Life-Producer Questions and Answers

Comprehensive and Detailed Step by Step Explanation:A life annuity with aten years certainprovision guarantees payments for at least ten years. If theannuitant dies before the end of ten years, payments continue to the beneficiary for the remainder of the period.

Until the annuitant dies, or for ten years, whichever is longer (A):Ensures payments for life with a minimum ten-year guarantee.

Until the annuitant dies, and for an additional ten years (B):Incorrect; payments cease after the guaranteed period or the annuitant’s lifetime.

Only until the annuitant dies (C):Incorrect; the ten-year guarantee applies.

Only for ten years (D):Incorrect; payments continue if the annuitant outlives the guaranteed period.

References:Maryland Annuity Payout Options Guidelines, COMAR 31.09.08.

Comprehensive and Detailed Step by Step Explanation:Aviatical settlementinvolves selling a life insurance policy to a third party for immediate cash, typically to cover expenses associated with terminal illnesses.

Viatical settlement (C):The policyowner receives a percentage of the death benefit to cover high medical costs or improve their quality of life.

Nonforfeiture options (A):Relate to preserving cash value if the policy lapses, not a sale.

Accelerated death benefit (B):Involves accessing a portion of the death benefit directly from the insurer, not through a third party.

Survivorship policies (D):Cover two insureds and pay the death benefit only after both have passed away, unrelated to this case.

References: Maryland Viatical Settlement Law and Insurance Code.

Comprehensive and Detailed Step by Step Explanation:Aninsurable riskmust meet specific criteria to ensure fair and financially viable coverage:

Chance of loss must be calculable (C):Correct. Insurers need statistical data to assess risk and determine premiums.

Loss must be intentional (A):Incorrect; intentional losses are not insurable.

Loss must be catastrophic (B):Incorrect; catastrophic losses (e.g., war or large-scale disasters) are often excluded or managed through reinsurance.

Large number of different loss exposures (D):A large number of similar, not different, exposures is required for risk pooling.

References:Maryland Insurance Principles, Actuarial Standards, and COMAR 31.09.14.

Comprehensive and Detailed Step by Step Explanation:Theincontestability clauseprevents insurers from voiding a policy after a specified period, except in cases of fraud or non-payment of premiums:

2 years (C):Maryland law mandates a maximum incontestability period of two years. After this period, the insurer cannot deny claims due to misstatements on the application.

30 days (A) and 6 months (B):Too short for standard incontestability clauses.

3 years (D):Exceeds the Maryland limit.

References:Maryland Insurance Article §16-203, Incontestability Clause Guidelines, and COMAR 31.09.09.

Comprehensive and Detailed Step by Step Explanation:Family life insurance policies provide comprehensive coverage for families, including automatic coverage for certain dependents.

Option A:Correct. A significant portion of the premium funds whole life insurance for the primary insured (typically the head of household).

Option B:Correct. Dependent children born after the policy is issued are automatically covered, often without additional cost or underwriting.

Option C:Incorrect. Family life insurance policies are not restricted to individuals under 30; this criterion does not exist in standard policy guidelines.

Option D:Correct. Coverage for dependents can often be converted to whole life insurance at specific ages or policy milestones without medical underwriting.

References:Maryland Family Life Insurance Policy Standards, COMAR 31.09.04, and Maryland Insurance Administration Dependent Coverage Guidelines.

Comprehensive and Detailed Step by Step Explanation:Defamationinvolves publishing or circulating false, malicious statements intended to harm an insurer’s reputation. It is prohibited under Maryland law to protect the integrity of insurers.

Defamation (A):Includes any written or spoken communication that is untrue and harms the insurer’s business standing.

Intimidation (B):Relates to coercing individuals through threats, not publishing falsehoods.

Extortion (C):Involves demanding something through threats, unrelated to false statements.

Coercion (D):Involves forcing a party to act under duress, not relevant to publishing false information.

References:Maryland Insurance Article §27-205, Unfair Trade Practices and Consumer Protection Act.

Comprehensive and Detailed Step by Step Explanation:A viatical settlement allows a policyowner (often with a terminal illness) to sell their life insurance policy for immediate cash, typically to a third party.

Less than the death benefit (D):The settlement amount is a fraction of the policy's face value, reflecting the buyer's expected profit after paying premiums and collecting the death benefit.

Equal to the sum of all premiums paid (A):This is incorrect as premiums paid do not determine the settlement amount.

Equal to the death benefit (B):The buyer profits from receiving the full death benefit upon the insured’s death, so they pay less upfront.

