Life-Producer Maryland Life Producer Exam (Series 20-27) Questions and Answers

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:Maryland law requires that the results of medical examinations used to determine insurability:

Be disclosed to thephysician of the applicant’s choice (B), but only if the applicant requests it.

This ensures privacy and confidentiality while giving the applicant access to critical information.

Beneficiaries (A)andunderwriters (C)do not receive this information.

Physicians furnishing information (D)already have access to their own submissions.

References: Maryland Insurance Code on Privacy and Disclosure of Medical Information.

Comprehensive and Detailed Step by Step Explanation:The life insurance buyer’s guide is designed to help potential policyholders make informed decisions about life insurance by:

Explaininghow to decide how much life insurance to buy (C), ensuring individuals purchase adequate coverage for their needs.

Providing details tocompare life insurance policy requirements (D)to evaluate and choose the best policy.

Showing how tocompare rates (A)for different policies to find cost-effective options.

However, it doesnot include instructions for taking civil action against an insurer (B). Such legal matters fall outside the scope of the guide and are addressed in regulatory and legal channels.

References: Maryland Insurance Buyer’s Guide Guidelines and State Insurance Regulations.

Comprehensive and Detailed Step by Step Explanation:Thedoctrine of reasonable expectationsensures that ambiguities in insurance policies are resolved in favor of the policyholder:

Reasonable expectations (B):Protects policyholders by ensuring contracts are interpreted based on how an average person would understand them, especially when ambiguities exist.

Representation (A):Refers to the accuracy of statements made during application, unrelated to contract interpretation.

Retention (C):Concerns risk management, not contract ambiguities.

Retrocession (D):Deals with reinsurance, not policyholder rights.

References:Maryland Contract Law, Insurance Ambiguities Guidelines, and COMAR 31.15.03.

Comprehensive and Detailed Step by Step Explanation:Universal life insurance is a flexible product that combines features of term insurance and a savings component:

Flexible premium deposit fund and a monthly renewable term insurance policy (D):Universal life allows policyholders to adjust premiums and coverage amounts. The policy includes a savings element (cash value) and provides renewable term insurance protection.

Mutual fund and whole life insurance policy (A):Incorrect, as universal life does not involve mutual funds or strict whole life coverage.

Term insurance and an annuity (B):Universal life lacks the payout structure of an annuity.

Endowment and interest-sensitive deposit fund (C):While it includes interest-sensitive growth, it is not structured as an endowment policy.

References:Maryland Life Insurance Product Guidelines, Universal Life Policy Features, and COMAR 31.09.13.

Comprehensive and Detailed Step by Step Explanation:In an annuity, theannuitant (D)is the individual entitled to receive benefits during the liquidation phase.

Theowner (A)controls the contract but may not be the recipient.

Thebeneficiary (B)receives funds only after the annuitant’s death.

Nominator (C)is not a term used in annuities.

References: Maryland Annuity and Retirement Income Provisions.

Comprehensive and Detailed Step by Step Explanation:Qualified retirement plans, such as 401(k) and pension plans, offer significant tax advantages for employers:

Tax-deductible contributions (B):Employer contributions to qualified plans are deductible as business expenses, reducing taxable income.

Exclusive benefit for key employees (A):Not allowed under IRS rules, as qualified plans must follow non-discrimination requirements.

Funds available for business needs (C):Incorrect, as plan funds are held in trust and cannot be used for business operations.

Rewarding selected employees (D):Qualified plans must comply with anti-discrimination rules, so rewards must benefit all eligible employees.

References:IRS Publication 560, Maryland Retirement Plan Standards, and COMAR 31.09.11.

Comprehensive and Detailed Step by Step Explanation:The IRS allows a penalty-free distribution of up to$10,000from an IRA for qualified first-time homebuyers, provided the funds are used for eligible home purchase expenses.

$10,000 (C):Correct. This is the lifetime maximum allowed per participant.

$2,000 (A) and $5,000 (B):Too low for the current IRS rules.

$20,000 (D):Exceeds the limit and is incorrect.

References:IRS Publication 590-B, Maryland IRA Distribution Rules, and COMAR 31.09.12.

Comprehensive and Detailed Step by Step Explanation:To be legally enforceable, a contract must meet the following requirements:

Offer and acceptance (A):One party must propose terms, and the other must agree to them.

Competent parties (B):Individuals must have the legal capacity to enter a contract (e.g., not minors or mentally incapacitated).

Consideration (C):Each party must provide something of value (e.g., money, services, or promises).

Written evidence (D)is not required for all contracts, as some verbal agreements are enforceable depending on the type of contract (except for specific cases like real estate).

