What is the standard grace period for premium payments on all individual life insurance policies issued in North Carolina? A. 31 days B. 30 days C. 20 days D. 15 days Correct Answer: A. 31 days An individual life insurance policy issued in North Carolina MUST have a grace period for premium payment of 31 days. What must be signed by both the agent and applicant when an existing life insurance policy is being reissued with a reduction in cash value? A. Policy Guide B. Notice Regarding Replacement C. Buyer's Summary D. Replacement receipt Correct Answer: B. Notice Regarding Replacement When a policy has been reissued with any reduction in cash value, that is considered a replacement. A Notice Regarding Replacement must be signed by both the agent and applicant. When an existing life insurance policy is terminated so that a new life insurance policy can be purchased, this transaction is referred to as A. Replacement B. Coercion C. Twisting D. Rebating Correct Answer: A. Replacement Replacement is any transaction in which new life insurance or a new annuity is to be purchased and existing life insurance or annuity is to be terminated or discontinued. An agent who sells insurance policies for an unauthorized insurer in North Carolina may be personally liable for A. all claims from policies sold by the agent B. commissions earned from the sales of these policies C. fines owed by the unauthorized insurer payable to North Carolina D. future premiums paid by the policyowner Correct Answer: A. all claims from policies sold by the agent An agent who sells insurance policies for an unauthorized insurer in North Carolina can be personally liable for all claims from policies sold by the agent. An individual MUST be a minimum of ___ years of age to be a licensed North Carolina insurance agent. A. 19 B. 16 C. 18 D. 17 Correct Answer: C. 18 A person is required to be at least 18 years old before he or she is licensed as an agent in North Carolina. If a dispute arises over an insurance contract, the agent who sold the policy is considered to represent the A. beneficiary B. company C. insured D. State Correct Answer: B. company If a dispute arises over an insurance contract, the agent who sold the policy is considered to represent the insurance company. North Carolina insurance law specifically allows the Commissioner of Insurance to issue a temporary license to which of the following individuals? A. A newly appointed officer of an insurance agency who is actively completing prelicensing requirements B. A resident agent whose license has lapsed C. A surviving spouse of a deceased agent D. A nonresident agent who has relocated to North Carolina Correct Answer: C. A surviving spouse of a deceased agent North Carolina insurance law specifically allows the Commissioner of Insurance to issue a temporary license to a surviving spouse of a deceased agent. North Carolina requires continuing education on A. 3 B. 5 C. 4 D. 6 Correct Answer: A. 3 North Carolina requires continuing education on that an insurance agent must complete __ hours of the subject of law and ethics every two years. that an insurance agent must complete 3 hours of the subject of law and ethics every two years. The Commissioner may exempt an applicant from the licensing exam if an applicant has obtained any of the following designations, EXCEPT: A. Chief Operating Officer (COO) B. Life Underwriter Training Council Fellow (LUTCF) C. Fellow of Life Management Institute (FLMI) D. Chartered Life Underwriter (CLU) Correct Answer: A. Chief Operating Officer (COO) The Commissioner may exempt an applicant from the licensing exam if that person meets the following criteria; An applicant who has obtained the designation of Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Life Underwriter Training Council Fellow (LUTCF), Chartered Property and Casualty Underwriter (CPCU) or Fellow of Life Management Institute (FLMI). What is one of the duties of the Commissioner of Insurance? A. Administering insurance laws B. Establishing insurance rates C. Making insurance laws D. Setting sales quotas Correct Answer: A. Administering insurance laws The Commissioner of Insurance is responsible for administering insurance laws. When can a lender require someone to purchase insurance from them as part of the condition to approve their loan? A. During solicitation B. Never C. At time of application D. Any time prior to the loan closing Correct Answer: B. Never A lender cannot require anyone to purchase insurance from them or an affiliate as a condition for approving, refinancing, renewing or make part of the terms of the loan. An agent who solicits applications for life insurance in North Carolina is considered to represent the A. Commissioner of Insurance B. insurance company C. Guaranty Association D. State Correct Answer: B. insurance company An agent who solicits applications for life insurance in North Carolina is considered to represent the insurance company. Which of the following is a requirement for obtaining a Resident agent license? A. Complete 50 hours of a pre-licensing course B. Submit a valid email address to the Commissioner C. Be at least 21 years of age D. Have