TRADITIONAL/ LIFE INSURANCE

MOCK EXAM A
Directions: Choose the answer. Indicate your answer on a sheet by writing the letter

1. A hazardous occupation could be defined as

a. An occupation which exposes the insured to social hazards
b. An occupation in unhealthy working conditions exposing the insured to elements which can cause
sickness
c. An occupation the duties of which expose the insured to a degree of sustaining injury.
d. All of the above

2. The insurance companies make use of the laws of probability in order to

a. Estimate future death rate among members of a given group
b. Predict when an individual insured will die
c. Develop statistics of past death among the general population
d. Determine the experienced death rate among insured persons

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

4. In case of renewable term insurance, the policy owner may

a. Renew the coverage based on a higher premium

b. Changed the life insured at renewed date

c. Renew providing the insurance company agrees to continue coverage

d. Renew at the same premium for further period of years

5. 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. Spread over a large number of people
b. Met as they arise through savings accumulated on an assessment basis
c. Deferred for a specified period of time
d. Reduced for the group as a whole through the multiplier effect

6. The insured name a primary and secondary revocable beneficiary for P20,000 policy. Which of the
following is correct?
a. The designation of a contingent beneficiary is subject to the primary beneficiary’s approval
 b. The insured can add a third beneficiary at any time
c. Any policy loan or assignment will require the primary beneficiary’s signature
d. Upon the insured’s death the primary and secondary beneficiaries shall each receive P 10,000

7. In life insurance, the term “substandard rates” generally is used to refer to

a. Mortality rates that are lower than those expected by the company according to its mortality table
b. Mortality rates that are lower than the rates suggested by the regulatory authorities
c. Premiums charged to persons who are considered to be higher-than-average risk categories
d. Premiums charged for policies with low amounts

8. Purchasing a continuous-premium, whole life policy rather that a limited payment whole life policy,
gives the policy owner the advantage of
a. Concentration of premium payments during the period of the highest earnings
b. Liberal risk selection procedures
c. More insurance protection for the same annual premiums outlay
d. More rapid accumulation of cash values

9. Participating life insurance policies are policies which

a. Permit beneficiaries to exercise certain ownership rights during the lifetime of the insured
b. Allow variations in the wording of certain provisions
c. Provide for the distribution of dividends to the policy owner
d. Develop profit which must be paid to stockholders

10. Which of the following does not have a legitimate insurable interest?
a. An individual on the life of his mistress
b. An individual on his own life
c. On individual on the life of his spouse
d. A finance company in the life of its borrower

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

12. Which of the following statement about “Disability Waiver of Premium Rider” is false?

a. Disability must occur before a stated date

b. The insured has to die while disable

c. There is a waiting period

d. It has to be attached to the life insurance policy

13. If a policy holder changes his occupation without notifying the company, might it affect the benefits under
his policy.

a. Yes, unless the policy specified otherwise, if he engaged in a more hazardous occupation, his
benefits may be prorated
b. No, benefits and premiums may only be changed at the renewal date of the policy
c. No, benefits agreed upon at the inception of the policy may not be changed
d. None of the above

14. The company will allow a policy change from a higher premium to a lower premium provided the insured

a. Buys a new plan altogether

b. Presents satisfactory evidence of insurability

c. Momentarily assigns the policy to the company

d. Obtain written consent from his or her spouse

15. A person wanting a greater coverage for the least amount of premium has an option of attaching what
rider in his permanent life policy?

a. Accidental death rider

b. Guaranteed insurability rider
c. Term Insurance rider
d. Waiver of premium

16. 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 Liabilty?

a. Irrevocable primary beneficiary

b. Absolute assignee

c. Irrevocable secondary beneficiary

d. Revocable primary beneficiary

17. Life insurance policy loans are limited to an amount which with interest will not exceed the

a. Net amount of risk

b. Present value of future premiums
c. Cash value of the policy
d. Total premiums paid

18. The basic coverage provided by life insurance policies may be supplemented by separate provision
coverages for additional amounts or of a different nature. Collectively these provisions are known as
a. Riders
 b. Deposit privileges
c. Dividends
d. Assignment

