Review for Insurance Agent’s Examination

LIFE

DIRECTION: Choose the correct answer. Indicate your answer by marking the appropriate
parenthesis on the answer sheet with an X.

SET A

1. The life insurance industry is under government supervision because

a. it is a charitable institution
b. it pays such high taxes
c. it is required to account for money spent in company operations
d. it affects public interest

2. All of the following are correct statements except

a. premiums for whole life-insurance are less than for endowment policies
b. the cash value of a 20-year endowment policy are greater than those of a whole life policy
c. whole life insurance and endowment insurance serve different purpose
d. there is a higher risk element for the insurance company involved in connection with endowment
policies than with whole life policies.

3. The guaranteed cash value is

a. the amount that the company will pay if the policy is surrendered
b. the amount which can be barrowed at any one time
c. the paid-up value of the policy
d. the face amount

4. Antiselection refers to a general tendency on the part of

a. applicants for life insurance to opt for inexpensive plans of insurance
b. persons with impaired insurability to be more keen in obtaining insurance coverage than those
persons who are in good health.
c. Agents to call only those prospects who state no obligation to life insurance
d. Agency managers to discriminate between loyal agents and disloyal agents

5. Substandard premium rates are charged

a. policies which carry a lower than usual interest rate
b. applicants who are better than average risks
c. applicant who desire low premiums
d. applicants who carry a higher health or occupation risk

6. For anyone to have the benefit of compensation on the value of the life of someone else, there must
be an established
a. pure risk
b. probability
c. risk sharing
d. insurable interest
7. The premium on a participating life insurance policy is
a. the same as a non-participating policy.
b. Greater at younger ages
c. Lower than a non-participating policy
d. Higher than a non-participating policy

8. In a child insurance policy, the Parent Waiver Clause provides that:

a. if the father dies, the policy becomes reduced or paid-up
b. the premiums are waived if the father is disabled or dies
c. if the child becomes disabled, no further premiums are required
d. all premiums are refunded when the father reaches the age 60

9. The term “Quality business” refers to those policies which

a. do not require a medical examination
b. are solicited by agent during his first call on a prospect
c. are persistent and demonstrate good mortality experience
d. carry a hefty rate of premium per thousand of insurance

10. All of the following statements regarding “Absolute Assignment” are true, except:
a. it is the transfer of the legal right interest in a policy to another party.
b. The policyholder may discontinue premium payments.
c. The insurer must agree to an absolute assignment.
d. An irrevocable beneficiary must agree to an absolute assignment.

11. A limited pay life policy provides:

a. protection for the life of the policyholder with premiums payable for a limited term of years.
b. Low cost protection only for a limited term of years with no savings
c. the highest level of savings for the insured within a specified term of years.
d. Protection with premiums payable for life and a low level of savings as an alternative to continued
protection in old age

12. In most life insurance application, the largest amount of information requested is data which
a. describes the desired benefits and mode of payment
b. identifies the applicant
c. describes the type of insurance applied for
d. relates to the insurability of the applicant

13. Which of the following is the least important reason for requiring that insurance agents be licensed?
a. to provide additional income to the government through license fees
b. to protect the public
c. to establish and maintain high professional and ethical standards
d. to give the government adequate control over the conduct of agents

14. A company can restrict its liability if death occurs as a result of an aviation accident. The aviation
exclusion clause usually applies to which of the following?
a. anybody in an aircraft flight
b. only for pilots
c. anybody aboard an aircraft in flight who has duties aboard the aircraft
d. anybody in the aviation industry who works on, around or in the aircraft
15. Group life insurance covers
a. death provided it is during working hours and in the place of employment.
b. death of the employee regardless of cause except suicide during the first year (sometimes two
years)
c. accidental death only
d. only death by heart attack, pneumonia or cancer

16. If the interest on a policy loan is not paid at the policy anniversary, the insurance company may
a. terminate the contract
b. demand full settlement of the loan
c. refuse to grant future additional loans
d. increase the present loan by the interest

17. Your client tells you that when his father died, received P500, 000 free of Estate Tax and that he had
not even known that this policy existed. Which of the following classifications did your client fall
under?
a. collateral assignee
b. absolute assignee
c. revocable primary beneficiary
d. irrevocable primary beneficiary

18. Mr. Sy walked out of his house one night and was never heard of again. His wife wanted to make a
claim on his life insurance policy as she believes that he is dead. Which of he following statements is
correct in this case?
a. It would be four years before the court could declare him legally dead.
b. It would be seven years before the court could declare him legally dead.
c. The company would pay immediately
d. It would require 6 months before the court could declare him dead.

