Texas Life Insurance Agent Exam

In an index-linked annuity, what does a rate cap do?

Sets the maximum interest rate the annuity earns.

The TDI Annuities guide says some annuities cap the index-linked interest rate, and the cap is the maximum rate of interest the annuity will earn.

What are the two phases of an annuity contract?

The accumulation phase and the payout phase.

The TDI Annuities guide says an annuity has an accumulation phase, when it earns interest and premiums may be single or flexible, and a payout phase, also called annuitization.

Under the life option with a period certain, what happens if the annuitant dies before the period ends?

The named beneficiary gets payments until it ends.

The TDI Annuities guide says this option pays for as long as you live, and if you die before the specified period ends, your beneficiary receives payments until the period ends.

Under a joint and survivor life option, how long do annuity payments continue?

As long as either person is alive.

The TDI Annuities guide says the joint and survivor life option pays you or your beneficiary for as long as either is alive.

What IRS penalty usually applies if annuity earnings are withdrawn before age 59 and a half?

A 10% early withdrawal penalty.

The TDI Annuities guide says withdrawing earnings before age 59 and a half will probably mean a 10% early withdrawal penalty on top of the taxes owed, with some exceptions.

What does a disability waiver of premium rider do?

Covers premiums if the insured meets the disability definition.

The TDI Life insurance guide says this rider covers the premium if you meet the policy's definition of disabled, and it is usually available only to people younger than 60.

What does a guaranteed insurability rider allow?

Buying additional coverage regardless of age or health.

The TDI Life insurance guide says this rider lets you buy more coverage regardless of age or health, usually by a specified date or life event, though the company may still use those factors to set the premium.

A policy has a $500,000 death benefit and a $500,000 accidental death rider. How much does the beneficiary receive if the insured dies in a covered accident?

$1 million.

The TDI Life insurance guide uses this exact example: the accidental death rider pays an additional amount on top of the base death benefit.

Which rider adds term life coverage to a permanent life policy?

An additional term insurance rider.

The TDI Life insurance guide says an additional term rider adds term life coverage to a permanent policy, for example a $400,000 term rider on a $100,000 whole life policy.

What conditions does TDI say qualify an insured for an accelerated death benefit?

Terminal illness, specified disease, or long-term care illness.

The TDI Life insurance guide says an accelerated death benefit option prepays some or all of the death benefit while you are living if you have one of these conditions.

Who receives the proceeds if the primary beneficiary died before the insured?

The contingent beneficiary, if one was named.

The Connecticut Insurance Department glossary says a contingent beneficiary receives the proceeds following the insured's death if the primary beneficiary predeceased the insured.

If a life policy has no living named beneficiary, who receives the death benefit?

The insured's estate.

The TDI Life insurance guide says if you do not name a beneficiary, or your beneficiary is dead, the company pays the death benefit to your estate, and heirs might owe taxes on money from the estate.

According to TDI, what does the beneficiary receive if the insured dies during the grace period?

The death benefit minus the premium owed.

The TDI Life insurance guide says if you die during the grace period, your beneficiary gets the death benefit minus the premium owed.

What does an automatic premium loan do?

Borrows from cash value to pay an overdue premium.

The Connecticut Insurance Department glossary defines an automatic premium loan as cash borrowed from the policy's cash value to pay an overdue premium after the grace period expires.

According to TDI, what happens to the contestable period when a lapsed policy is reinstated?

A new contestable period applies.

The TDI Life insurance guide says your policy will have a new contestable period if it lapses and you later reinstate it.

If a loan secured by a life insurance policy is not repaid, what happens to the death benefit?

It is reduced.

The TDI Life insurance guide says if you do not pay back a loan that uses your policy as collateral, it will lower the amount of the death benefit.

Which nonforfeiture option provides the original amount of insurance for a limited period of time?

Extended term insurance.

The Connecticut Insurance Department glossary defines extended term insurance as a nonforfeiture option that provides the original amount of insurance for a limited period.

Which nonforfeiture option continues the original insurance plan but for a reduced amount?