19. Which of the following statements is false?

a. The cash value of a whole life policy builds up at a slower rate than for a 20 year endowment
b. The cash value in a permanent policy is guaranteed by the company
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

20. Your client tells you that when his father died, he received P500,000 free of Estate Tax and that he had not
even known that his policy existed. Which of the following classifications did your client fall under?
a. Irrevocable primary beneficiary
b. Revocable primary beneficiary
c. Collateral assignee
d. Absolute assignee

21. In most life insurance applications, the largest amount of information requested is data which

a. Identifies the applicant

b. Describes the type of insurance applied for

c. Relates to the insurability of the applicant

d. Describes the desired benefits and mode of payment

22. In practice, most claims for the death benefits of life insurance policies are

a. Settled by interpleader proceedings

b. Paid on the first policy anniversary after the death of the insured
c. Paid promptly as soon as properly completed claims forms are received by the company
d. Investigated thoroughly for evidence of misrepresentation or fraud before payment is made

23. What are the basic settlement options?

a. Policy loans guaranteed insurability

b. Cash surrender values, automatic premium loans

c. Fixed amount, fixed period, life income, interest on deposit

d. Double indemnity, total and permanent disability waiver

24. The following statements concerning insurable interest are correct, except:

a. Everyone has an insurable interest in his own life

b. It is deemed to exist by virtue of a relationship by blood or marriage
 c. It is deemed to exist if economic loss would occur at the death of the insured
d. It is important for purposes of underwriting the risk

25. If the applicant for life insurance fails to disclose or misrepresents a material fact, the contract is

a. Valid if the insurer issues a policy which is delivered to the applicant

b. Void form the beginning

c. Voidable by the insurer if it has been in force less than 2 years

d. Valid unless the insurer can prove fraud

26. One requirement a policy owner must meet in order to reinstate a life insurance policy is to

a. Agree to apply future policy dividends toward the payment of premium

b. Assign the policy collaterally to the insurance company for the amount of the overdue premiums
plus any outstanding policy loan
c. Pay future premiums at the rate of his or her attained age at the time of reinstatement
d. Furnish evidence of insurability which satisfactory to the insurance company

27. When you bought as insurance policy on your wife’s life, you were 27 and she was 26, but you stated that
you were 26 and she was 27. Five years later your wife died. The insurer will pay

a. Slightly less than the face amount

b. The face amount

c.The face amount adjusted for misstatement of age

d. The sum of the premium paid

28. If the person whose life is insured dies during the grace period and the premiums was not paid, the
amount that the insurance company will pay to the beneficiary is usually the

a. Face amount of the policy minus the unpaid premium

b. Cash surrender value of the policy minus the unpaid premium
c. Full face amount of the policy
d. Total premiums paid up the date of birth plus interest

29. Life insurance guarantees cash benefits for all the following except

a. Mortgage
b. Clean-up fund
c. Family dependency period income
d. Educational fund

30. Under an endowment policy, if the person whose life is insured survives to the end of the period stated in
the policy, the

a. Face amount of the policy will be paid

 b. The extended term insurance option will go into effect
c. Policy will terminate without value
d. Policy will automatically be converted to paid-up whole policy

31. The incontestability clause

a. Gives the company the right to rescind a policy at any time

b. Permits the company to pay claims within 2 years
c. Makes it necessary for the beneficiary to present proof of death in the event of death claim
d. Prevents the company from denying a claim after the policy has been in force for 2 years

32. Life insurance contributes directly to the welfare and progress of the country by

a. Accumulating capital for investment in commerce and industry

b. Partially relieving the community of the care of dependents
c. Encouraging provisions for the future
d. All of the above

33. All of the following are Standard Provision of a life insurance policy except:

a. A grace period clause

b. An entire contract clause
c. An automatic premium loan clause
d. A misstatement of age clause

34. All of the following term policies can be sold as a basic policy contract except

a. Six months interim term

b. Decreasing term
c. Ten year term
d. Yearly renewable term

35. A housewife without gainful employment applies for a P500,000 life coverage. Which of the following
should the agent do?

