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| Section | Weight | Objectives |
|---|---|---|
| Insurance Regulation | 5% | - Licensing
|
| Life Insurance Basics | - Life insurance underwriting
| |
| General Insurance | - Risk and insurance concepts
|
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NEW QUESTION # 28
The settlement option that pays a specified amount to an annuitant, but pays no residual value to a beneficiary is known as
Answer: D
Explanation:
The life income, or straight-life, settlement option provides periodic payments to the annuitant for as long as the annuitant remains alive. Payments terminate at the annuitant ' s death, and there is generally no residual value payable to a beneficiary, even if the annuitant dies shortly after payments begin.
Because the insurer assumes no obligation to continue payments after death, the straight-life option generally provides the highest periodic income among otherwise comparable life-income alternatives. The annuitant accepts the risk of receiving relatively few payments in exchange for protection against outliving the income stream.
An installment refund option differs because it guarantees that if the annuitant dies before receiving payments equal to the amount applied to the annuity, the remaining balance will continue to a beneficiary in installments. A fixed-period option guarantees payments for a specified number of years and can therefore continue to a beneficiary if the annuitant dies during that period. Under an interest-only settlement, principal is retained while interest is distributed, leaving principal potentially available for later disposition.
Therefore, the option characterized by lifetime payments without a residual beneficiary value is life income.
Study Guide Reference: Annuities - annuity settlement options; straight life; refund options; period certain; guarantees to beneficiaries.
NEW QUESTION # 29
What type of contract pays only on the death of the last insured?
Answer: C
Explanation:
Survivorship life insurance, also called second-to-die or last-survivor life insurance, covers two insured individuals under one contract but does not pay the death benefit until the second insured dies. Therefore, it pays upon the death of the last surviving insured.
This structure distinguishes survivorship life from traditional joint life or first-to-die insurance. A first-to-die policy pays when the first insured dies and ordinarily terminates after the death benefit is paid. Survivorship insurance continues after the first death because the insured event triggering payment is the death of the second person.
The arrangement is frequently associated with estate-planning needs because estate taxes, wealth-transfer costs, or inheritance equalization needs may become significant after both spouses have died. It can also be used for certain business or legacy-planning objectives.
A family income policy is designed to provide income benefits for a stated period following the insured ' s death. A family policy generally combines coverage for family members, frequently through a base policy plus term riders. Credit life insurance is designed primarily to discharge a covered debtor ' s outstanding obligation.
Thus, the defining phrase "death of the last insured" identifies survivorship life insurance.
Study Guide Reference: Types of Life Insurance Policies - joint life; survivorship/second-to-die life; family policies; specialized uses of life insurance.
NEW QUESTION # 30
An insurance company is calculating the premium for a new life insurance policy. Given that the company expects to earn a 5% interest rate on invested premiums, how will this interest rate affect the premium amount?
Answer: C
NEW QUESTION # 31
A producer ' s actions or deeds demonstrate what kind of authority?
Answer: B
Explanation:
Apparent authority is authority that a third party reasonably believes an insurance producer possesses because of the insurer ' s conduct, representations, or the circumstances surrounding the producer ' s activities. It is based on appearances rather than on an explicit provision in the agency agreement.
For example, when an insurer provides a producer with company applications, sales materials, identification, or other indicia of representation and allows that producer to interact with applicants on the insurer ' s behalf, consumers may reasonably conclude that the producer possesses authority to perform customary activities associated with that position. The producer ' s conduct, combined with the insurer ' s manifestations, therefore creates the appearance of authority.
This differs from express authority, which is specifically granted by the principal through an agency contract or other direct authorization. Implied authority, although not offered as an answer here, consists of authority reasonably necessary to carry out expressly authorized duties. "Delegated" and "inherent" are not the applicable licensing-exam classifications for the conduct described.
The key phrase is "actions or deeds." When authority is inferred from observable behavior and circumstances rather than an explicit grant, the applicable concept is apparent authority.
Study Guide Reference: General Insurance Concepts - law of agency; producer authority; express, implied, and apparent authority.
NEW QUESTION # 32
A life annuity ceases payments to the annuitant at
Answer: C
Explanation:
A life annuity is designed to provide periodic income for as long as the annuitant remains alive. Accordingly, the event that terminates the annuitant ' s lifetime income is the annuitant ' s death.
The precise treatment of any remaining value after death depends on the settlement option. Under a pure or straight-life annuity, payments cease at death and no residual payments are due to a beneficiary. Under life with period certain, installment refund, cash refund, or joint-and-survivor arrangements, additional payments may continue to another person depending on the specific guarantee. Nevertheless, payments to the deceased annuitant necessarily cease at death.
" Maturity" is not the operative termination event for a life-contingent payout once annuitization has begun.
Age 100 is also not a universal termination age because lifetime income is specifically intended to protect against longevity risk, including survival to very advanced ages. "Policy termination" is too general and does not state the life-contingent event controlling the payout.
The defining insurance function of a life annuity is the transfer of the financial risk associated with outliving one ' s assets to the insurer.
Study Guide Reference: Annuities - life annuity; straight-life income; mortality risk; termination of lifetime payments.
NEW QUESTION # 33
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