a high school education Correct Answer: B. Submit a valid email address to the Commissioner One of the requirements for obtaining a Resident agent license in North Carolina is to submit a valid email address to the Commissioner. Which of the following is NOT an unfair claim settlement practice? A. Failing to acknowledge and act promptly with respect to an insurance claim B. Compelling an insured to initiate a lawsuit by offering less on an insurance claim C. Needing written documentation of claim details D. Failing to accept or deny a claim within reasonable time after proof of loss is submitted Correct Answer: C. Needing written documentation of claim details All of these are unfair claim settlement practices except "Needing written documentation of claim details". All of these are a prerequisite for becoming a licensed resident agent in North Carolina EXCEPT A. Be at least 18 years old B. Graduate from high school C. Complete prelicensing course D. Be of good character Correct Answer: B. Graduate from high school Graduating from high school is not a prerequisite for becoming a licensed agent. Why would the Commissioner of Insurance examine the records of an insurance company? A. To set insurance rates for the company B. To assess the company's value C. To assist in underwriting D. To determine the solvency of the company Correct Answer: D. To determine the solvency of the company The Commissioner of Insurance may examine the records of an insurance company in order to determine the solvency of the company. An agent will be personally liable for claims originating from any insurance policies A. sold by the agent for companies NOT authorized to conduct business in North Carolina B. covered by the Life and Health Guaranty Association C. sold by the agent for companies authorized to conduct business in North Carolina D. that contain exclusions or modifications Correct Answer: A. sold by the agent for companies NOT authorized to conduct business in North Carolina An agent will be personally liable for claims originating from any insurance policies sold by the agent for companies NOT authorized to conduct business in North Carolina. XYZ insurance Company would like to begin conducting business in North Carolina. Before XYZ can issue or deliver an insurance policy, the form, classification of risks, and premium rates MUST be filed with the A. Attorney General B. Life and Health Guarantee Association C. State's NAIFA chapter D. Commissioner of Insurance Correct Answer: D. Commissioner of Insurance Before an insurance policy is issued or delivered, the form, classification of risks, and premium rates must be filed with the Commissioner of Insurance. W gave W's age as 50 when W purchased a Life policy. At the time of W's death seven years later, the company discovered W's true age at issue had been 59. What would the normal procedure be under the misstatement of age provision in regard to the payment of the death claim? A. The proceeds would be reduced based on whatever the premium would have been if purchased at age 59 B. There would be no death proceeds paid out by the insurer C. The policy's full death benefit would be paid, due to the expiration of the incontestable period D. The insurer is only obligated to refund all premiums paid Correct Answer: A. The proceeds would be reduced based on whatever the premium would have been if purchased at age 59 In this situation, the proceeds will be reduced based on whatever the premium would have been if purchased at age 59. How does the Commissioner of Insurance attain office? A. Elected by the people of North Carolina to a 4-year term B. Appointed by the Governor C. Appointed by the Lieutenant Governor D. Elected by the State Senate to a 2-year term Correct Answer: A. Elected by the people of North Carolina to a 4-year term The Commissioner of Insurance attains office by being elected by the people of North Carolina to a 4-year term. Immunity for releasing documents to the Commissioner during a fraud investigation means that person: A. may be subject to civil liability or slander B. may have their license revoked C. is not subject to civil liability or slander D. is not allowed to market insurance products Correct Answer: C. is not subject to civil liability or slander During a fraud investigation, the Commissioner may request documents from a person concerning the transaction. The person must provide the documents and is not subject to liability or slander, unless the person acted maliciously. A life policy loan in North Carolina cannot charge a fixed rate of interest higher than A. 7% B. 8% C. 10% D. 9% Correct Answer: B. 8% The maximum fixed interest rate permitted on a life policy loan is 8%. North Carolina requires continuing education on A. 5 B. 4 C. 6 D. 3 Correct Answer: D. 3 North Carolina requires continuing education on that an insurance agent must complete __ hours of the subject of ethics every two years. that an insurance agent must complete 3 hours of the subject of ethics every two years. ABC Insurance Company fails to pay death proceeds after satisfactory proof of loss was submitted. ABC must then begin paying interest on the death