a. Tell her she has no need for it

b. Examine the adequacy of the husband’s insurance coverage
c. Suggest she doubles the amount
d. Be grateful

36. A policy that is in force for less than the original sum assured with no indebtedness has availed of

a. Grace period
b. Paid-up insurance option
c. The reinstatement provision
d. Cancellation

37. The interest on a policy loan is not paid at the policy anniversary the insurance company may
 a. Increase the present loan by the interest
b. Terminate the contract
c. Refuse to grant future additional loan
d. Demand full settlement of the loan

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

a. Calculate the mortality rate for a given policy

b. Collate mortality statistics
c. Project dividend rates for participating policies
d. Prevent any anti-selection

39. If the interest on a policy loan is not paid at the policy anniversary, the insurance company may

a. Demand full settlement of the loan

b. Terminate the contract
c. Refuse to grant future additional loans
d. Increase the present loan by the interest

40. A risk considered substandard based on any of all the following criteria

a. Death, occupation and moral character

b. Income, educational attainment and occupation
c. Death, income, and educational attainment
d. Occupation, character and family health history

41. The extent of the medical evidence required is determined by

a. The age of the applicant and the proposed sum to be insured

b. Occupation of the applicant
c. Financial condition of the applicant
d. Data of the last medical examination

42. 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. Spread over a large number of people

b. Met as they arise through savings accumulated on an assessment basis
c. Deferred for a specified period of time
d. Reduced for the group as a whole through the multiplier effect

43. Indicate which of the following is not a function of an application for life insurance policy

a. To give details pertaining to non-forfeiture options

b. To furnish information on which contract of life insurance may be written
c. To furnish initial information as to insurability
d. To convey to the company the desire of the applicant to obtain insurance
44. Which of the following is false?

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

45. Which of the following statements regarding insurance premium is false

a. Cash is required for all premiums paid in the grace period

b. A premium is the legal consideration needed to effectuate a life insurance policy
c. The grace period is usually 31 days
d. Premiums which are paid quarterly or semi-annually are higher than those paid annually

46. Endowment life insurance and term life insurance are similar in that both plans

a. Build up cash value rapidly in the early policy years

b. Provide for payment of the face amount in the insured is alive at the specified period
c. Provide life insurance protection for only the period of time specified in the policy contract
d. Contain provisions for automatic continuation of the insurance protection at the end of a specified
period

47. The conservation of a life insurance policy is dependent on all the following except

a. The level of first year commission

b. Agent’s service oriented attitude
c. Pressure selling
d. The use of effective needs selling

48. The basic purpose of a conditional premium receipt are to acknowledge payment of the initial premium for
life insurance and to

a. Guarantee that a policy will be issued as applied for

b. Eliminate the need for acceptance of the offer in forming the contract
c. Backdate the policy to save age
d. Provide insurance coverage earlier than the policy delivery date if certain
requirements are met

49. Name the provision in a permanent life insurance policy under which premiums are discounted, full
insurance will be maintained for a specified period:

a. Extended term insurance

b. Paid-up insurance additions
c. Life income options persons
d. Reduced paid-up insurance
50. An agent who determines a prospect’s complete financial requirements preparatory to offering him a
policy using the correct approach known as

a. Counselor selling
b. Total needs selling
c. Planned selling
d. Multiple products selling

51. Which of the following describes the convertible feature of a term insurance policy?

a. It may be changed to another whole life policy

b. It may be changed to a permanent insurance without evidence of insurability
c. It may be changed for a guaranteed sum
d. It may be changed to another term insurance policy without evidence of insurability

52. In a policy where an irrevocable beneficiary has been designated the insured, without the beneficiary’s
permission, can

a. Avail of a non-forfeiture option

b. Discontinue premium options
c. Borrow minimal cash loan
d. Alter the dividend option presently in effect

53. Which of the following is the least important reason re for requiring that the insurance agents be licensed?

a. To establish and maintain high professional and ethical standards

b. To protect the public
c. To give the government adequate control over the conduct of agents
d. To provide additional income to the government through license fees