References: Maryland Contract Law Principles.

Comprehensive and Detailed Step by Step Explanation:Accelerated benefits are often triggered by the inability to performactivities of daily living (ADLs), which are standard measures of functional capacity.

Dressing (A), Eating (B), Bathing (C):Correctly identified as ADLs used to assess eligibility for benefits.

Speaking (D):Not classified as an ADL under Maryland insurance definitions or long-term care benefit triggers.

References:Maryland Accelerated Benefits Guidelines, Long-Term Care Standards, and COMAR 31.09.04.

Comprehensive and Detailed Step by Step Explanation:The Maryland Insurance Administration (MIA) is astate governmententity responsible for regulating the insurance industry in Maryland.

State government (B):MIA enforces insurance laws, reviews policy forms, licenses insurers and producers, and investigates consumer complaints.

Federal government (A):Oversees broader regulations, like ERISA, but does not directly manage state-level insurance matters.

National Association of Insurance Commissioners (C):A regulatory support organization, not a governing body.

Maryland General Assembly (D):Creates state laws, but enforcement falls under the MIA.

References: Maryland Insurance Administration Overview and State Regulatory Framework.

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:Participating life insurance policies, often issued by mutual companies, include the possibility of dividends:

Dividends (A)represent a share of surplus profits distributed to policyowners.

Policyowners are not assessed for losses (B); the insurer bears those.

The insured and policyowner can be different individuals, making (C) incorrect.

Mutual insurers typically issue participating policies, not stock companies (D).

References: Maryland Insurance Law on Participating Policies.

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: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:

For life insurance, an insurable interest exists when there is a legitimate interest in the continued life of another person:

Marriage partners (C) inherently have insurable interest due to emotional and legal ties.

Competitors (A) and traveling companions (D) do not usually meet the legal threshold.

Business associates (B) may have insurable interest, but only in specific agreements (e.g., buy-sell agreements).

References: Maryland Insurance Code and Insurable Interest Provisions.

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: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:Maryland law requires that insurance advertisements be honest, transparent, and not misleading.

Truthful (D):Correct. Ads must provide accurate information about insurance products and benefits without omitting material facts.

Approved by the Insurance Commissioner (A):Some materials may require regulatory review, but general ads do not need pre-approval.

Clear only by implication (B):Misleading and prohibited.

Clear only by familiarity with insurance terminology (C):Ads must be understandable to the general public, not just industry professionals.

References:Maryland Advertising Regulations, COMAR 31.15.01, and Unfair Trade Practices Act.

Comprehensive and Detailed Step by Step Explanation:Boycottrefers to the refusal to engage in business dealings with a particular party as part of an unfair trade practice, often used to coerce or punish. It is prohibited under Maryland’s Unfair Trade Practices Act.

Boycott (C):Defined as an unfair method of competition when used in the insurance context.

Estoppel (A):A legal doctrine preventing someone from asserting a claim inconsistent with previous actions, unrelated to business refusal.

Injunction (B):A court order stopping specific actions, not related to refusal to do business.

Binder (D):Temporary insurance coverage, unrelated to trade practices.

References:Maryland Unfair Trade Practices Act, COMAR 31.15.03, and Maryland Insurance Code §27-205.

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:Thecost basisis the total of all premiums paid minus dividends received or used to offset premiums. This figure is used to calculate the taxable portion of the cash value upon surrender.

Cost basis (D):Represents the non-taxable portion of the surrender value; any amount exceeding this is considered taxable income.

Cash value (A):The policy’s accumulated value, which may include taxable gains.

Loan value (B):Refers to the amount available for borrowing against the policy.

Gross proceeds (C):The full amount received upon surrender, not accounting for cost basis deductions.

References:IRS Guidance on Life Insurance Taxation, Maryland Life Insurance Surrender Rules, and COMAR 31.09.14.

Comprehensive and Detailed Step by Step Explanation: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.

References: Maryland Estate Tax and Death Benefit Regulations.

Comprehensive and Detailed Step by Step Explanation:Thebeneficiaryis the individual or entity named in the life insurance policy to receive the death benefit upon the insured’s death.

Designated recipient of proceeds (B):The policyholder nominates this party in the policy documents.

Ownership interest in the policy (A):Refers to the policyowner, who controls and funds the policy but may not be the beneficiary.

Insurer (C):Issues and administers the policy but is not a recipient.

Owner of the cash value fund (D):This pertains to cash value accumulation, separate from death benefit designation.

References: Maryland Life Insurance Policy Provisions and Beneficiary Designation Rules.