19. In life insurance, the term “substandard rates” generally is used to refer to
a. premiums charged for policies with low amounts
b. premiums charged to persons who are considered to be higher-than-average risk categories
c. mortality rates that are lower than the rates suggested by the regulatory authorities
d. mortality rates that are lower than those expected by the company according to its mortality table

20. Life insurance policy loans are limited to an amount which with interest will not exceed the
a. cash value of the policy
b. total premiums paid
c. net amount of risk
d. present value of future premiums

21. A man made his wife his irrevocable beneficiary and if she died before him then his children were
each named as irrevocable beneficiary, which of the following best describes the classification of the
children?
a. revocable secondary beneficiary
b. irrevocable secondary beneficiary
c. Revocable primary beneficiary
d. Irrevocable primary beneficiary
22. In the Philippines, an insurance company’s right to rescind a life insurance contract is generally
limited to the first years following policy issue date or date of approval of last reinstatement. The
provision is embodied in
a. Incontestability clause
b. Lifetime clause
c. Omnibus clause
d. No-exclusion clause

23. All of the following are true except:

a. Non-forfeiture values are guaranteed
b. Non-forfeiture values are present in all permanent forms of life insurance.
c. The cash value may be more than the face amount of a policy.
d. There are no automatic non-forfeiture provisions in life insurance policies.

24. The fundamental advantage of the use of life insurance as a means of meeting economic losses is that
through life insurance these losses are
a. Reduced for he group as a whole through the multiplier effect
b. Deferred for a specified period of time
c. Met as they rise through savings accumulated on an assessment basis
d. Spread over a large number of people

25. Which of the following is false?

a. When an agent makes a sales presentation, he has to sell confidence in the product.
b. When an agent meets a prospect for the first, he has to sell confidence in himself.
c. The primary job of an agent is to get people happily involved with the ownership of his policy.
d. The job of an agent is to squeeze as much money as possible out of making a new sale.

26. If a policyholder elects to take the Extended Term Insurance option on a 20-year endowment policy
where the cash value is more than sufficient to provide the term coverage to maturity, in which of
the following ways would the excess fund be used?
a. To provide a pure endowment policy at maturity
b. To increase the period of coverage
c. To be forfeited
d. To make an immediate cash payment to maturity amount of the pure endowment

27. One requirement a policyowner must meet in order to reinstate a life insurance policy is to
a. Furnish evidence of insurability which is satisfactory to the insurance company
b. Pay future premiums at the rate for his or her attained age at the time of reinstatement
c. Agree to apply future policy dividends toward the payment of premium
d. Assign the policy collaterally to the insurance company for the amount of the overdue premiums
plus any outstanding policy loan

28. If a policyholder changes his occupation without notifying the company, might it affect the benefits
under his policy?
a. No, benefits and premiums may only be changed at the renewal date of the policy.
b. Yes, unless the policy specified otherwise, if he engaged in a more hazardous occupation, his
benefits may be prorated.
c. No, benefits agreed upon at the inception of the policy may not be changed.
d. None of the above
29. Which of the following statement is false?
a. When a policy lapses, the company is unable to maximize its objective which is the formation of a
long term capital for national development.
b. The company loses income from lapsed policies and therefore, it does not sufficiently cover the
selling costs.
c. When a policy lapses, the company neither gains nor loses since it ceases to carry the risk of
covering the insured.
d. The company with low persistency rate is unable to maintain competitive premium rates.

