1. The New Jersey Banking and Insurance Commissioner may revoke, suspend, or refuse to renew the license of a producer who
A. fails to write any business for three months or more.
B. fails to become a member of an appropriate producer's association.
C. has no appointments with insurers.
D. is convicted of a felony. Correct
Explanation
The Commissioner has broad authority to discipline producers for serious misconduct. Being convicted of a felony demonstrates a lack of integrity or trustworthiness which is grounds for license action. Merely not writing business not joining an association or lacking appointments are not by themselves sufficient for revocation.
2. A group life contract that lapses because of nonpayment of premium will continue to cover losses incurred by the insured for
A. the duration of the Grace Period. Correct
B. a maximum of 30 days after the Grace Period expires.
C. a maximum of 30 days after the last premium is paid.
D. a maximum of 45 days after the last premium is paid.
Explanation
The grace period typically 31 days is a contractual provision that keeps coverage in force even though a premium is overdue. Claims for losses incurred during the grace period are covered. There is no extension of coverage beyond the grace period itself for lapsed policies.
3. Which of the following is NOT among the rights of the Life Insurance Policyowner?
A. Assign or transfer the policy.
B. Borrow from the cash values.
C. Select and change a beneficiary.
D. Revoke an absolute assignment. Correct
Explanation
Policyowners have the right to assign transfer a policy. An absolute assignment is a permanent irrevocable transfer of all ownership rights to another party the assignee. Once completed the original policyowner the assignor no longer has any rights to the policy and cannot revoke the assignment.
4. The premium mode defines the
A. premium limit.
B. premium amount.
C. frequency of the premium payment. Correct
D. method of premium payment.
Explanation
Premium mode refers to how often the premium is paid e.g. annual semi-annual quarterly monthly. The premium amount is the dollar value and the method of payment e.g. check auto-draft is separate. Premium limit is not a standard term related to mode.
5. A modified endowment contract qualifies as life insurance but fails to meet the seven-pay test. Which of the following describes the result of failing to meet the seven-pay test?
A. The policy is voided and the premium returned.
B. The cash surrender value of the policy is lost.
C. Pre-death distributions are likely to become taxable. Correct
D. Loans against the policy will no longer be allowed.
Explanation
A Modified Endowment Contract MEC is defined by failing the IRS's seven-pay test which limits premium payments in the early years. The key consequence is that distributions loans withdrawals are taxed on a LIFO Last-In First-Out basis meaning gains are taxed first as ordinary income and a 10% penalty may apply if taken before age 59½. The policy remains valid.