proceeds after ___ days of receiving proof of loss. A. 10 B. 40 C. 30 D. 60 Correct Answer: C. 30 If after satisfactory proof of loss an insurer fails or refuses to pay death proceeds, the insurer must pay interest on the proceeds after 30 days. According to North Carolina's rules on disclosure, a life insurance applicant is expected to be provided with A. a Summary Statement and Buyer's Guide B. a Written Comparison and Policy Summary C. a Certificate of Coverage and Buyer's Guide D. a Buyer's Guide and Policy Summary Correct Answer: D. a Buyer's Guide and a Policy Summary North Carolina's rules on disclosure require an insurance company to provide a purchaser of life insurance with a Buyer's Guide and a Policy Summary. In a Key Employee life insurance policy, the third-party owner can be all of the following, EXCEPT: A. Owner B. Insured C. Applicant D. Payor Correct Answer: B. Insured In a Key Employee life insurance policy, the third-party owner can be all of these EXCEPT the insured. Which of these factors does NOT influence an applicant's need for life insurance? A. Self-maintenance expenses B. Future educational costs of the dependents C. Number of dependents D. Lifestyle of the applicant Correct Answer: A. Self-maintenance expenses An individual's need for a death benefit for survivors is influenced by all of the following factors EXCEPT self-maintenance expenses. To be eligible for Social Security disability benefits, an employee must be unable to perform: A. any occupation that the employee is qualified and willing to do B. any occupation C. his/her current occupation D. any occupation that reflects the employee's education level Correct Answer: B. any occupation To be eligible for Social Security disability benefits, an employee must be unable to perform any occupation. When does a life insurance contract become effective if the initial premium is not collected during the application process? A. After application has been approved by the underwriters B. After all medical and personal information has been evaluated C. When producer delivers policy and collects initial premium D. When insurer receives initial premium from the producer Correct Answer: C. When producer delivers policy and collects initial premium Insurance becomes effective on delivery of the policy to the insured and payment of the initial premium to the producer. Agent J takes an application and initial premium from an applicant and sends the application and premium check to the insurance company. The insurance company returns the check back to J because the check is made out to J instead of the insurance company. What action should J take? A. Return to the customer, collect a new check made out to the insurance company, and send the new check out to the insurance company B. Deposit the check in to his personal account, use the funds to purchase a cashiers check, and send the new cashiers check back to the insurance company C. Cross off his name on the "pay to" portion of the check, write the name of the insurance company, and send the check back to the insurance company D. Deposit the applicant's check into his account and make a personal check out to the insurance company from his personal account Correct Answer: A. Return to the customer, collect a new check made out to the insurance company, and send the new check out to the insurance company If an agent receives a check made out to them instead of the insurance company, they should return the check to the customer and collect a new check properly made out to the insurance company. All are true statements regarding the underwriting process, EXCEPT: A. Signed consent from the applicant must be provided in order to test for AIDS and HIV virus B. AIDS and HIV virus exams can be conducted in a discriminatory fashion C. The cost of any examination is paid for by the insurer D. The original application is the primary source of information used in the underwriting process Correct Answer: B. AIDS and HIV virus exams can be conducted in a discriminatory fashion AIDS and HIV testing must be conducted in a uniform fashion and cannot be discriminatory. All of these are considered to be a benefit under Social Security, EXCEPT for: A. survivorship B. retirement C. disability D. unemployment Correct Answer: D. unemployment All of these are considered benefits of Social Security EXCEPT for unemployment. In order for coverage on a non-medical insurance application to take effect the same day, the producer must collect a signed application and A. Attending Physician Statement B. forward it immediately to the insurer C. the initial premium D. a Medical Information Report Correct Answer: C. the initial premium Coverage begins on the day in which the producer collects the initial premium and has the applicant sign the life insurance contract. An applicant's medical information received from the Medical Information Bureau (MIB) may be furnished to the: A. applicant's spouse B. applicant's physician C. National Association of Insurance Commissioners (NAIC) D. agent Correct Answer: B. applicant's physician Information received from the Medical Information Bureau about a proposed insured