30. A father has his present life insurance payable to his estate and because he has now retired he wants
to pass the policy on to his son who will assume the premium payments. Which of the following will
he have to appoint his son to achieve his desire and protect the son from Estate Tax?
a. Collateral assignee
b. Irrevocable primary beneficiary
c. Revocable primary beneficiary
d. Absolute assignee

31. A businessman has arranged for a development loan which will be available 1 year from now.
Because he is unable to wait until then he has arranged an interim loan with his bank. The only
problem is that the bank wants loan secured against the risk of his death. What is the best economic
arrangement that you recommend?
a. Decreasing term
b. Interim term
c. Extended term
d. Yearly renewable term

32. A prospect tells you that he wants to be insured at age 65 but he does not want to pay more than the
minimum possible level of premiums. Would you offer him
a. Endowment policy
b. Term policy
c. Whole life policy
d. A life at age 65 policy

33. An applicant wants to get a participating policy which will have the maximum cash available for
emergencies. Which of the following should he select?
a. Accumulated dividends
b. Extended term insurance
c. Loan value
d. Paid-up addition

34. Which of he following is not correct with respect to reinstatement process?

a. Assumption or repayment of any indebtedness
b. Written assurance of intent to keep the policy in force
c. Payment of back premiums with interest
d. An application for reinstatement
35 If the person whose life is insured dies during the grace period and the premium was not paid, the
amount that the insurance company will pay to the beneficiary is usually the
a. Cash surrender value of the policy minus the unpaid premium
b. Full face amount of the policy
c. Total premiums paid up to the date of birth plus interest
d. Face amount of the policy minus the unpaid premium

36. Which of the following statement is false?

a. The cash value in a permanent policy is guaranteed by the company
b. The cash value of whole life policy builds up at a slower rate than for a 20 year endowment
c. The cash value of an endowment builds up faster than that for a limited pay life policy of the same
duration
d. Because of its very short duration, the cash value of a yearly renewable term policy grows very
fast.

37. The insurance Commissioner has the power to revoke or refuse to renew an agent’s license in all of
the following instances except:
a. When the agent diverts any premium collection for his personal use
b. When the agent makes any material misrepresentation to his policyholders of the amount of
commissions that he has made or may make on a particular insurance contract.
c. When the agent makes any material misstatement in his application for license.
d. None of the above.

38. A person’s human economic value is defined as the

a. Total value of the individual’s tax contribution to the national economy
b. Total value of his physical assets
c. The amount of capital required to replace family income needs
d. Total value of the assets and any future earnings derived therefrom

39. The basic purposes of a conditional premium receipt are to acknowledge

payment of initial premium for life insurance and to
a. Eliminate the need for acceptance of the offer in forming the contract
b. Provide insurance coverage earlier than the policy delivery date if certain requirements are met
c. Guarantee that a policy will be issued as applied for
d. Backdate the policy to save age

40. A Pure Endowment Policy

a. Pays proceeds to the insured only if he lives to the end of a specified period
b. Pays proceeds to the insured if he lives to the end of endowment period, or pays the face amount to
the named beneficiary if the insured dies before the end of the endowment period
c. It is actually a combination of endowment insurance and term insurance
d. None of the above.

41. The consideration required by the life insurance company to make the insurance coverage effective
is the
a. Beneficiary’s continuing insurable interest in the life of insured
b. Payment of the initial premium
c. Applicant’s promise to act in good faith
d. Payment of each renewal premium before the end of applicable period
42. An applicant wants a participating policy where the death benefit will be maximized. Which of the
following should he choose?
a. Paid-up additions
b. Accumulated dividend
c. Extended term
d. Paid-up insurance (reduced insurance)

43. The beneficiary, a widow, wishes to pay off the remaining balance of a 15 year mortgage. Which of
the following options do your recommend?
a. Fixed income option
b. Periodic annuity option
c. Interest option
d. None of the above

44. Which statement is false when the new owner borrows on a policy?
a. If a large loan is taken after the policy has been in force for some years, the interest cost may
exceed the premium
b. Dividend will be reduced by the amount of the current interest.
c. The policy will lapse if, after reasonable notice the indebtedness exceeds the cash value.
d. The proceeds of the policy will be reduced by the amount of unpaid loan plus interest, if insured
dies.

