Free New York Life Insurance Practice Test (17-51)

Correct answer: The insured's executor or administrator

If the beneficiary, assignee or other payee under a contract made in violation of the insurable interest rule receives benefits on the death, disablement or injury of the insured, the insured or his executor or administrator may maintain an action to recover them.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Thirty days

Section 3203(a)(11) provides that a policy sold by mail order must contain a provision permitting the policy owner a thirty-day period to surrender the policy for a refund.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: An immediate life annuity

An annuity systematically liquidates an estate, paying principal and interest on a schedule calculated to last the annuitant's lifetime. An immediate life annuity starts this payout within 12 months.

From the free practice set The annuity principle

Correct answer: $14,000, to pay off the loan balance

Credit life generally pays the outstanding balance of the debt at the borrower's death, subject to the policy maximum. The balance is $14,000, which is within the $25,000 maximum, so the policy pays $14,000 to retire the loan.

From the free practice set Term life insurance types

Correct answer: The coverage keeps declining on the original schedule, so it falls short of the new, larger balance.

Decreasing term follows its own scheduled reduction, set when the policy was issued. It does not track a new loan. After a refinance into a larger, longer loan, the death benefit keeps falling on the original schedule and leaves a gap.

From the free practice set Term life insurance types

Correct answer: The policyowner

The policyowner controls the contract while the insured is alive, including the right to surrender it for cash value. Beneficiaries do not hold that right. A revocable beneficiary has no control during the insured's life, and an irrevocable beneficiary can at most withhold consent to a surrender but cannot surrender the policy.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: A 67-year-old retiree who fears her savings will run out before she dies

An annuity addresses longevity, the risk of outliving one's money. Every other client's need arises from a premature death, which is the risk life insurance covers.

From the free practice set The annuity principle

Correct answer: A refund of the premiums she paid

Return of premium term charges a higher level premium than ordinary level term and refunds the premiums paid if the insured survives the term. Priya survived, so her premiums come back to her.

From the free practice set Term life insurance types

Correct answer: That proceeds may affect eligibility for public assistance or other government benefits

The disclosure must warn that receiving proceeds may adversely affect eligibility for public assistance or other government benefits, and that advice should be obtained from the appropriate agencies.

From the free practice set Life settlements

Correct answer: It is a MEC, because it was received in exchange for a MEC

26 U.S.C. § 7702A(a)(2) defines a MEC to include any contract received in exchange for a MEC. Once a MEC, always a MEC.

From the free practice set Tax treatment of life insurance premiums, proceeds, and MECs

Correct answer: Retention

A deductible is planned retention: the insured agrees to pay that portion of each loss personally. Raising the deductible increases the amount retained in exchange for a lower premium.

From the free practice set Risk, exposure, hazard, peril, and loss, and the methods of handling risk

Correct answer: An attending physician's statement (APS)

An attending physician's statement is a report from the applicant's own physician summarizing the medical history, diagnoses and treatment. Underwriters order it when the application or exam raises questions, or for larger amounts.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Term buys only the death benefit for a limited period, with no savings element or cash value to fund.

Term is pure protection for a limited period. It has no savings element or cash value, so the premium covers only the cost of the death benefit during the term, plus the insurer's expense loading, with nothing set aside to build cash value. That is why term premiums are lower than permanent premiums at the earlier ages.

From the free practice set Term life insurance types

Correct answer: In life insurance it must exist when the policy is issued; in property insurance it must exist at the time of the loss

For a life policy on another person, the payee must have an insurable interest at the time the contract is made; it need not continue until death. Property insurance, by contrast, requires the insured to have an insurable interest when the loss occurs.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Fifteen days

Section 3204(e) requires the insurer, within fifteen days after receiving a written request at its home office or any branch office, to deliver or mail a copy of a reinstatement, renewal or change application, or option notice, to the insured, beneficiary or assignee who asked.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: She may not, because a temporary agent may be licensed only as an agent of the insurers the original licensee represented

Section 2109(d) provides that a person eligible for a temporary agent's license may be licensed only as an agent of the insurer or insurers the original licensee was licensed to represent at the time of the death, military duty or disability. Insurer Z is outside that scope.

From the free practice set New York producer licensing: process, definitions, and license types (Ins. Law 2101-2109, 2136)

Correct answer: The executor, without having to pass a written examination

Section 2109(a)(1)(A) lets the Superintendent issue a temporary license to the executor or administrator of the estate of a deceased licensed accident and health agent, among the other license types the paragraph lists, without requiring a written examination.