may be released to the proposed insured's physician. What type of insurance offers permanent life coverage with premiums that are payable for life? A. Endowment B. Whole Life C. Credit Life D. Renewable Term Life Correct Answer: B. Whole Life A policy that provides permanent life insurance with premiums payable for life is called Whole Life. What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time? A. Endowment B. Decreasing term C. Modified whole life D. 20-year paid up policy Correct Answer: B. Decreasing term A decreasing term policy has a death benefit that adjusts periodically and is written for a specific period of time. What type of life insurance are credit policies issued as? A. Variable B. Term C. Universal D. Whole Correct Answer: B. Term The type of insurance used is decreasing term, with the term matched to the length of the loan period (though usually limited to 10 years or less) and the decreasing insurance amount matched to the declining loan balance. M completes an application for life insurance but does not pay the initial premium. All of these actions must occur before M's policy goes into effect, EXCEPT: A. free-look period has expired B. policy is delivered C. insurance company issues policy D. initial premium is collected Correct Answer: A. free-look period has expired In this situation, the policy will go into effect after all these actions occur EXCEPT the expiration of the free-look period. Which of these do NOT constitute policy delivery? A. Policy issued with a rating B. Policy mailed to agent C. Policy delivered to the applicant by the agent D. Policy mailed to applicant Correct Answer: A. Policy issued with a rating All of these constitute delivery of the policy EXCEPT issuing a rated policy. A(n) __________ term life policy is normally used when covering an insured's mortgage balance. A. decreasing B. variable C. increasing D. level Correct Answer: A. decreasing A decreasing term life policy is normally used when covering an insured's mortgage balance. All of these insurance products require an agent to have proper FINRA securities registration in order to sell them, EXCEPT for: A. Variable Life B. Variable Annuity C. Modified Whole Life D. Universal Variable life Correct Answer: C. Modified Whole Life An agent must have proper FINRA securities registration to sell all of these products EXCEPT Modified Whole Life. Which type of policy is considered to be overfunded, as stated by IRS guidelines? A. Modified Whole Life B. Modified Endowment Contract C. Variable Universal Life D. Interest-Sensitive Whole Life Correct Answer: B. Modified Endowment Contract A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract. When is the face amount paid under a Joint Life and Survivor policy? A. upon death of the last insured B. when one of the insureds becomes disabled and no longer able to make premium payments C. when policy reaches maturation D. upon death of the first insured Correct Answer: A. upon death of the last insured A Joint Life and Survivor policy pays benefits after the death of the last insured. N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase? A. Adjustable Life B. Term to Age 70 C. 30 Pay Life D. Universal Life Correct Answer: C. 30 Pay Life Limited pay whole life policies have level premiums that are limited to a certain period. Which of these Nonforfeiture Options continue a build-up of cash value? A. Waiver of Premium B. Cash Surrender C. Reduced Paid-Up D. Extended Term Correct Answer: C. Reduced Paid-Up A Reduced Paid-Up option would provide continuing cash value build-up. Which of these provisions require proof of insurability after a policy has lapsed? A. Reinstatement B. Consideration C. Insuring D. Conversion Correct Answer: A. Reinstatement Most insurers require evidence of insurability be provided upon reinstatement of a lapsed policy. A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) ________ rate loan. A. Increasing B. Fluctuating C. Variable D. Fixed Correct Answer: C. Variable The interest rate on a Variable rate cash value loan may vary over time. Which of the following actions is NOT possible with a Universal Life policy? A. Policy's cash value may be used to pay premiums B. Face amount may be adjusted C. Premiums may be applied as a credit against income tax D. Premium payments may be made at unscheduled times Correct Answer: C. Premiums may be applied as a credit against income tax All of these actions are possible with a Universal Life policy EXCEPT "Premiums may be applied as a credit against income tax". T cash surrenders a recently-issued whole life policy. He also requests that the proceeds be payable to an unrelated third party. T would likely be red-flagged for violation of A. Glass-Steagall Act B. FINRA regulations C. anti-money laundering rules D. NAIC law Correct Answer: C. anti-money laundering rules Insurance companies are required to comply with the anti-money laundering provisions of the USA Patriot Act. A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following? A. Inability of the insured to perform more than 2 Activities of Daily Living (ADL's) B. Critical illness C. Terminal illness D. Inability of