Reduced paid-up insurance.

The Connecticut Insurance Department glossary defines reduced paid-up insurance as a nonforfeiture option that continues the original plan for a reduced amount.

According to TDI, what are the three ways a whole life owner can use a dividend?

Take cash, add to cash value, or pay premiums.

The TDI Life insurance guide lists these three choices and warns that dividends are not guaranteed, so a dividend could be lower than the company's projection.

During the first two years of a policy, what does TDI say companies usually do if the insured took their own life?

Deny the death benefit and return the premiums.

The TDI Life insurance guide says companies usually will not pay the death benefit during the first two years in that case, but they must return the premiums to the beneficiary.

Which settlement option pays the death benefit at regular intervals, with interest, over a chosen period?

The fixed period option.

The TDI Life insurance guide describes the fixed period option as paying the death benefit at regular intervals, with interest, over a chosen period.

Under Texas Insurance Code 1101.003, what must a life policy say makes up the entire contract?

The policy, or the policy and the application.

Texas Insurance Code 1101.003 requires a life policy to provide that the policy or the policy and the application constitute the entire contract between the parties. The Connecticut Insurance Department glossary describes the common form, the policy and the attached application.

What is the purpose of underwriting in life insurance?

To decide whether to sell a policy and on what terms.

The TDI Life insurance guide says companies use underwriting to decide whether to sell you a policy, often using a medical exam and questions about health, job, and habits.

Under the general insurance definition, when does a policy owner have an insurable interest in the insured's life?

When likely to benefit if the insured lives and lose if the insured dies.

The Connecticut Insurance Department glossary gives this general definition. Texas adds a statutory rule: Texas Insurance Code 1103.053 says a beneficiary or owner designated under that subchapter has an insurable interest at all times after the designation, with exceptions such as burial businesses and certain caregivers who are not relatives.

What is a rated policy?

One issued at a higher than standard premium for higher risk.

The Connecticut Insurance Department glossary defines a rated policy as one issued at a higher than standard premium rate to cover a higher than standard risk, such as impaired health or a hazardous job.

What term describes application statements that are substantially true to the applicant's knowledge but not warranted as exact?

Representations.

The Connecticut Insurance Department glossary defines representations as application statements given as substantially true to the applicant's best knowledge but not warranted as exact in every detail. Texas Insurance Code 1101.007 treats an insured's statements as representations and not warranties absent fraud.

With a conditional receipt, when does coverage start if the application is approved as applied for?

On the prepayment date or the date the last underwriting requirement is met.

The Connecticut Insurance Department glossary says with a conditional receipt coverage is effective as of the date of prepayment or the date the last underwriting requirement, such as a medical exam, is fulfilled.

What does a binding receipt do if the policy is approved?

Makes the policy effective from the date of the receipt.

The Connecticut Insurance Department glossary says a binding receipt, once the policy is approved, binds the company to make the policy effective from the date of the receipt.

According to TDI, what generally happens to the two-year contestable period when a life policy is replaced by an unrelated insurer's new policy?

It begins again under the new policy.

The TDI Life insurance guide lists this among the things to consider before replacing a policy, since the two-year contestable period begins again under the new policy. Texas Insurance Code 1114.053(f) is the exception: if the replacing and existing insurers are the same or affiliated, the replacing insurer must give credit for the time already elapsed, up to the existing face amount.

Before requiring an HIV-related test for a Texas insurance application, what must the insurer obtain?

Written authorization on a separate commissioner form.

Texas Insurance Code 545.053 requires an explanation of how the test will be used and a written authorization on a form adopted by the commissioner, separate from any other document.

Under the Fair Credit Reporting Act, what must a company provide when it takes adverse action based on a consumer report?

Notice of the adverse action to the consumer.

The CFPB's FCRA examination procedures say Section 615(a) requires notice of the adverse action to the consumer, and the Act's definition of adverse action includes unfavorable insurance underwriting decisions.

Which life products are covered products under FinCEN's anti-money laundering rule for insurers?