Greater than the death benefit (C):This would result in a financial loss for the buyer, which is not the case in viatical settlements.

References: Maryland Viatical Settlement Act, COMAR 31.09.10, and Terminal Illness Policyholder Assistance Guidelines.

Comprehensive and Detailed Step by Step Explanation:HIV testing is used by insurers to evaluate the health risks associated with the applicant anddetermine 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.

References:Maryland Insurance Code §27-208, HIV Testing Disclosure Guidelines, and Maryland Human Rights Act.

Comprehensive and Detailed Step by Step Explanation:Misrepresentation involves providing false, misleading, or incomplete information about a policy:

Failed to disclose exclusions of the policy (A):Correct. Not informing the insured about policy exclusions misrepresents the coverage and violates Maryland law.

Denied a claim for failure to prove damages (B):This relates to claims handling and is not misrepresentation.

Required written notice of loss (C):This is a legitimate policy requirement, not misrepresentation.

Issued a full settlement check (D):Standard claims settlement practice when agreed upon; not related to misrepresentation.

References:Maryland Insurance Article §27-303, Misrepresentation and False Advertising Standards, COMAR 31.15.03.

Comprehensive and Detailed Step by Step Explanation:Qualified retirement plans are subject to federal rules governing contribution limits:

Contributionscannot exceed IRS limits (C), which are adjusted annually.

Employers may adjust amounts annually, invalidating (A).

Contributions vary by employee and do not require identical dollar amounts, making (B) incorrect.

Contributions are typically unrelated to work performance, invalidating (D).

References: IRS Qualified Retirement Plan Contribution Limits, Maryland Employee Benefits Guidelines.

Comprehensive and Detailed Step by Step Explanation:Thefree-look periodis a consumer protection feature allowing policyholders to cancel a policy within a specified period for a full refund.

10 days (A):Maryland requires a minimum free-look period of 10 days for most individual life insurance policies. This provides enough time for policy review.

31 days (B), 45 days (C), and 60 days (D):These periods exceed Maryland's legal minimum and are typically not required unless specified by the insurer.

References:Maryland Free-Look Provisions, COMAR 31.09.09, and Maryland Consumer Protection Insurance Guidelines.

Comprehensive and Detailed Step by Step Explanation:When a death claim is filed on a life insurance policy with an outstanding loan:

Deducted from the face amount (A):The death benefit is reduced by the loan balance plus any accrued interest, ensuring the insurer recovers the outstanding debt.

Beneficiary obligation (B):Incorrect. The beneficiary receives the adjusted benefit without personal liability for the loan.

Claim against the estate (C):Incorrect. The loan is tied to the policy, not the estate.

Canceled without adjustment (D):Incorrect, as insurers must recoup the loan amount from the death benefit.

References:Maryland Life Insurance Policy Loan Provisions, COMAR 31.09.03, and Standard Death Claim Settlement Practices.

Comprehensive and Detailed Step by Step Explanation:Thefixed amount installment optionprovides for a predetermined monthly benefit to the policy beneficiary. Payments continue until the principal (death benefit) and accumulated interest are fully paid out.

Fixed amount installment option (A):Ensures consistent payment amounts until the death benefit and interest are exhausted. This option is often used when beneficiaries want a steady income.

Accelerated endowment option (B):Not relevant as it refers to early payouts for policies reaching maturity.

Interest-only option (C):Only pays interest earned on the death benefit, leaving the principal untouched.

Fixed period installment option (D):Guarantees payments for a specific period, regardless of whether the principal or interest is depleted.

References: Maryland Life Insurance Policy Payout Regulations and Settlement Options Guidelines.

Comprehensive and Detailed Step by Step Explanation:Ethical responsibilities and state laws mandate that insurance producers act in good faith when handling applications.

Reporting material facts to the insurer (D):Producers must disclose any information that could impact underwriting decisions. Transparency ensures that policies are accurately priced and legally enforceable.

Denying knowledge (A):Violates ethical and legal obligations.

Acknowledging facts only if asked (B):Demonstrates bad faith and can lead to legal penalties.

Advising applicants to amend (C):While this helps, it does not fulfill the producer’s duty to inform the insurer.

References: Maryland Insurance Administration Producer Code of Ethics, COMAR 31.03.13.

Comprehensive and Detailed Step by Step Explanation:Allowing an applicant to sign a blank or incomplete application (B) violates ethical and legal standards, as it undermines transparency and could lead to disputes about coverage or claims.

