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MI LIFE PRODUCER FINAL EXAM | ALL
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Flora's deferred annuity contract has an 11-year surrender charge period, during which the surrender charge will most likely: ------CORRECT ANSWER---------------decrease//The surrender charge is typically a declining percentage of the withdrawn amount. Which of the following statements about children's term riders is correct? --- ---CORRECT ANSWER---------------If a child converts coverage to a permanent policy, the new policy's face amount can be greater than the term rider coverage.//When coverage ends for a child, the child can convert the coverage to any permanent life insurance policy the insurer is then issuing. Evidence of insurability is not required. The policy face amount can be greater than the term rider coverage. With respect to variable annuity annuitization, which of the following statements is NOT correct? ------CORRECT ANSWER--------------- Annuitization under a variable annuity contract provides for income payments that are fixed and unchanging, like a fixed annuity.//Annuitization under a variable annuity contract provides for income payments that are not fixed and unchanging, like a fixed annuity. If an employer sets up a profit-sharing plan, which one of the following statements is most correct? ------CORRECT ANSWER---------------It must establish individual accounts for each participant.//Under a profit-sharing plan, the employer is the sole contributor to the plan. Contributions are directed into individual accounts for each participant.
In a cross-purchase buy-sell agreement involving three partners, how many life insurance policies does the business itself own? ------CORRECT ANSWER---------------0//In a cross-purchase buy-sell agreement, the business itself is not involved in the purchase agreement. Which of the following is NOT an unfair claims settlement practice if committed by an insurance company in Michigan? ------CORRECT ANSWER---------------failing to promptly settle a claim for which liability is uncertain//An insurer is not obligated to settle a claim for which it is not clearly liable. All the following statements about children's term riders on life insurance policies are correct, EXCEPT: ------CORRECT ANSWER---------------The modest amount of coverage in a children's term rider reflects the small amount parents are willing to pay for children's insurance.//The coverage a children's term rider provides reflects the generally smaller death benefit need when a child dies. Which of the following is a correct statement in describing the difference between a variable annuity (VA) and a fixed annuity? ------CORRECT ANSWER---------------A VA makes no guarantee as to the principal or investment performance, whereas principal and interest are guaranteed with a fixed annuity.//While VAs and fixed annuities are similar in many respects, including premium flexibility and tax deductibility, the one area where they differ is with contract value guarantees. A VA makes no guarantee as to the principal or investment performance, whereas principal and interest are guaranteed with a fixed annuity.
administrator mails the distribution check to the participant, the participant has 60 days to roll it over to another plan or IRA (and avoid taxes). No taxes are withheld from the transfer amount if the check is made payable to the new IRA trustee. Steve takes out a life insurance policy on himself, naming his wife, Ellen, as the primary beneficiary, his son Mark as contingent beneficiary and his niece Lucy as tertiary beneficiary. Ellen dies before Steve. Assuming no changes have been made to the policy, how will the policy proceeds be distributed after Steve dies? ------CORRECT ANSWER---------------The proceeds will be paid to Mark.//Contingent beneficiaries receive the proceeds if the primary beneficiary is removed or dies before the insured. The tertiary beneficiary receives proceeds only if the primary and secondary beneficiaries are dead. Mary inherited $10 million several years ago. She has just bought a life insurance policy to help preserve her estate. All of the following statements regarding this are correct EXCEPT: ------CORRECT ANSWER--------------- The policy's death benefit cannot be used to pay Mary's estate taxes or settlement fees.//For people with substantial assets, life insurance offers a way to protect their estates. The death benefit can be used to pay estate taxes, settlement costs, and other debts that the estate may face upon a person's death. Marco's life insurance policy contains a long-term care rider. If Marco eventually requires long-term care, which of the following is true about his monthly benefits? ------CORRECT ANSWER---------------They will most likely be based on a percentage of the face amount of insurance.//If a life insurance policy contains a long-term care rider, monthly benefits will typically be based on a percentage of the amount of life insurance.
