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

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:The licensing of insurance agents ensures professional competency and ethical conduct:

Licensuredemonstrates qualifications (B)required to represent insurers and serve clients.

Maryland does not impose limits on the number of licensed agents, invalidating (A).

Monitoring sales activity (C) and rate regulation (D) are distinct regulatory functions.

References: Maryland Insurance Administration Licensing Requirements.

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: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: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:Maryland law requires insurance licensees to complete continuing education (CE) everytwo years (B)to maintain their licenses:

CE ensures that agents remain informed about current laws, practices, and products.

Each year (A):Too frequent for most state requirements, including Maryland.

Every three years (C):Exceeds Maryland’s regulatory timeframe.

No requirement (D):Incorrect, as CE is mandatory for license renewal.

References:Maryland Insurance Code §10-116, Continuing Education Guidelines, and COMAR 31.03.02.

Comprehensive and Detailed Step by Step Explanation:Aflexible premium fixed annuityis designed to allow policyholders flexibility in premium payments while providing guaranteed growth.

Flexible deposits:Policyholders can make variable contributions based on their financial situation.

Deferred taxation:Earnings grow tax-deferred until withdrawal.

Guaranteed minimum interest rate:Fixed annuities offer this feature to protect against market downturns.

Death proceeds equal to cash value:Upon death, beneficiaries typically receive the accumulated cash value.

Other Options:

Adjustable whole life policy (A):Features adjustable premiums but lacks deferred taxation and guaranteed rates.

Deferred annuity (B):Generic and does not specify the features of fixed annuities.

Universal life (D):Provides more flexibility but differs in guaranteed returns.

References:Maryland Annuity Guidelines, COMAR 31.09.08, and Tax-Deferred Financial Product Regulations.

Comprehensive and Detailed Step by Step Explanation:The principle ofestoppelprevents a party from asserting rights or enforcing terms if their prior actions contradicted such enforcement.

Estoppel (C):If the insurer knowingly disregards a policy provision (e.g., a late premium payment), they may be barred from enforcing it later if the policyholder relied on the prior inaction.

Adhesion (A):Refers to contracts where terms are dictated by one party (e.g., the insurer), not applicable here.

Waiver (B):Occurs when an insurer voluntarily relinquishes a known right but does not necessarily create future obligations like estoppel does.

Subrogation (D):Involves transferring the insured’s claim rights to the insurer after a loss, unrelated to this scenario.

References: Maryland Legal Doctrines on Insurance Enforcement and Contractual Estoppel.

Comprehensive and Detailed Step by Step Explanation:The Medical Information Bureau (MIB) collects and shares medical information among member insurance companies to assess risk:

Member insurance companies (B)are the only entities authorized to access MIB data, ensuring confidentiality and appropriate use.

Employment agencies (A)andemployers (C)cannot access MIB data.

Physicians (D)are also excluded, as MIB serves the insurance underwriting process exclusively.

References: Maryland Insurance Privacy Regulations and MIB Operational Guidelines.

Comprehensive and Detailed Step by Step Explanation:

Participating life insurance policies are typically issued by mutual insurers and allow policyholders to:

Receive dividends (A), which are excess profits returned to policyholders.

Policyholders are not assessed for losses (B); insurers absorb losses.

The insured and policyowner can be separate entities, invalidating (C).

Mutual insurers, not stock companies, issue most participating policies, making (D) incorrect.

References: Maryland Mutual Insurance Practices and Participating Policy Guidelines.

Comprehensive and Detailed Step by Step Explanation:Group life insurance policies in Maryland typically include a conversion privilege allowing former employees to convert group coverage to an individual policy within a 31-day period after termination, regardless of premium payment status.

$50,000 under the group plan (A):Correct. During the 31-day conversion period, the original group coverage remains in effect. If the insured dies during this time, the death benefit is paid under the group plan.

$50,000 under the new policy (B and C):Incorrect, as the conversion policy does not become effective until the first premium is paid.

Nothing at all (D):Incorrect, as coverage is still active during the conversion period.

References:Maryland Insurance Article §15-403, Group Life Insurance Conversion Privileges, and COMAR 31.09.05.

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:Maryland law mandates that life insurance policies include aclear and concise description of the policyon the first page to ensure transparency and understanding for policyholders.

Legible and brief description (A):Correct. This ensures the buyer can quickly identify key terms and benefits of the policy.

Notary seal (B):Not required for delivering life insurance policies.

Premium coupon book (C):Optional, often replaced with digital billing methods.

Financial statement of the insurer (D):Not required in the policy itself, although insurers must provide financial stability information upon request.

References:Maryland Insurance Article §16-206, COMAR 31.09.04, and Policy Form Filing Standards.

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: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: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:Thetaxable portion of benefit payments under a life income settlement optiondepends on the beneficiary’s life expectancy:

Life expectancy impacts (B)how the payments are taxed, as longer payment durations result in more taxable income over time.

Thepolicy’s inclusion in the estate (A)is unrelated to the beneficiary’s life expectancy.

Thetotal death benefit (C)is fixed and not influenced by the beneficiary’s lifespan.

Premium rates (D)are determined during underwriting, not affected by beneficiary life expectancy.

References: Maryland Life Insurance Taxation Guidelines and IRS Settlement Option Rules.

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: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: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:When a group policy is issued to a labor union, Maryland law requires that eligibility criteria ensure fairness and inclusivity:

All of the members of the union (B):Eligible members must be treated equally under the group policy. Coverage cannot exclude individuals based on factors like age or health, provided they are active members.

Members of any union (A):Policies are issued to specific unions, not broadly.

Only members under age 65 (C):Age discrimination is prohibited unless specifically linked to policy provisions.

Healthy members (D):Group policies cannot discriminate based on health status.

References:Maryland Group Insurance Regulations, COMAR 31.09.06, and Labor Union Group Policies Guidelines.

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:In Maryland, the replacement of life insurance policies requires safeguards to protect policyholders.

TheImportant Notice Replacement of Life Insurance or Annuitiesform must be signed byboth the applicant and the insurance producer (B)to ensure informed consent and regulatory compliance.

The applicant only (A)does not suffice, as producer acknowledgment is essential.

The producer only (C)lacks the policyholder’s agreement.

An officer of the insurer (D)does not participate in this process.

References: Maryland Replacement of Life Insurance Regulations, COMAR 31.09.05.

Comprehensive and Detailed Step by Step Explanation:Insurance producers must uphold ethical and legal practices when conducting business.

Allowing an applicant to sign a blank or incomplete application (B):This is strictly prohibited, as it creates opportunities for fraud, disputes, and incorrect information being submitted to insurers.

Selling insurance to family members (A):Permissible under Maryland law as long as transactions comply with standard regulations.

Countersigning a policy (C):Required in some cases for validating contracts sold in Maryland.

Splitting commissions with a licensed nonresident producer (D):Permissible if both parties are licensed and participate in the sale.

References:Maryland Producer Code of Conduct, COMAR 31.03.13, and Maryland InsuranceEthics Guidelines.