From the free practice set New York producer licensing: process, definitions, and license types (Ins. Law 2101-2109, 2136)

Correct answer: His father must apply for the policy or consent to it in writing

Except for group and family insurance and narrow exceptions, no contract of insurance on a person may be made unless the insured, being of lawful age or competent to contract, applies for or consents in writing. A spouse insuring a spouse is an exception; an adult child insuring a parent is not.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: unplanned, or passive, retention

Retention can be planned or unplanned. When a person fails to recognize a risk, any loss from it is retained by default. That is unplanned, or passive, retention.

From the free practice set Risk, exposure, hazard, peril, and loss, and the methods of handling risk

Correct answer: Any premium paid for the policy, including policy fees and other charges

Section 3203(a)(11)(i) requires a refund of any premium paid for the policy, including any policy fees or other charges, when the policy is surrendered with a written request for cancellation during the free look period.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: To estimate how much money it will need each year to pay death claims, based on expected deaths at each age

Mortality tables give the insurer a basic estimate of how much money it will need to pay death claims each year, and let it determine average life expectancy for each age group. Mortality is one of the three premium factors.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Dan, because he is the policyowner

The policyowner holds the contract rights, including the right to change a revocable beneficiary. The insured and the beneficiary have no control over the policy unless they are also the owner.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: A company that depends on its chief engineer, whose death would cost it revenue and recruitment expenses

For persons other than close relatives, insurable interest is a lawful and substantial economic interest in the continued life, health or bodily safety of the insured, as distinguished from an interest that would arise only by, or be enhanced in value by, death. An employer losing a key employee has an interest in the employee staying alive.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: A condition that increases the chance of a loss or the severity of a loss

A hazard is not the cause of a loss. It is a condition, physical, moral or morale, that makes a peril more likely to occur or makes the resulting loss larger.

From the free practice set Risk, exposure, hazard, peril, and loss, and the methods of handling risk

Correct answer: It costs more than comparable level term, and the extra premium funds a refund of premiums if the insured survives the term.

ROP term is level term with a higher premium that refunds premiums if the insured survives the term. It remains term insurance: if the policy lapses early, the refund is usually forfeited or reduced, and on survival it returns the premiums, not the face amount.

From the free practice set Term life insurance types

Correct answer: 30-year decreasing term

A mortgage balance falls over time, so decreasing term, whose death benefit declines on a schedule while the premium stays level, matches the need at a lower cost than level coverage for the full original amount.

From the free practice set Term life insurance types

Correct answer: By applying for the policy or consenting to it in writing

Except for the listed exceptions, no contract of insurance on a person may be made unless, at or before the making of the contract, the insured, being of lawful age or competent to contract, applies for or consents in writing.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: A person specified by the insurer in the policy, in a signed writing

Section 3204(a)(3) states that the policy cannot be modified, nor any rights or requirements waived, except in a writing signed by a person specified by the insurer in the policy.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: Covering final expenses whenever the insured dies, even at age 95, while building a cash value

Term is temporary protection with no cash value. A need that lasts for life and that also calls for building cash value is matched by permanent insurance, not term.

From the free practice set Term life insurance types

Correct answer: How many members of the group will be alive each year, though not which ones

The law of large numbers lets the insurer forecast the group's mortality with reasonable accuracy. It does not need to know any individual's date of death; early deaths and long lives balance out across the pool.

From the free practice set The annuity principle

Correct answer: The insuring clause

The insuring clause is the insurer's fundamental promise to pay the death benefit to the beneficiary upon due proof of the insured's death, subject to the policy terms. It sets the scope of coverage.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: It does not modify the policy, because the general agent is not a person the insurer specified in the policy

Section 3204(a)(3) requires a writing signed by a person specified by the insurer in the policy. A writing alone is not enough; it must be signed by the specified person, here the president or secretary.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: The insurer's amount at risk falls over the term, so the expected death claims are smaller.

With decreasing term, the death benefit shrinks over the term, so the amount the insurer would pay is lower in the later years, exactly when the insured is older and more likely to die. Lower expected claims mean a lower premium.

From the free practice set Term life insurance types

Correct answer: The maturity date stated in the contract or, if earlier, a date selected by the owner

In a deferred annuity, periodic payments are deferred until a maturity date stated in the contract or, if earlier, a date selected by the owner.

From the free practice set The annuity principle

Correct answer: It is a return of his cost basis and is not taxed again

Money contributed after tax forms the participant's cost basis. When benefits are paid, the basis is recovered tax-free; only the earnings above basis are taxable.