Selling insurance to family members (A):Permitted as long as the transactions areconducted ethically and comply with Maryland laws.

Countersigning policies (C):Required in certain situations to validate contracts in Maryland.

Splitting commissions with nonresident producers (D):Permissible under Maryland law, provided both producers are licensed and involved in the transaction.

References:Maryland Insurance Administration Producer Conduct Rules, COMAR 31.03.13, and Ethical Standards for Insurance Producers.

Comprehensive and Detailed Step by Step Explanation:Accidental death riders provide additional benefits if the insured dies due to an unforeseen accident.

Automobile accidents resulting from the insured’s negligence (D):Covered because negligence in driving does not disqualify the event from being an accident. The death must be directly and solely caused by the accident.

Intentionally self-inflicted injuries (A):Excluded as they are not accidental but intentional.

Illness or disease (B):Excluded as accidental death benefits do not apply to natural causes.

War or acts of war (C):Generally excluded under most policies as a specific clause addresses wartime risks.

References:Maryland Insurance Guidelines for Accidental Death Riders and Policy Exclusions, COMAR 31.09.04.

Comprehensive and Detailed Step by Step Explanation:Paying an applicant’s premium is considered arebate, 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)andloans (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.

References: Maryland Rebating Laws, Unfair Trade Practices Act.

Comprehensive and Detailed Step by Step Explanation:An accidental death rider pays an additional benefit if death results solely from an accident.

Automobile accidents resulting from the insured’s negligence (D):Covered, as negligence does not negate the accidental nature of the event. The death must result directly from the accident without other contributing factors like illness.

Intentionally self-inflicted injuries (A):Excluded, as they are not accidental.

Illness or disease (B):Excluded, as accidental death benefits only apply to unforeseen events, not natural causes.

War or acts of war (C):Excluded in most policies due to specific exclusions for wartime risks.

References:Maryland Insurance Administration Policy Rider Guidelines and Accidental Death Coverage Standards, COMAR 31.09.04.

Comprehensive and Detailed Step by Step Explanation:Aninsurable interestexists when the policyholder benefits more from the insured’s life than their death.

Benefiting from the other person’s continued life (C):Correct. This applies to relationships where there is a legal, financial, or familial dependence.

Gaining economically by the death of the other person (A):Mischaracterizes insurable interest; financial gain from death without a legitimate relationship is unethical and illegal.

Continuing on good terms (B) and seeing the person survive (D):Do not constitute insurable interest under Maryland law.

References:Maryland Insurance Article §12-201, Insurable Interest Guidelines, and COMAR 31.09.03.

Comprehensive and Detailed Step by Step Explanation:Premature distributions from an IRA (withdrawals before age 59½) are subject to a10% penalty tax (B)unless certain exceptions apply (e.g., disability, qualified education expenses, or first-time homebuyer withdrawals).

5% (A):Does not apply to IRS penalties.

10% (B):Correct. This is the standard penalty for early withdrawals.

20% (C):Represents mandatory withholding for certain distributions, not the penalty.

50% (D):Applies only to Required Minimum Distribution (RMD) failures, not premature distributions.

References:IRS Publication 590-B, Maryland IRA Penalty Exceptions Guidelines, COMAR 31.09.11.

Comprehensive and Detailed Step by Step Explanation:Offering settlements below fair value (D)is prohibited as an unfair claims settlement practice under Maryland law. Insurers must handle claims in good faith and pay fair settlements based on policy terms.

Negotiating claims (A):Permitted when there are legitimate disputes over coverage or liability.

Denying claims (B):Allowed if based on valid policy exclusions or conditions.

Including arbitration provisions (C):Legal, provided they comply with state guidelines and are not coercive.

Unfair claims settlement practices include:

Misrepresenting policy provisions.

Failing to promptly investigate or settle claims.

Attempting to settle for less than reasonable amounts.

References:Maryland Insurance Article §27-303, Unfair Claims Practices Act, and COMAR 31.15.07.

Comprehensive and Detailed Step by Step Explanation:The Maryland Insurance Administration (MIA) has sole authority to regulate, suspend, or revoke an insurance producer’s license for violations of state insurance laws:

Maryland Insurance Administration (C):Correct. The MIA oversees producer licensing, compliance, and disciplinary actions.

Appointing insurer (A):Can terminate an appointment but cannot revoke a license.

Continuing education provider (B):Only offers training and has no regulatory authority.

Attorney General (D):Handles legal actions but does not directly manage licensing.

References:Maryland Insurance Article §10-126, Producer Regulation Guidelines, COMAR 31.03.13.