt, subject to underwriting and policy approval.
10. 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.
11. The premium is:
Premium is the price for the policy coverage paid by the insured or policyowner.
12. Is misrepresentation of dividends or other non-guaranteed values in life insurance considered an unfair trade practice in NC?
Stating that dividends or non-guaranteed values are guaranteed when they are not constitutes an unfair trade practice.
13. Premium payments are typically applied to which premium due first?
Premiums are normally allocated to the oldest due premium first to satisfy outstanding obligations and prevent compounding overdue amounts.
14. 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.
15. Distributions from a qualified annuity (funded with pre-tax dollars) are generally taxed as?
Qualified annuity distributions are taxed as ordinary income because contributions were made with pre-tax dollars.
16. 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.
17. 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.
18. How does a critical illness policy define covered illnesses?
CI policies define coverage by listing specific illnesses on the policy. If an illness is not listed, it is typically not covered unless the policy states otherwise.
19. 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.
20. Under a 3-year cliff vesting schedule, when does an employee become 100% vested in employer contributions?
A 3-year cliff vesting schedule means no vesting during the first two years and full (100%) vesting in year 3.
21. 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.
22. 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.
23. 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.
24. 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.
25. In NC group life, a 'class' refers to:
A class groups employees by common characteristics (e.g., full-time, job level) to determine eligibility and benefits under the master policy.
26. 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.