Permanent life and annuities, other than group contracts.

FinCEN's FAQ says covered products include permanent life policies other than group life and annuity contracts other than group annuities, plus other products with features of cash value or investment.

What does the Gramm-Leach-Bliley Act require financial institutions, including insurers, to give consumers?

Privacy notices explaining their information practices.

The FTC's brief on the Act says it requires companies to give consumers privacy notices that explain their information sharing practices, and that consumers may opt out of certain sharing with third parties. State insurance authorities enforce it for insurers.

What is a contract of adhesion?

One drafted by one party with no bargaining over terms.

The Connecticut Insurance Department glossary defines a contract of adhesion as one drafted by one party and accepted or rejected by the other, with no opportunity to bargain over its terms.

What does the applicant give as consideration for a life insurance policy?

The premium payment and application statements.

The Connecticut Insurance Department glossary says consideration for a policy is the company's acceptance of the premium and the applicant's statements, balanced by its promise to provide benefits.

According to TDI, what is a life settlement?

Selling a life policy to a settlement provider.

The TDI Life insurance guide says you can sell a policy to a life settlement provider, who pays a percentage of the death benefit and takes over paying the premiums.

Under Texas law, what may an adult do in a single written document when a third party applies for a life policy on that adult?

Consent and designate the beneficiary or owner.

Texas Insurance Code 1103.056 says an individual of legal age may, in one written document, consent to a third party's purchase of or application for a policy and designate or consent to a beneficiary or owner.

In a noncontributory group plan, who pays the cost of the benefits?

The employer pays the full cost.

The Connecticut Insurance Department glossary says under noncontributory plans the employer bears the full cost of the benefits for the employees.

Under IRS qualified plan rules, contributions or benefits must not discriminate in favor of which group?

Highly compensated employees.

The IRS guide to common qualified plan requirements says contributions or benefits provided under a plan must not discriminate in favor of highly compensated employees.

What is key-person insurance designed to protect against?

A business's loss from a key employee's death or disability.

The Connecticut Insurance Department glossary says key-person insurance protects a business against the loss of income resulting from the death or disability of a key employee.

What does a buy-sell agreement do?

Sets terms for buying a deceased or disabled owner's share.

The Connecticut Insurance Department glossary says it is an agreement among business owners to purchase the share of a disabled or deceased owner, with terms set in advance.

How many Social Security credits are needed to be eligible for retirement benefits?

40 credits.

The Social Security Administration says you need 40 credits to be eligible for retirement, and you can earn up to four credits per year.

How does the IRS generally treat life insurance proceeds received by a beneficiary because of the insured's death?

Not includable in gross income.

The IRS says proceeds you receive as a beneficiary due to the death of the insured generally are not includable in gross income, with a limit when a policy was transferred for value.

What makes a life contract a modified endowment contract under Internal Revenue Code Section 7702A?

It fails the 7-pay test.

The Internal Revenue Bulletin explains that a contract is a modified endowment contract if it fails the 7-pay test, meaning too much was paid in during the first seven years, or if it was received in exchange for a MEC.

Who is the chief executive and administrative officer of the Texas Department of Insurance?

The commissioner of insurance.

Texas Insurance Code 31.021 says the commissioner is the department's chief executive and administrative officer and administers and enforces the code.

At a minimum, how often must TDI examine an insurance carrier under Texas Insurance Code 401.052?

Once every five years.

Texas Insurance Code 401.052 says TDI examines a carrier as often as it considers necessary and, at a minimum, not less frequently than once every five years.

Under Texas Insurance Code 83.051, when does an emergency cease and desist order become final if no hearing is requested?

On the 61st day after it is served.

Texas Insurance Code 83.051(b) says an emergency order is final on the 61st day after the date it is served, unless the affected person requests a hearing.

How long does an insurer's Texas certificate of authority remain effective?

Until it is suspended or revoked.

Texas Insurance Code 801.053 says a certificate of authority issued to an insurer is effective until it is suspended or revoked.

In Texas insurance law, what is an alien insurance company?

