Free Insurance Licensing Life-Producer Practice Exam with Questions & Answers | Set: 4

During the liquidation (or payout) phase of an annuity, the annuitant receives periodic payments:

The annuitant (D) is the individual designated to receive the payments, as they are the insured party in the contract.

The owner (A) is often the annuitant but may differ; the owner controls the contract but does not necessarily receive payments.

The beneficiary (B) receives the death benefit if the annuitant passes away, not the periodic payments.

"Nominator" (C) is not relevant terminology in annuities.

Paying an applicant’s premium is considered a rebate, which is generally prohibited in Maryland unless explicitly permitted by law.

Rebates (B) involve offering inducements not specified in the policy, which can undermine fairness and market stability.

Gifts (A) and loans (C) imply separate intentions and are distinct from policy-related payments.

Cost of doing business (D) does not apply, as paying premiums on behalf of clients violates anti-rebating laws.

A rollover IRA is used to defer taxes on qualifying distributions.

Proceeds from a life insurance policy (A) are generally not eligible for tax-deferred treatment.

Refunds from a refund life annuity (B) are considered taxable income and not eligible for rollover.

Amounts paid to a spouse under a tax-sheltered annuity (C) qualify for rollover treatment because they meet IRS rollover rules for deferred taxation.

IRAs inherited from parents (D) follow different tax rules and cannot be directly rolled over into a new IRA.

The Maryland Insurance Administration (MIA) is authorized to inspect the records of insurers and agencies to ensure compliance with laws:

Yes, because of the powers defined by state laws (B): Correct. The MIA has broad authority under Maryland law to audit, inspect, and investigate insurance business practices.

No, because of privacy considerations (A): Incorrect. Regulatory inspections are exempt from privacy concerns when conducted lawfully.

Only an officer of the court (C): Not required; the MIA operates independently within its legal mandate.

Public domain records (D): Incorrect; insurance records are not publicly accessible unless required by law.

Ownership rights in life insurance.

The policyowner controls key policy decisions, including:

Naming beneficiaries

Changing beneficiaries (if revocable)

Assigning ownership

Why the policyowner selects the beneficiary.

The beneficiary designation reflects the policyowner’s intent regarding who receives proceeds.

Why the other options are incorrect.

Insurer: Issues the policy but does not control beneficiary choices.

Beneficiary: Cannot designate themselves unless they are also the owner.

Producer: May advise but cannot select beneficiaries.

Maryland legal relevance.

Maryland law enforces beneficiary designations as written unless changed by the policyowner.

Conclusion.

The policyowner usually selects the beneficiary.

What “beneficiary by class” means.

A class designation identifies beneficiaries by group description, not by individual names.

Examples include:

“Children of the insured”

“Surviving spouse”

How benefits are paid.

Members of the class who qualify at the insured’s death receive proceeds.

Shares are divided equally unless stated otherwise.

Evaluate each option.

A. Business life insurance

Incorrect. Class designation can be used in personal policies.

B. No primary beneficiary allowed

Incorrect. A class can be a primary beneficiary.

C. Individuals not named

Correct. The class is described, not named individually.

D. Unrelated beneficiaries

Incorrect. Class members are often family.

Maryland relevance.

Maryland recognizes class designations as valid beneficiary arrangements.

Conclusion.

A class designation means beneficiaries are not named individually.

Nature of qualified profit-sharing plans.

Profit-sharing plans are qualified retirement plans under federal tax law.

Tax treatment of contributions.

Employer contributions to the plan are not included in the employee’s current taxable income.

Taxes are deferred until distribution.

Why the other options are incorrect.

A. Avoid penalties: Early distributions may still be penalized.

C. Defined benefit vs. defined contribution: Profit-sharing plans are defined contribution plans only.

D. Earnings tax-free: Earnings are tax-deferred, not tax-free.

Maryland tax conformity.

Maryland generally follows federal income tax treatment for qualified plans.

Conclusion.

The key advantage is current income tax exclusion of contributions.

Cash values in whole life insurance are a key feature, and they:

Accumulate as a result of the level premium concept (A), where excess premiums in the early years of the policy build the cash value.

Are guaranteed in whole life policies, contrary to option B.

Do not equal the face value at age 65 (C) unless specifically structured for that purpose.

Continue to grow beyond age 65 as long as the policy remains active, invalidating option D.

HIV testing is used by insurers to evaluate the health risks associated with the applicant and determine insurability.

The insurability of the proposed insured (D): Correct. HIV status can impact underwriting decisions, subject to Maryland’s anti-discrimination laws.

The type of policy issued (A): Irrelevant, as this is determined by the applicant’s preferences and eligibility.

Effective date and term of coverage (B): Determined separately from medical testing.

Whether an insurable interest exists (C): Based on the relationship between the policyholder and insured, not medical testing.

Premium determination in life insurance depends on factors that measure risk, but race (D) is not and cannot be used due to anti-discrimination laws.

Age (A): A primary factor; younger applicants are charged lower premiums due to lower mortality risk.

Health (B): Significant; poor health or pre-existing conditions increase premiums.

Occupation (C): Risky professions (e.g., construction or aviation) may result in higher premiums.

Race (D): Prohibited by Maryland law, which ensures fairness and prohibits underwriting based on race, ethnicity, or similar discriminatory criteria.