ABC Insurance Company diligently maintains files of advertisements it uses to market its health insurance policies. How long is it required to keep them before it can purge them? ------CORRECT ANSWER---------------until the Director's next examination or four years, whichever occurs last//Every insurer must keep a file of every advertisement used to market its health insurance policies. The insurer must maintain this file for at least four years or until the Director's next examination of the insurer, whichever occurs last. Individual life insurance policies must include a grace period of how long for paying any premium except the first? ------CORRECT ANSWER--------------- 1 month//After the insured has paid the initial premium, he or she has a grace period of one month within which to pay every subsequent premium. The policy remains in force during the grace period. An insurable interest will typically be presumed in all of the following types of relationships EXCEPT: ------CORRECT ANSWER---------------neighbor and friend//An insurable interest exists between children and parents, businesses and key employees, and creditors and debtors. It typically will not be presumed between a neighbor and a friend. Harry and Constance want life insurance to provide death benefits in case either dies, as well as living benefits in the event of financial emergencies. Which of the following would this couple most likely buy? ------CORRECT ANSWER---------------whole life insurance//Whole life insurance pays death benefits for the insureds' lifetimes, or until age 120. Whole life policies also accumulate cash values, which grow over the life of the policy. These are the "living benefits" Harry and Constance are seeking. Pam is a 56-year-old vice president employed by Gulf, Inc. Under Gulf's employer-pay-all group life plan, Pam's coverage is $300,000. The value of what portion of that coverage is taxable to Pam? ------CORRECT
The Director will issue a counselor's license to a qualified applicant within how many days of the application? ------CORRECT ANSWER--------------- 60 days//To be licensed as an insurance counselor, a person must submit an application to the Director and pass a written examination. The Director must decide whether to issue the license within 60 days of receiving the application. While meeting with her insurance customer, Ben, Ann sees that he is chain smoking. Yet he notes on his application that he is a nonsmoker. What should Ann do at this point in the application process? ------CORRECT ANSWER---------------insist that Ben be truthful and avoid misrepresentation//A fraudulent insurance act is committed if a person knowingly and with intent to defraud misrepresents a material written statement as part of an application or for any benefit under a policy. When selling a life insurance policy that replaces an existing policy, the producer must leave all of the following items with the applicant EXCEPT: - -----CORRECT ANSWER---------------confirmation that any existing insurers have been notified of the replacement//The insurer, not the producer, confirms that any existing insurers are notified of the replacement. However, the insurer is not required to provide this confirmation to the applicant. As beneficiary of her husband's life insurance, Beth chooses to receive payments for life. However, she is guaranteed that the payments will be made for ten years. Beth has chosen which of the following settlement options? ------CORRECT ANSWER---------------life income with period certain//Under the life income with period certain, a payee receives income payments for life and payments are guaranteed to be made for a specified period. If the payee lives beyond the guarantee period, payments will continue until he or she dies.
Leslie, Leah, and Lori, each of whom have children, are the daughters of Bill and have been named primary per stirpes beneficiaries under his life insurance policy. If Leslie dies before Bill, which of the following will apply when he dies? ------CORRECT ANSWER---------------Leah and Lori will each receive one-third of the death benefit, and the remaining third will be paid to Leslie's children.//Per stirpes means that the proceeds of a life insurance policy pass down to the beneficiary's children if the named beneficiary dies before the insured. By submitting a life insurance application without the first premium, applicant Larry is doing which of the following? ------CORRECT ANSWER-- -------------inviting the insurer to make an offer//When an application is submitted without a premium, the applicant is effectively inviting the insurer to make an offer. Accepting delivery of the policy and paying the first premium is an acceptance of the insurer's offer. Melanie, a licensed producer, often reminds prospective clients that the policies she sells are protected by the Michigan Life and Health Insurance Guaranty Association. Melanie's practice is considered ------CORRECT ANSWER---------------Prohibited as an unfair trade practice//It is an unfair trade practice for anyone to use the existence of the Michigan Life and Health Insurance Guaranty Association, or the protections the association offers, for the purpose of selling insurance. Jane works for a company that allows employee contributions under a 401(k) plan. When will Jane become fully vested in her plan contributions? ------CORRECT ANSWER---------------immediately//While employer contributions to a qualified plan can be subject to a vesting schedule, participants are always fully vested in their own contributions.
All of the following are standard life insurance policy nonforfeiture options EXCEPT: ------CORRECT ANSWER---------------accumulate at interest option//This is a policy dividend option in which declared dividends are left with the insurer to accumulate interest on the policyowner's behalf. Which of the following most correctly describes the nonforfeiture option(s) available with universal life insurance? ------CORRECT ANSWER------------- --surrender the policy for its cash value or stop paying premiums and continue coverage as long as the cash value will support it//Universal life policies do not contain the standard nonforfeiture options. Instead, the policyowner can either surrender the policy for its cash value or continue coverage with no further premium payments, in which case coverage will last for as long as the cash value is able to support the policy's monthly mortality and expense charge deductions. James wants to convert his $150,000 traditional IRA to a Roth IRA. What best describes the tax treatment for the Roth conversion? ------CORRECT ANSWER---------------The converted funds are taxed, but Roth IRA earnings and distribution will be tax free.//The $150,000 from the traditional IRA has been deferred so it will be taxed upon conversion. However, as long as James holds the new Roth IRA for at least five years and is older than 59', distributions from the Roth IRA will be tax free. Under variable life insurance plans, policy loans can be as high as what percent of the cash value? ------CORRECT ANSWER---------------75 to 90 percent//Policy loans under traditional whole life insurance plans can be as high as 100 percent of the cash value, but with variable life insurance the maximum loan amount is something less than the full cash value (e.g., 75 to 90 percent of the cash value), less any debt currently outstanding against the policy.