One organized under a foreign country's laws.

Texas Insurance Code 982.001 defines an alien insurance company as one organized under the laws of a foreign country, while a foreign company is organized under the laws of another U.S. state.

Which kind of insurer has a lodge system, operates for its members' mutual benefit, and has no capital stock?

A fraternal benefit society.

Texas Insurance Code 885.051 defines a fraternal benefit society as having a lodge system and representative government, operating for mutual benefit and not for profit, with no capital stock.

Which Texas license is required to write life coverage or fixed annuities if you do not hold a general life, accident, and health license?

A life agent license.

Texas Insurance Code 4054.301 requires a life agent license for a person who writes coverage on human lives, including annuities, and who does not hold a general life, accident, and health license.

What age and exam timing does Texas require for an individual agent license?

At least 18, and passed the exam within 12 months.

Texas Insurance Code 4001.105 says TDI issues a license to an individual who is at least 18 and has passed the required exam within the past 12 months, among other requirements.

What qualifies a nonresident agent for a Texas nonresident license under Section 4056.052?

Good standing in the home state, with reciprocity.

Texas Insurance Code 4056.052 says TDI issues a license if the applicant holds a license in good standing in the home state and that state grants nonresident licenses to Texans on a reciprocal basis.

How long is a Texas temporary life agent license valid?

180 days after issuance.

Texas Insurance Code 4001.155 says a temporary license is valid for 180 days after the date of issuance, and TDI says only one will be issued and it cannot be renewed.

How many hours of training must a temporary license applicant receive within 30 days, and how many must be in a classroom?

40 hours total, with at least 10 in a classroom.

Texas Insurance Code 4001.160 requires at least 40 hours of training not later than the 30th day after the application is delivered or mailed, with at least 10 hours taught in a classroom setting.

What must a licensed agent have before engaging in business as an agent in Texas?

An appointment from an authorized insurer.

Texas Insurance Code 4001.201 says a licensed person may not engage in business as an agent unless appointed by an insurer authorized to do business in Texas.

How many continuing education hours must a Texas life agent complete during a license period, and how many in ethics?

24 hours, including 3 in ethics.

Texas Insurance Code 4004.053 requires 24 hours of continuing education during the license period and 4004.054 requires three of those hours to be in ethics.

How must a Texas agent keep insurance records?

Separate from the records of any other business.

Texas Insurance Code 4001.255 says an agent shall maintain all insurance records, including those about customer complaints, separate from the records of any other business the agent is engaged in.

A Texas agent's license has been expired for 90 days or less. What must the agent pay to renew?

The renewal fee plus half of it again.

Texas Insurance Code 4003.007 lets a person renew a license expired 90 days or less by paying the required renewal fee and an additional fee equal to one-half of it.

After a Texas agent license is revoked, how long must the person wait before applying for an agent license again?

Until the fifth anniversary of the revocation.

Texas Insurance Code 4005.105 says a person whose license was revoked may not apply before the fifth anniversary of the revocation or of the final court order affirming it, with exceptions for failures like not passing an exam or completing CE.

What does Texas Insurance Code 541.051 call misrepresenting facts to get a policyholder to lapse or surrender a policy?

An unfair or deceptive act.

Texas Insurance Code 541.051 lists a misrepresentation made to a policyholder to induce a lapse, forfeiture, or surrender of a policy as an unfair method of competition or unfair or deceptive act.

What is the term for making a false, malicious statement about an insurer's financial condition, calculated to injure it?

Defamation of an insurer.

Texas Insurance Code 541.053 makes it an unfair practice to circulate a false, malicious, or derogatory statement about an insurer's financial condition that is calculated to injure a person in the insurance business.

What is the term for giving a prospect part of the premium back as an inducement to buy a Texas life policy?

Rebating.

Texas Insurance Code 1702.102 bars a rebate of premiums as an inducement, while 1702.104 allows a promotional, educational, or courtesy item valued at $25 or less.

What deadline does Texas Insurance Code 701.051 set for reporting a suspected fraudulent insurance act to TDI's fraud unit?

