State: New York | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. 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.
2. 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.
3. 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.
4. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
5. 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.
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. 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.
8. 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.
9. 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.
10. Under a defined contribution plan, what determines the participant's retirement benefit?
In defined contribution plans, the retirement benefit depends on the amounts contributed and the investment performance of those funds.
11. 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.
12. 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.
13. The premium is:
Premium is the price for the policy coverage paid by the insured or policyowner.
14. 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.
15. 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.
16. What test applies to 401(k) and 403(b) plans to determine whether the deferrals of highly compensated employees are too high relative to non-highly compensated employees?
The Actual Deferral Percentage (ADP) test measures whether elective deferrals of highly compensated employees are in line with those of non-highly compensated employees to maintain non-discrimination.
17. Which advertising practice would most likely be considered an unfair trade practice in New York?
False or misleading advertising, especially about dividends or guarantees not supported by the policy, constitutes an unfair trade practice.
18. 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.
19. 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.
20. What document proves an employee's coverage under the NY group life master policy?
A Certificate of Insurance is issued to each insured employee and serves as evidence of coverage under the master policy.
21. 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.
22. 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.
23. Which scenario best describes misrepresentation of policy provisions under New York unfair trade practices rules?
Misrepresentation includes stating or implying that a policy provides coverage for a benefit when the policy clearly excludes it, which is deceptive and unlawful.
24. 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.
25. Twisting in New York insurance law is defined as
Twisting involves inducing a policyholder to lapse, surrender, or replace an existing policy through misrepresentation or incomplete comparison of terms.
26. An underwriting class is best described as:
An underwriting class determines the premium rate category (e.g., standard, preferred, substandard) assigned to the applicant.