54. Which of the following statements is false?

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

55. A yearly renewable term life insurances policy generally specifies that

a. The policy owner may renew the policy only once

b. Premiums shall increase every time the policy is renewed
c. Evidence of insurability shall be required every renewal
d. Cash value will increase for as long as the policy is in force

56. Non-forfeiture provisions are included in a whole life and endowment policies to assure the policy owner
that certain minimum policy benefits shall remain with him even under certain changed conditions. Non-
forfeiture values guarantee to the policy owner that
 a. No death claim will be denied for any misstatement on the application

b. Any guaranteed policy values will belong to the policy owner even if premium payments are
discounted

c. The face amount of the policy will remain the same even if the Insured’s health becomes impaired

d. The premium on the policy will remain the same even when another beneficiary is added to the
policy

57. Which statement is false when the owner borrows on a policy?

a. Dividend will be reduced by the amount of the current interest

b. The proceeds of the policy will be reduced by the amount of unpaid loan plus interest, if insured
dies
c. The policy will lapse if, after reasonable notice the indebtedness exceeds the cash value
d. If a large loan is taken after the policy has been in force for some years, the interest cost may
exceed the premium

58. A non-forfeiture option would ordinarily be selected at the time a policyowner

a. Renews a term life policy

b. Converts a term policy to a whole life policy
c. Choose a model of settlement for the life proceeds
d. Discontinues premium payments for a whole life or endowment

59. When the death benefit of a policy is restricted in amount during the early years of the policy this
restriction is known as a

a. A subtractive clause
b. A lien
c. An increasing death benefit
d. Rate adjustment

60. Both endowment and term life insurance policies provided that

a. No cash values is available to the policyowner during the term of the policy

b. Renewable and conversion privileges are available

c. A benefit will be paid at the end of the period of coverage if the person insured is alive

d. Insurance protection will be limited to a specified period

61. All of the following are sources of information to an insurance company pertaining to the insurability of an
applicant except

a. The applicant’s personal appearance

b. Medical examination report

 c. Agent’s inspection report

d. Government tax record

62. Mr. Som walked out of his house one night and was never heard of again. His wife wanted to make a claim
of his life insurance policy as she believes that he is dead. Which of the following statements is correct in this
case?

a. It would be seven years before the court could declare him legally dead
b. It would be four years before the court could declare him legally dead
c. It would require 6 months before the court could declare him dead
d. The company would pay immediately

63. An insurance company generally has the right to rescind a life insurance policy if

a. Company discovers at any time that the policy owner was actually a minor at the time of application

b. Insured person intentionally kills himself during the suicide exclusion period specified in the policy

c. Insured person is killed in military action during the contestable period of the policy

d. Company discovers during the contestable period that the application contains a material statement

64. Life Insurance companies practice risk selection primarily to

a. Gather and test mortality statistics

b. Establish dividend rates on participating policies
c. Guard against anti-selection
d. Determine policy reserve amount

65. In the event that a policy owner elects the paid-up insurance option

a. The premium stop and the policy continues for the full face amount until age 65

b. The insurance continues at a reduced amount and with a reduced premium

c. The policy will automatically terminate

d. The premiums cease and protection continues with a reduced amount of coverage

66. Paid-up additions:

a. Affect both cash values of the policy

b. Don’t affect the cash values of the policy

c. Don’t affect the loan or cash values of the policy

d. Only affect the cash value of the policy

67. “Critical Years” in the programming of life insurance means:

a. Period during which the children are small and cannot provide for themselves
 b. Retirement years
c. Years between the time the youngest child is 15 years old and the mother is 62 years old
d. Years immediately following the insured’s death

68. Notwithstanding various possible legal impediments, of the owner of an endowment at age 65 policy tells
you that at the maturity of the policy he wants to provide his church with a monthly donation for as long as
the church exists. Which option do you recommend?

a. Fixed income option

b. Periodic annuity option

c. Interest option

d. Life annuity option

69. 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 can
recommend?

a. Yearly renewable term

b. Extended term
c. Interim Term
d. Decreasing Term

70. A policy which permits the policyholder to vary the level of the premium or the sum insured, and has its
cash values dependent upon the investment performance and the level of premium paid is known as

