Free Insurance Licensing Life-Producer Practice Exam with Questions & Answers | Set: 5

General rule for early IRA distributions.

Distributions taken before age 59½ are considered early withdrawals.

Tax consequences.

Early distributions are generally subject to:

Ordinary income tax, and

An additional 10% federal penalty tax, unless an exception applies.

Why capital gains tax does not apply.

IRA distributions are taxed as ordinary income, not capital gains.

Evaluate each option.

A. Income tax only

Incorrect. Penalty usually applies.

B. Penalty tax only

Incorrect. Income tax still applies.

C. Income tax and penalty tax

Correct.

D. Capital gains tax

Incorrect.

Maryland tax treatment.

Maryland generally follows federal tax rules and also taxes the income portion.

Conclusion.

Early IRA withdrawals are generally subject to income tax and a penalty tax.

Underwriting involves evaluating risk factors that could influence the likelihood of claims and ensuring compliance with anti-discrimination laws.

Ethnic heritage (A): Incorrect. Using ethnic heritage as an underwriting factor violates anti-discrimination laws, including Maryland Insurance Article §27-501.

Amount of insurance applied for (B): Correct. Insurers consider coverage amounts to assess risk and pricing.

Driving record (C): Correct. Poor driving history, particularly DUI incidents, increases risk.

Family health history (D): Correct. Inherited conditions and family medical history help predict potential health risks.

A “period certain” provision ensures payment for a specified period regardless of whether the annuitant survives:

Period certain (B) guarantees payments for a set number of years, protecting beneficiaries.

Cost recovery (A) and refund options (C and D) relate to refunding premiums or unpaid amounts but do not guarantee a payment period.

Regulatory authority of the Maryland Insurance Administration (MIA).

The MIA is granted statutory authority to examine, investigate, and audit producers to ensure compliance with insurance laws.

Evaluate each option.

A. Court order required

Incorrect. The MIA has direct administrative authority.

B. NAIC authorization required

Incorrect. The NAIC is advisory, not regulatory.

C. Records must be produced upon request

Correct. Licensed producers are required to comply with MIA record requests.

D. No right due to privacy

Incorrect. Licensing carries an obligation to regulatory oversight.

Good-faith and compliance relevance.

Failure to provide records may itself constitute a regulatory violation and undermine good-faith conduct.

Conclusion.

Producers must produce business records upon request of the Maryland Insurance Administration.

Rebating occurs when an insurance producer offers a portion of their commission, premium reductions, or other inducements to buyers that are not explicitly stated in the policy. It is prohibited under Maryland law to ensure fair competition and maintain ethical standards.

Rebating (D): Involves returning part of the commission or providing benefits not in the policy to incentivize a sale, violating Maryland Insurance Article §27-212.

Twisting (A): Refers to persuading a policyholder to lapse or replace a policy through misrepresentation, unrelated to commission-sharing.

Binding (B): Relates to confirming coverage but does not involve commissions.

Soliciting (C): Refers to seeking potential clients, not the unfair practice of rebating.