Insurance Licensing Updated Life-Producer Exam Questions and Answers by iqra

When a wage earner dies, surviving families face significant financial obligations:

Final expenses (A): Include funeral costs and related end-of-life expenses.

Family living expenses (C): Cover ongoing needs like housing, food, and utilities.

Death taxes (D): May apply based on estate value and Maryland inheritance laws.

Unemployment tax liabilities (B) are irrelevant as they apply only to employers, not surviving family members.

A replacement occurs when a new life insurance policy is purchased, and the existing policy is surrendered, terminated, or its benefits reduced to make way for the new policy.

Replacement (B): This is regulated to ensure the policyholder is not disadvantaged by switching policies, often requiring additional disclosures and forms, like Maryland’s "Important Notice Replacement of Life Insurance or Annuities."

Nonforfeiture (A): Refers to retaining cash value benefits when a policy lapses or is canceled, not applicable here.

Reinvestment (C): Generally relates to financial or investment accounts, not life insurance.

Rollover (D): Pertains to tax-advantaged accounts like IRAs, not applicable to insurance.

Understanding life insurance replacement.

Policy replacement occurs when an existing policy is lapsed, surrendered, or exchanged for a new policy.

Maryland strictly regulates replacements to protect consumers from unnecessary financial harm.

Evaluate each option.

A. Capital gains taxation

Life insurance generally does not produce capital gains tax upon replacement.

B. Small business taxation

Not relevant to individual policy replacement.

C. An illegal transaction

Replacement is legal when properly disclosed and documented.

D. Surrender costs

Correct. Surrender charges may apply if the old policy is terminated early.

Maryland consumer protection context.

Maryland replacement regulations require producers to explain surrender charges, loss of benefits, and new contestability periods to ensure good-faith conduct.

Conclusion.

Policy replacement may result in surrender costs, making option D correct.

Definition of an immediate annuity.

An immediate annuity is designed to begin income payments shortly after purchase, usually within one year.

Key structural feature.

Immediate annuities are purchased with a single lump sum.

Payments begin almost immediately.

Why there is no accumulation period.

The accumulation period exists only in deferred annuities, where funds grow before payout.

Immediate annuities move directly into the annuity (payout) phase.

Evaluate each option.

A. Purchased in installments

Incorrect; installment purchases describe flexible premium deferred annuities.

B. Pays a lump sum

Incorrect; it pays periodic income, not a lump sum.

C. Lacks an accumulation period

Correct.

D. Tax-deductible contributions

Incorrect; contributions are generally not deductible unless within a qualified plan.

Conclusion.

An immediate annuity has no accumulation period.