_______ policy.

a. Participating whole policy

b. Participating endowment
c. Universal life
d. None of the above

71. A man applied for a “P20,000 whole life policy and paid the full initial premium to the soliciting agent. The
agent issued a binding receipt. Under such a receipt, the insurance company

a. Offers permanent insurance coverage effective as of the date of the application

b. Promises what the insurance coverage will become effective as of the date the application is
approved

c. Guarantees that the policy will be issued as applied for

d. Immediately provides interim insurance that remains in effect until the policy is issued or the
application is declined
72. The total life coverage of a permanent basic policy can be greatly increased through the use of

a. An accident death benefit rider

b. An interim term rider

c. A supplemental term rider

d. a cancer rider

e. none of the above

73. The only instance when a life insurance contract is treated primarily as an indemnity agreement is when a

a. Creditor insures the life of his debtor to protect himself

b. Person in a partnership insures the life of his partner to protect the firm against loss due to the
death of that partner
c. Person insures the life of his or her spouse to protect against the loss of income earned by the
spouse
d. A person insures the life of a friend

74. The settlement options provisions may provide all of the following except:

a. Payment of the proceeds for the life of the insured

b. payments of the proceeds over a fixed period

c. Payments of the proceeds in fixed amounts until exhausted

d. Proceeds held by the company, with interest payable to the beneficiary upon request

75. In certain situations a company may file interpleader actions with a Court of Law. This remedy is used to

a. Determine If the cause of the insured’s death was an excluded risk

b. Decide conflicting claims on the same insurance proceeds

c. Resolve the question of insurable interest

d. Recommended the best settlement options for the beneficiary

76. Applicants for life insurance with moderate physical impairments are called substandard risks and

a. May be insured at increased rates to compensate for the extra hazard

b. Are insured policies without any non-forfeiture values
c. Therefore cannot obtain life insurance in any company
d. Are required to pay premiums on annual basis
Directions: Write T if the statement is TRUE and F if the statement is FALSE.

1. Anti-selection occurs when persons in poor health wish to buy insurance.

2. A Family Income Rider is specifically designed to provide an income for the adjustment period
immediately following death.

3. In the case of misstatement of age, the amount of insurance is adjusted to the amount when the
premium paid at the correct age would have purchased.

4. A person’s human economic value is defined as the total value of the assets and any future earnings
derived there from.

5. A policy is not rendered void by reason of misstatement of the assured’s death.

6. In a group insurance it is assumed that every member of the group is insurable, provided that every
member of the group is working a minimum number of (usually 30) each week.

7. According to the law of large numbers, events which happen seemingly by chance will actually be
bound to follow a predictable pattern, if enough such happenings are observed.

8. An endowment at age 65 policy with premium payable for a limited period of 20 years pays the
full amount after 20 years.

9. The commuted value of an insurance policy is the single sum of money, which is equal in value to the
discounted future payments.

10. A policy is still in force for the full face amount and will remain in force for a further period of four
years and 118 days, without the payment of any premiums as availed of paid up insurance option.

11. In a case where the premium has not been paid and the cash values as been exhausted, the policy
can still avail of the grace period.

12. Group life insurance covers death provided it is during working hours and in the place of
employment.

13. In most life insurance applications, the largest amount of information requested is data which
identifies the applicant.

14. Life insurance companies make use of the laws of probability in order to determine the
experienced death rate among insured persons.

15. A policy that provides guaranteed cash values plus extra annual distributions and pays the insured
after a specified time is known as a participating endowment.

16. In a group insurance it is assumed that every member of the group is insurable, provided that
every member of the group is working a minimum number of (usually 50 hours) each week.
17. The cash value of an endowment builds up faster than that for a limited pay life policy of the same
duration.

18. A Retirement Annuity is a kind of regular annual savings arrangement to provide a pension for life
with no life coverage.

19. Because the renewal of a term life insurance policy presents an increased possibility of anti-
selection, it is customary for the insurance company to require some evidence of insurability each time
the policy is renewed.