cHAPTER 4-7

In a life settlement contract, whom does the life settlement broker represent?(Chapter 4)

• A The insurer

  
  

• B The beneficiary

• C The life settlement intermediary

• D The owner

Answer explanation

Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners

 An IRA purchased by a small employer to cover employees is known as a? (Chapter 4)

• A 403(b) plan.
  

• B 401(k) plan.

• C Simplified Employee Pension pla

• D Defined contribution plan

Answer explanation

A Simplified Employee Pension (SEP) is an employer sponsored IRA. Contributions to the plan are not included

in the employee's taxable income for the year, to the extent that they do not exceed the maximums allowed.

Distributions from a SEP are taxable as ordinary income when received at retirement

3: An employee has group life insurance through her employer. After 5 years, she decides

to leave the company and work independently. How can she obtain an individual policy?

• A She can only convert her coverage without proof of insurability if she has the master policy.

• B She must apply for a new policy, which requires her to provide proof of insurability

• C She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the

  group plan.

• D She will still be covered under the group plan, but will have to pay an individual policy premium

Answer explanation

If a person has life insurance under a group plan and then leaves the group, he/she may convert group coverage

to individual coverage within 31 days of leaving the plan without proof of insurability

A life insurance policy used to fund an agreement that contractually establishes the

intent of someone to purchase a business upon the insured business owner's death is a

• A Stock redemption plan

• B Buy-sell agreement

• C Key person policy

• D Split-dollar plan.

Answer explanation

Buy-Sell agreements are used to contractually establish the intent of someone else to purchase the business

upon the insured's death, and to set a value (purchase price) on a business. Life insurance is used to fund the

buy-sell agreement. Any type of life insurance may be purchased to provide the necessary funds for the

agreement. Insurance can be used to either fully or partially fund the buy-sell agreement.

What is the main purpose of the Seven-pay Test?

• A It guarantees the minimum interest.

• B It determines if the insurance policy is a MEC.

• C It requires level premium payments for 7 years.

• D It ensures that the policy benefits are paid out in 7 years

Answer explanation

The Seven-pay Test determines whether an insurance policy is “over-funded" or if it's a Modified Endowment

Contract. In other words, the cumulative premiums paid during the first seven years of a policy must not exceed

CHAPTER 5 1: In a replacement situation, all of the following must be considered EXCEPT

• A Exclusions.

• B Assets.

• C Benefits.

• D Limitations.

Answer explanation

In a replacement situation the agent must be careful to compare the benefits, limitations and exclusions found

in the current and the proposed replacement policy.

Whose responsibility is it to determine if all of the questions on an application have

been answered?

• A The applicant

• B The beneficiary

• C The agent

• D The insurer

Answer explanation

It is the responsibility of the agent to make sure that the application has been properly signed and that all

questions have been answered correctly.

What is the term used for an applicant’s written request to an insurer for the company

to issue a contract, based on the information provided?

• A Policy Request

• B Insurance Request Form

• C Request for Insurance

• D Application

Answer explanation

An individual can submit an application to an insurer, which requests that the insurer review the information and

issue an insurance contract.

Which of the following entities can legally bind coverage?

• A Agent

• B Insurer

• C The insured

• D Federal Insurance Board

  Only insurers, not agents, can bind coverage

Answer explanation

An insurer is attempting to determine the insurability of an applicant and decides to

obtain medical information from several different sources. Which entity must be notified

of the investigation?

• A The applicant

• B The Commissioner of Insurance

• C The medical examiner

• D The State Department of Insurance