Under which nonforfeiture option does permanent life insurance continue in force with no further need for premiums? ------CORRECT ANSWER---------- -----reduced paid-up option//A paid-up policy under the reduced paid-up option requires no further premiums (nor can any be paid). The paid-up policy retains a cash value that will continue to grow throughout the life of the policy. However, it will grow much more slowly than during the period that premiums were being paid. Which of the following can be funded with a single premium payment, a series of fixed premium payments, or flexible premium payments? ------ CORRECT ANSWER---------------deferred annuities//Deferred annuities can be funded with a single premium payment, a series of fixed premium payments, or with flexible premium payments. Moreover, the owner can make these payments whenever and in whatever amount he or she wants. How does the cost of group life insurance generally compare to the cost of individual life insurance? ------CORRECT ANSWER---------------Group life is less expensive.//Per unit of benefits or coverage, group life insurance is less expensive than individual life insurance because it has lower administrative and operational costs. Which of the following statements about the 'accumulate at interest' policy dividend option is correct? ------CORRECT ANSWER---------------The insurer credits a rate of interest to the dividends as they remain on deposit with the insurer.//The insurer credits a rate of interest to the dividends as they remain on deposit with the insurer. When it comes to choosing a financial instrument to fund a qualified retirement account, which of the following features makes an annuity the most suitable product? ------CORRECT ANSWER---------------retirement
Actuaries calculate net single premiums based on which of the following? -- ----CORRECT ANSWER---------------mortality and interest assumptions//The net premium, which is the insurer's estimated cost to provide the policy's benefits without accounting for its expenses, uses the factors of mortality and interest but excludes the expense load factor. Which of the following statements is true for variable life insurance policies? ------CORRECT ANSWER---------------The insurer does not guarantee the policy's cash value.//The insurer does not guarantee amounts invested in separate subaccounts, so the whole value of the policy is not guaranteed. Life insurance policies are generally prohibited from including provisions that would do any of the following EXCEPT: ------CORRECT ANSWER------ ---------require the policyowner to notify the insurer if he or she assigns the policy to a third party//The only provision among these options that could be included in a policy is one requiring the policyowner to notify the insurer if he or she assigns the policy to a third party. The other provisions are typically prohibited by state law. Jerry names a trust as the beneficiary of his life insurance. When Jerry dies, how will this trust work? ------CORRECT ANSWER---------------The insurer pays the death benefit to the trustee who manages the assets for the trust's beneficiaries, named by Jerry when the trust was formed.//A trust can be the beneficiary of a life insurance policy. The insurer pays the trustee, who manages the assets for the trust's beneficiaries. Which of the following statements regarding Keogh (HR-10) qualified plans is correct? ------CORRECT ANSWER---------------The plan must comply with the same maximum contribution and benefit limits applicable to other
qualified plans.//Keogh plans today are treated the same way as corporate plans with respect to maximum contribution and benefit limits, participation and coverage requirements, and nondiscrimination requirements. When calculating the surviving family's ongoing cash needs at the death of the prospective customer, the agent must consider all of the following expenses EXCEPT: ------CORRECT ANSWER---------------the insured's funeral expenses//Paying for the insured's funeral is an immediate lump- sum cash need, not an ongoing cash need. Life insurance is commonly used for all the following purposes, EXCEPT: -- ----CORRECT ANSWER---------------Life insurance is used to make up for the financial losses that might occur with the death of an important customer.//While life insurance serves a number of important purposes in the business market, making up for the death of a big customer is not one of them. Assuming no relation other than that stated, in which of the following situations does insurable interest exist? ------CORRECT ANSWER------------ ---Al would like to take out a life insurance policy on his wife.//Insurable interest in personal relationships is generally limited to the applicant and a member of the applicant's family. John buys a $1 million life insurance policy. He dies two years later and the insurer pays the $1 million benefit. Even though the premiums never came close to the benefit amount, the insurer pays the full benefit because the insurance policy is type of contract? ------CORRECT ANSWER---------------a valued contract//Life insurance policies are valued contracts, which means they pay a stated amount in the event of a loss. Life insurance contracts, unlike contracts of indemnity, do not try to judge the actual amount of the loss. Because John bought a life insurance policy insuring his life for $ million, that is the amount the policy paid when he died, regardless of the
Social Security provides a variety of programs for eligible workers and their families. What are its two main programs? ------CORRECT ANSWER-------- -------OASDI and Medicare//Social Security provides a variety of programs for eligible workers and their families. Its two main programs are the Old Age, Survivors, and Disability Insurance (OASDI) program and the Medicare program. A variable annuity owner has a subaccount with a current net asset value (NAV) of $15. If the VA owner makes a $1,000 premium payment, how many accumulation units will be acquired? ------CORRECT ANSWER-------- -------66.6 units//The owner would buy additional accumulation units at $ per unit, which is now the current value. A $1,000 payment would buy 66. units. An indexed whole life policy ties death benefits and premiums to which of the following? ------CORRECT ANSWER---------------the Consumer Price Index (CPI)//Indexed whole life insurance ties its death benefit and its premiums to a specified index, most commonly the Consumer Price Index (CPI). With a key person life insurance policy, who is the owner of the policy? -----
- CORRECT ANSWER---------------the employer//With a key employee life insurance policy, the business applies for, owns, and is the beneficiary of the policy covering the life of a key employee. Which term applies to an insurance company domiciled in one state but operating in another, from the perspective of the state in which it operates? ------CORRECT ANSWER---------------foreign company//Any company that does business in a state other than the one in which it is domiciled is classified as a foreign company in the state where it does business.
