State: Texas | Category: Life Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. 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.
2. 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.
3. AD&D coverage in a Texas group life policy is generally:
AD&D coverage is commonly included with group life or offered as a rider; it may be included at no extra premium or for a small added cost depending on the policy.
4. 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.
5. 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.
6. 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.
7. Inducing a policyholder to replace an existing policy by misrepresenting the benefits is known as which unfair practice?
Twisting refers to improperly inducing a policy replacement by misrepresentation of benefits, which is illegal in Texas.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. An underwriting class is best described as:
An underwriting class determines the premium rate category (e.g., standard, preferred, substandard) assigned to the applicant.
16. Under the Top-Heavy rule, when a plan is dominated by key employees’ accrued benefits, what must occur?
If a plan is top-heavy, the plan must provide minimum benefits or contributions to non-key employees to protect non-key participants.
17. 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).
18. In a standard 401(k) plan, how are vesting rights for employer contributions determined?
Employee deferrals are always 100% vested; employer contributions vest according to the plan's vesting schedule.
19. 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.
20. 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.
21. Who is the policyowner under a typical Texas group life policy?
In group life, the employer or sponsor is the policyowner and pays the premiums to provide coverage for eligible employees.
22. 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.
23. The named insured on a policy is:
The named insured is the person whose life or property is insured under the policy.
24. 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.
25. 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.
26. Coercion or intimidation of a policyowner or applicant to purchase, lapse, or replace with a specific insurer is considered which unfair practice?
Coercion or intimidation is an unfair trade practice and is prohibited to restrict choice or pressure consumers.