Free insurance agent exam sample questions 2012-13
Please Print, Practice and Pass insurance agent exam
This is 2nd part of my blog on insurance agent exam. You will find all answers in Red.
Free insurance agent exam samples questions 11-20
Q 11
A beneficiary received $200,000 in proceeds from a Life Insurance policy. He selected a 20 year fixed period payout at 5% interest and received annual payments of $12,500. How much of each payment will be excluded from tax:
A. None
B. $2,500
C. $10,000
D. $12,500
Q 12
A client paid $20,000 in cash to buy a Single Premium Deferred Annuity, which after 10 years has grown to $35,000. If he takes a partial distribution of $15,000, how will it be taxed?
A. No tax is due since the amount withdrawn is less that his cost basis
B. The entire distribution is taxable as ordinary income
C. The entire distribution is taxable as capital gain
D. The entire $35,000 is taxable since partial distributions are not allowed
Q 13
A client paid $4,500 in premiums into a $50,000 Whole Life insurance policy. If he dies when his cash value is $5,000, how much will be taxable to the beneficiary:
A. None
B. $ 5,000
C. $45,500
D. $50,000
Q 14
The Doctrine of Reasonable Expectations applies to what type of law:
A. Tort
B. Criminal
C. Contract
D. Corporate
Q 15
The money that an insurer is required to set aside to honor future liabilities to customers is known as:
A. Retained equity
B. Net worth
C. Legal reserves
D. Capital surplus
Q 16
An insurer domiciled in another country, but doing business in this state, is know as a(n) _____________ company:
A. International
B. Foreign
C. Off shore
D. Alien
Q 17
Recognizing hazards and exposures and making plans to avoid them is known as:
A. Risk classification
B. Risk management
C. Risk transfer
D. Risk avoidance
Q 18
A peril is defined as a:
A. Risk
B. Exposure
C. Cause of loss
D. Uncertainty of loss
Q 19
Which of the following is true about Variable Life insurance?
A. Insurers must determine the value of the separate account daily
B. The minimum death benefit is guaranteed
C. The cash value is guaranteed
D. The death benefit cannot increase above the minimum
Q 20
When a policy owner adds a rider to a Life Insurance policy to cover all of his children, the premium is based upon:
A. The number of children
B. The health of the children
C. The ages of the children
D. A flat premium
ANSWERS & RATIONALES- Free insurance agent exam samples question 11-20
11. C although life insurance proceeds are not subject to tax, the interest is. To find the tax free amount, divided $200,000 by 20 years, so $10,000 a year is tax free. Any amount received in excess of that amount is interest and is taxable as ordinary income.
12. B On annuity partial distributions, the first money out is the interest portion, which is this cased is $15,000, all of which is taxable as ordinary income. If the annuitant is under age 59 ½, a 10% IRS premature distribution penalty could also apply.
13. A Proceeds payable to a Life Insurance beneficiary are never taxable.
14. C The Doctrine of Reasonable Expectations is closely associated with the Doctrine of Adhesion. Both doctrines state that any ambiguity in the policy (which is a contract) will be construed against the insurance company, since they wrote it. Tort law is also known as injury law.
15. C Insurance is regulated by state law. All states require that insurers have a prescribed amount of liquid assets (or legal reserves) on hand to honor their future liabilities to customers, such as Life Insurance death claims or cash surrenders. Insurers must file annual, audited financial statements to prove that they meet this requirement.
16. D Insurers may be domestic, foreign or alien, depending upon where they are incorporated (domiciled). An alien insurer is domiciled in a foreign country. A foreign insurer is domiciled in another state. A domestic insurer is domiciled in this state.
17. B Risk is defined as the chance of loss. An exposure is defined as a condition that could result in a loss. Risk classification is known as underwriting. Insurance is defined as the transfer of risk. Recognizing hazards and exposures and making plans to avoid them is known as risk management. Know your definitions!
18. C A peril is a cause of loss, such as death in Life Insurance, or accident or sickness in Health Insurance.
19. B Producers selling Variable Life need a state Life Insurance license and a federal Securities license. Although the cash value is not guaranteed, the minimum death benefit is, although the death benefit may increase above the minimum. Most insurers value the separate account on a quarterly basis.
20. D Most insurers offer a Children’s Rider, which covers all of the insured’s children up to a certain age for a flat fee, regardless of how many children there are or their health. Coverage usually ends at age 18 (or 21), at which time the child may convert their coverage to an individual Whole Life policy without evidence of insurability.