Which of the following is the primary regulator of those who sell variable life insurance? ------CORRECT ANSWER---------------state insurance departments and Financial Industry Regulatory Authority (FINRA)//To be properly registered to sell variable insurance contracts, producers must hold either a FINRA Series 6 or Series 7 registration, obtained by passing a FINRA exam. They must also hold a valid life insurance license in the state(s) where they do business. A life insurance policy that offers coverage for a specified, limited period with no cash value building up is called a: ------CORRECT ANSWER--------- ------term life insurance policy//A term life insurance policy protects the insured for a specified, limited period and does not build any cash value. The policy pays death benefits only if the insured dies during the term of coverage. If John buys a new life insurance policy or annuity that amends the coverage of his existing life insurance policy, the new policy will be considered which of the following? ------CORRECT ANSWER---------------a replacement policy//Replacement occurs when an applicant is about to buy a new life insurance policy or annuity and, as a result, an existing life insurance policy or annuity will be lapsed, terminated, amended, or compromised in some way. Which one of the following statements about term life insurance is correct? ------CORRECT ANSWER---------------The policy pays a death benefit only if the insured dies during the term.//Term insurance pays a death benefit only if the insured dies during the term.
When does the free-look period for a variable life insurance policy end? ---- --CORRECT ANSWER---------------10 days after the policy is delivered, or 45 days after the insurance application is completed, whichever is later//The free-look period for a variable life policy generally ends ten days after the policy is delivered, or it can extend for 45 days after the insurance application is completed, whichever is later. Some states require longer free-look periods. Alan and his wife are expecting their first child. Alan wants the most death protection that he can get for the smallest amount of premium, at least while he's starting his family. Ideally, he would like to be able to upgrade his coverage to a whole life policy at some point. Which of the following products would you recommend? ------CORRECT ANSWER---------------ten- year convertible term life policy//A 10-year convertible term life policy gives the client relatively inexpensive insurance to get started and the opportunity to convert to a whole life policy anytime within the 10-year period. Which of the following statements regarding the extended term nonforfeiture option is correct? ------CORRECT ANSWER---------------The extended term option is not available if the original policy was issued on a substandard (rated) basis.//The extended term option is not available where the original policy was issued on a substandard (rated) basis. An insurer issues a new life insurance policy that has conditions attached to it, and instructs the producer to personally deliver it to the policyowner with an explanation of the conditions. This is an example of what kind of delivery? ------CORRECT ANSWER---------------legal delivery//If any conditions are attached to the policy requiring the policyowner's immediate attention, then legal delivery is required. Legal delivery of a policy requires personal delivery to the client and an explanation of the conditions to be met.
All the following statements about group life insurance are correct EXCEPT: ------CORRECT ANSWER---------------Employee contributions are not permitted.//The employer may pay the entire premium. However, employees usually contribute to the premium. What is the consideration that an applicant gives an insurance company when buying life insurance? ------CORRECT ANSWER---------------the application and the first premium//The consideration policyowners give insurers includes the application with the representations it contains and the first premium. Which of the following characteristics of a potential customer would make an immediate fixed annuity under a straight life income option unsuitable for that person? ------CORRECT ANSWER---------------The customer is age 75 and in questionable health.//While an immediate fixed annuity under a straight life income option is suitable for someone who wants income for life and has no need for a minimum income guarantee, it may not be suitable for someone with a limited life expectancy. Which of the following most correctly explains why a deferred annuity would not be an appropriate college savings vehicle for a 30-year-old new dad? ------CORRECT ANSWER---------------Distributions are subject to penalty taxes before age 59' as well as potential surrender charges.//While deferred annuities can be used for accumulation purposes besides providing retirement income, saving for college is not one of them. At one time, annuities were used for medium-range goals like college savings. However, distributions from a deferred annuity before age 59' are now subject to a 10 percent penalty tax (in addition to ordinary income taxation), dimming their popularity for anything other than long-term accumulation and distribution.
