1. A married couple who wants life insurance benefits to pay estate taxes when the second spouse dies should purchase what policy?
A. Family policy.
B. Joint life policy.
C. Survivorship policy. Correct
D. Universal life policy.
Explanation
Survivorship policy (C) is correct because it pays the death benefit after the second spouse dies, ideal for estate taxes. Family policy (A) covers multiple family members. Joint life (B) pays on the first death. Universal life (D) is flexible but not specific to second death.
2. Unfair methods of competition laws prohibit a life agent from preparing an insurance quote that includes
A. policy comparisons.
B. misleading dividend payouts. Correct
C. estimated accrual information.
D. financial information about the insurer.
Explanation
Misleading dividend payouts (B) is correct because unfair competition laws prohibit deceptive practices, like misleading dividends. Policy comparisons (A) are allowed if accurate. Estimated accruals (C) and insurer financial info (D) are permissible if truthful.
3. What does the statement 'Life insurance creates an immediate estate' mean?
A. Premiums are due and payable immediately.
B. The total cash value is available immediately.
C. The total death benefit is paid whenever the insured dies. Correct
D. Policy proceeds are automatically paid to the insured's estate.
Explanation
Total death benefit paid whenever insured dies (C) is correct, as life insurance provides an immediate estate via the death benefit. Premiums (A) are ongoing. Cash value (B) builds over time. Proceeds (D) go to beneficiaries, not necessarily the estate.
4. Which of the following statements about life insurance policy loans is correct?
A. Policy loans may be repaid at any time while the policy is in force. Correct
B. Unpaid policy loans become debts of a deceased policymaker’s estate.
C. Policy loans can be used to pay premiums without affecting the amount of the death benefit.
D. A policy loan establishes a debtor-creditor relationship between the insurer and the policymaker.
Explanation
Policy loans may be repaid anytime while policy is in force (A) is correct, as loans can be repaid flexibly. Unpaid loans (B) reduce death benefits, not estate debts. Loans for premiums (C) reduce benefits. Debtor-creditor (D) applies but isn’t the full context.
5. The tendency of a person who has a higher than average exposure to loss to purchase insurance is known as
A. adverse selection. Correct
B. law of large numbers.
C. probability distribution.
D. risk pooling.
Explanation
Adverse selection (A) is correct, as it describes high-risk individuals seeking insurance. Law of large numbers (B) predicts losses. Probability distribution (C) is statistical. Risk pooling (D) spreads risk across insureds.