the insured to maintain insurance premiums due to unemployment Correct Answer: A. Inability of the insured to perform more than 2 Activities of Daily Living (ADL's) A long-term care rider in a life insurance policy may trigger a benefit in the event of the inability of the insured to perform more than 2 Activities of Daily Living (ADL's). K is an agent who takes an application for individual life insurance and accepts a check from the client. He submits the application and check to the insurance company, however the check was never signed by the applicant. If the application is approved, when will coverage be effective? A. The date the application was submitted to the insurance company B. The date of application C. The date the sales appointment was made D. The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured Correct Answer: D. The date the agent delivered the policy, collected the initial premium, and obtained a good health statement from the insured In this situation, coverage will go into effect the date the agent delivers the policy, collects the initial premium, and obtains a good health statement from the insured. The premiums paid by an employer for his employee's group life insurance are usually considered to be: A. tax-deductible to the employer B. partially deductible to the employee C. tax-deductible to the employee D. taxable income to the employee Correct Answer: A. tax-deductible to the employer The amount an employer pays for his employee's life insurance is typically deductible to the business. A policyowner may generate taxable income from which of the following Dividend Options? A. Reduced Premium B. Accumulation at Interest C. Cash D. Nonforfeiture Correct Answer: B. Accumulation at Interest While policy dividends are not taxable, any interest paid on them is taxable income in the year the interest is credited to the policy. Whole Life insurance policies are contractually guaranteed to provide each of the following, EXCEPT: A. premiums that remain fixed for the life of the policy B. nonforfeiture benefit options C. partial withdrawal features beyond a surrender charge period D. cash value that will ultimately replace the death benefit Correct Answer: C. partial withdrawal features beyond a surrender charge period All of these are contractually guaranteed to be provided in a whole life insurance policy EXCEPT "partial withdrawal features beyond a surrender charge period". A Whole Life insurance policyowner does NOT have the right to A. take out a policy loan B. assign the policy C. designate a beneficiary D. change the grace period Correct Answer: D. change the grace period All of these are rights of a Whole Life insurance policyowner EXCEPT "change the grace period". The underwriting process involves all of these, EXCEPT for: A. Application B. Credit report C. Policy loan D. Risk classification Correct Answer: C. Policy loan A policy loan is not a factor in the underwriting process. On January 8, an applicant filled out an application for a life insurance policy but did not include the initial premium. The insurance company approved the application on January 14 and issued the policy January 15. The producer delivered the policy on January 26 and collected the first premium. When did the coverage become effective? A. 26-Jan B. 8-Jan C. 15-Jan D. 14-Jan Correct Answer: A. January 26 In this situation, coverage became effective on the date the policy was delivered and first premium collected. Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a(n): A. underwriter B. third-party with no insurable interest C. sole proprietor with insurable interest D. relative with insurable interest Correct Answer: B. third-party with no insurable interest Stranger-Owned Life Insurance (STOLI) is when a person purchases life insurance only to sell to a third-party with no insurable interest, who would therefore be unable to legally purchase the original policy. Which of the following policies is characterized by a flexible premium and death benefit and allows the policyowner control of the investment aspect of the plan? A. Universal life B. Variable universal life C. Adjustable life D. Variable life Correct Answer: B. Variable universal life Any policy whose title includes the term "Universal" indicates that the policy has a flexible or adjustable premium. The variable nature of the product indicates that the cash savings value is invested in the stock market (e.g., mutual funds) which permits for a contract owner to decide where the equity (i.e., cash value) is to be invested. What is the initial source of underwriting for an insurance policy? A. MIB report B. Application containing statements from the insured C. Medical exam D. Credit report Correct Answer: B. Application containing statements from the insured The initial source of underwriting for an insurance policy is the application containing statements from the insured. An insurer may normally delay the payment of a cash value loan or surrender value for up to A. 6 months B. 4 months C. 8 months D. 2 months Correct Answer: A. 6 months An insurer may delay the payment of a cash value loan or surrender value for up to 6 months.