From the free practice set Qualified and nonqualified retirement plans

Correct answer: The producer's license expires and is not renewed

Section 2112(c) makes appointments valid until the appointing insurer terminates them under the agency contract, the license is suspended or revoked by the Superintendent, or the license expires and is not renewed.

From the free practice set New York producer licensing: process, definitions, and license types (Ins. Law 2101-2109, 2136)

Correct answer: Physical hazard

A physical hazard is a tangible characteristic of property or a person that increases the chance or size of a loss. Frayed wiring and oily rags near a furnace are physical conditions that make fire more likely.

From the free practice set Risk, exposure, hazard, peril, and loss, and the methods of handling risk

Correct answer: The applicant may be accepted, but an additional premium is charged for the greater probability of a shorter life span

A substandard risk is an applicant who does not meet the requirements set for the standard risk. An additional premium is charged on substandard risks to provide for the probability that the person will have a shorter life span than a standard risk.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Term costs less at first, but its rate rises with age and can eventually exceed the permanent premium.

Term premiums are lower than permanent premiums at the earlier ages, but term rates rise as the insured grows older. The permanent policy's premium stays level, so in later years the renewing term premium can exceed it.

From the free practice set Term life insurance types

Correct answer: They are conditions for keeping the policy in force, not consideration for the contract

The consideration for a life contract is the completed application plus the initial premium. Renewal premiums are conditions for continuing coverage. Because the owner never promised to pay them, stopping is not a breach; the policy lapses or applies its options under its terms.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: The Superintendent may suspend, revoke or refuse to renew the license after notice and a hearing, because a felony conviction is a listed ground

Section 2110(a)(7) lists conviction of a felony as a ground on which the Superintendent may refuse to renew, revoke or suspend a producer's license, after notice and a hearing.

From the free practice set New York producer licensing: process, definitions, and license types (Ins. Law 2101-2109, 2136)

Correct answer: A deductible keeps the insured paying part of each loss, which discourages carelessness and eliminates small claims

A deductible is planned retention by the insured. Because the insured bears part of every loss, it counters morale hazard and removes the cost of processing many small claims, which helps keep premiums lower.

From the free practice set Risk, exposure, hazard, peril, and loss, and the methods of handling risk

Correct answer: One year after the revocation

Section 2110(e)(1) bars a person whose license has been revoked from obtaining any license under the chapter for one year after the revocation, or for one year after a final judicial determination affirming it.

From the free practice set New York producer licensing: process, definitions, and license types (Ins. Law 2101-2109, 2136)

Correct answer: The taxable portion is ordinary income, but the 10% additional tax does not apply

Under 26 U.S.C. § 72(v)(2)(C), distributions that are part of a series of substantially equal periodic payments for the taxpayer's life or life expectancy are exempt from the 10% additional tax. The taxable portion is still ordinary income.

From the free practice set Tax treatment of life insurance premiums, proceeds, and MECs

Correct answer: A defined benefit pension plan

A defined benefit plan promises a stated benefit, so if investments underperform, the employer must contribute more. In a defined contribution plan, including 401(k), profit-sharing and money purchase plans, the benefit is only what the account grows to, so the employee bears the risk.

From the free practice set Qualified and nonqualified retirement plans

Correct answer: $208,000

A return of premium rider is a form of increasing term: it adds the premiums paid to the death benefit. The beneficiary receives the $200,000 face amount plus $8,000 in premiums, for $208,000.

From the free practice set Term life insurance types

Correct answer: The initial premium

The applicant's consideration is the completed application plus payment of the initial premium. This applicant has supplied only the application, so the initial premium is the missing part. Insurers normally collect the first premium, often when the policy is delivered, before coverage takes effect.

From the free practice set Core contract provisions: entire contract, insuring clause, free look, consideration, owner's rights

Correct answer: It is a significant risk factor that can lead to a rated premium or a decline

Driving record is a standard life underwriting factor. Serious violations such as drunk driving signal higher accidental-death risk and possible alcohol abuse, and can lead to a rating or a decline.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: The applicant's specific written consent to the HIV test, with the results kept confidential

Insurers may test life applicants for HIV, but only with the applicant's specific written informed consent, and the results must be handled confidentially.

From the free practice set Underwriting: insurable interest, medical information, and risk classification

Correct answer: Owner and annuitant; Lisa is the beneficiary

Frank purchased and controls the contract (owner), and payments are measured by his life (annuitant). Lisa, who receives any remaining amount at his death, is the beneficiary.

From the free practice set The annuity principle