45. A whole life provides:

a. Protection for the life of the policyholder with premiums payable for a limited term of years
b. Low cost protection only for a limited term of years with no savings
c. The highest level of savings for the insured within a specified term of years
d. Protection with premiums payable for life and low level of savings as an alternative to continued
protection in old age

46. In practice, most claims for the death benefits of life insurance policies are
a. Investigated thoroughly for evidence of misrepresentation or fraud before payment is made
b. Paid on the first policy anniversary after the death of the insured
c. Settled by interpleader proceedings
d. Paid promptly as soon as properly completed claim forms are received by the company

47. The following statements concerning insurable interest are correct, except:
a. It is deemed to exist if economic loss would occur at the death of the insured
b. It is deemed to exist by virtue of a relationship by blood or by marriage
c. It is important for purposes of underwriting the risk
d. Everyone has an insurable interest in his own life

48. The company will allow a policy change from a higher to a lower premium plan, provided the
insured
a. Obtains written consent from his or her spouse
b. Buys a new plan altogether
c. Present satisfactory evidence of insurability
d. Momentarily assigns the policy to the company
49. A policyholder with a whole life has reached the age of 65 and he does not want to go on paying
premiums but he does want to remain insured for life. Which of the following would he take?
a. Extended term insurance
b. Accumulated dividend
c. Paid-up additions
d. Paid-up insurance (reduced amount)

50. Life insurance contributes directly to the welfare and progress of the country by
a. Partially relieving the community of the care of dependents
b. Encouraging provision for the future
c. Accumulating capital for investment in commerce and industry
d. All of the above

51. For waiver of premium to be effective,

a. Disability must be total
b. Disability must be permanent
c. Both a & b
d. Either a or b

52. In a life insurance company, risk appraisal is necessary to

a. Prevent any antiselection
b. Project dividend rates for participating policies
c. Collate mortality statistics
d. Calculate the mortality rate for a given policy

53. Limited payment life policies are called such because those policies
a. Shorten the period when the benefits may be paid
b. Limit the period during which the premiums are payable
c. Limit the conditions under which the policies are payable
d. Limit the number of beneficiaries thereby minimizing problems of paying too many people

54. Which of the following is a settlement option?

a. Cash surrender value
b. Extended term insurance option
c. Policy loan
d. Interest on insurance proceeds

55. Which of the following statements is false?

a. Too many lapsed policies can cause an agent’s agreement to be cancelled.
b. When a policy lapses, the agent loses a valuable source of prospect.
c. When a policy lapses, the agent loses all future commissions on renewal premiums
d. Agents with persistent business seldom stay long with one company

56. Under an endowment policy, if he person whose life is insured survives to the end of the period
stated in the policy, the
a. Policy will terminate without value
b. Face amount of the policy be paid
c. Policy will automatically be converted to paid-up whole policy
d. The extended term insurance option will into effect
57. “Critical years” in the programming of life insurance means:
a. Retirement years
b. Years between the time the youngest child is 15 years old and the mother is 62 years old
c. Years immediately following the insured’s death
d. Period during which the children are small cannot provide for themselves

58. Generally, a reinstatement application will be accepted from the owner of a lapsed insurance policy
a. Any time during the lifetime of he insured
b. Within a period of three or five years after the date of lapse as specified in the policy
c. Anytime within the extended term insurance period regardless of its length
d. Only on a premium due date or during the grace period of an unpaid premium

59. The Insurance Commissioner has the power to revoke or refuse to renew an agent’s license in all of
the following instances, except:
a. When applicant for license has intentionally withheld information concerning his conviction of a
crime involving moral turpitude
b. When the agent has diverted any premium collection for his personal use
c. When an agent influences the applicant’s choice of plan to be purchased
d. None of the above

60. In a case where the premium has not been paid and the cash value has been exhausted, the policy
can still avail of
a. Automatic premium loan provision
b. Reinstatement provision
c. Extended term insurance
d. Grace period

61. The information on a life insurance application relating to an applicant’s birthday, occupation and
avocation is used by the company primarily for the purpose of:
a. Appraising the risk
b. Assigning the risk
c. Determining the insurable interest
d. Determining a suitable plan of insurance

62. A client has a policy with you for P1,000,000 which is payable to his estate and he tells you that
wants his wife to receive the money free from Estate tax. You recommend that he
a. Appoint an irrevocable beneficiary
b. Take out a new policy with the bank as a third party
c. Make an absolute assignment
d. Make a collateral assignment