Not later than the 30th day.

Texas Insurance Code 701.051 requires the report to the TDI insurance fraud unit not later than the 30th day after the person determines or reasonably suspects a fraudulent insurance act.

Under Texas Insurance Code 4005.053, who may receive a commission for acting as an agent in Texas?

Only a person licensed as an agent in Texas.

Texas Insurance Code 4005.053 bars paying or accepting a commission for agent services unless the person holds a Texas agent license, with an exception for renewal or deferred commissions.

Up to what death benefit amount on a single life does the Texas Life and Health Insurance Guaranty Association cover a life insurance policy?

$300,000.

Texas Insurance Code 463.204 excludes death benefits in excess of $300,000, and net cash surrender value in excess of $100,000, under life policies on a single life.

What kind of policy comparison does 28 TAC 21.111 prohibit in advertising?

Unfair or incomplete comparisons.

Texas rule 28 TAC 21.111 says an advertisement may not make an unfair or incomplete comparison of policies, benefits, dividends, or rates, or compare noncomparable policies.

What is the minimum free look period for a fixed annuity contract in Texas?

20 days after delivery.

Texas Insurance Code 1116.002 requires at least 20 days after delivery to rescind a fixed annuity for an unconditional refund, and TDI's Annuities guide states the same 20 days.

How long must the premium grace period be in a Texas life policy under Section 1101.005?

At least one month.

Texas Insurance Code 1101.005 requires a grace period of at least one month for each premium after the first, during which the policy stays in force.

Under Texas Insurance Code 1101.009, after how many full years of premiums must a policy with cash value provide a policy loan?

At least three full years.

Texas Insurance Code 1101.009 requires a life policy to provide a loan if the policy is in force, premiums have been paid for at least three full years, and the policy is properly assigned. Term policies are exempt. The section sets when the policy must provide a loan.

After how long does a Texas life policy become incontestable, and what exception applies?

Two years, except for nonpayment of premiums.

Texas Insurance Code 1101.006 requires the policy to be incontestable after two years in force during the insured's lifetime, except for nonpayment of premiums, with an optional exception for violating military service conditions in wartime.

If an insured's age was understated on a Texas life policy, what amount is payable?

What the premium paid would have bought at the correct age.

Texas Insurance Code 1101.008 says the amount payable is the amount the premium paid would have purchased if the age had been stated correctly.

How long does a Texas life insurer have to settle a death claim after receiving proof?

Not later than two months.

Texas Insurance Code 1101.011 requires settlement not later than two months after receipt of proof of death and proof of the claimant's right to the proceeds.

After employment ends, by when must a former group life insured apply and pay for an individual policy under Section 1131.110?

By the 31st day after termination.

Texas Insurance Code 1131.110 requires application and first premium not later than the 31st day after employment or membership ends, and the policy must be issued without evidence of insurability.

What is the limit on the initial amount of credit life insurance on a debtor in Texas?

The total debt under the credit contract.

Texas Insurance Code 1153.155 says the initial amount may not exceed the total amount of debt repayable under the contract evidencing the credit transaction.

What must an agent submit with a Texas life or annuity application about existing coverage?

A statement signed by applicant and agent.

Texas Insurance Code 1114.051 says the agent must submit a statement, signed by both the applicant and the agent, on whether the applicant has existing policies or contracts.

In a Texas replacement, how many days after delivery does the owner have to return the new policy or contract?

30 days.

Texas Insurance Code 1114.053(e) requires the replacing insurer to notify the owner of the right to return the policy or contract within 30 days of delivery. The owner gets an unconditional full refund of premiums and fees, or for a variable or market value adjustment contract, the cash surrender value plus fees and charges.

Under Texas Insurance Code 1105.004, by when must a policyholder request a paid-up nonforfeiture benefit after a premium default?

Not later than the 60th day after the due date.

Texas Insurance Code 1105.004 requires the policy to grant a paid-up nonforfeiture benefit on proper request not later than the 60th day after the due date of the premium in default.