If a policyowner surrenders a policy for its cash value, when is a tax

New York State Life Insurance Exam Questions

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Question 1 of 5.

If a policyowner surrenders a policy for its cash value, when is a tax liability incurred?

A. The cash value exceeds all premiums paid

B. The cash value is less than premiums paid

C. The policy is exchanged for a policy of equal value

D. The policy is transferred to a third party

Explanation: A tax liability occurs when the surrendered policy's cash value exceeds total premiums paid, as the excess is taxable as ordinary income, unlike other scenarios.

Question 2 of 5.

An annuity product linked to a market-related rate of return is called

A. a fixed annuity

B. an indexed annuity

C. a deferred annuity

D. a tax-sheltered annuity

Explanation: An indexed annuity earns interest or provides gains linked to a stock market index, such as the S&P 500, unlike a fixed annuity which offers a guaranteed rate of return that remains constant, a deferred annuity where payments are made at a later date, or a tax-sheltered annuity which is a type of retirement plan not specifically defined by its return structure.

Question 3 of 5.

The Group Life Underwriting risk selection process helps protect insurers from

A. risk selection

B. medical underwriting

C. adverse selection

D. risk underwriting

Explanation: The Group Life Underwriting risk selection process mitigates adverse selection, where individuals with higher-than-average risk are more likely to seek insurance, by ensuring a balanced risk pool, whereas risk selection and risk underwriting are redundant terms and medical underwriting is a component of the process, not the risk it addresses.

Question 4 of 5.

What is the purpose of the policy review when an agent delivers a new life insurance policy to the insured?

A. to confirm that the insured understands all aspects of the policy

B. to give the agent a chance to sell another policy to the insured

C. to allow the insured to return the policy for a refund of the premium

D. to permit the parties to revise the policy provisions, terms, and conditions

Explanation: The policy review at delivery ensures the insured understands the policy, confirms it meets their needs, verifies correct document signing, and reduces the likelihood of returns during the "free-look" period, unlike selling another policy, allowing premium refunds, or revising policy terms which are not primary purposes.

Question 5 of 5.

The PRIMARY purpose of the Fair Credit Reporting Act is to

A. alert insurers regarding applicants who may have poor credit histories and may be adverse risks to the company

B. safeguard consumers from creditors who may use an applicant's credit history for purposes other than underwriting

C. forewarn an insurer about an applicant's recent bankruptcy

D. protect consumers using specific guidelines established by the Federal Government

Explanation: The Fair Credit Reporting Act regulates consumer credit information to protect consumers by ensuring report accuracy and access, establishing consumer rights rather than primarily benefiting insurers or creditors, though it impacts their use of credit histories.