Free South Carolina Life insurance exam practice test

Correct answer: A. No less than the contract's cash surrender benefit

• A. Correct. Section 7H says that for variable annuity contracts providing cash surrender benefits, the death benefit shall be at least equal to the cash surrender benefit.
• B. Incorrect. Section 7H measures the minimum death benefit against the cash surrender benefit, not total premiums paid.
• C. Incorrect. Section 7H does not require a highest-anniversary-value death benefit; the floor is the cash surrender benefit.
• D. Incorrect. Section 7H sets the death benefit at no less than the cash surrender benefit and provides for no 10 percent reduction.

For variable annuity contracts that provide cash surrender benefits, the cash surrender benefit at any time prior to the annuity commencement date shall not be less than the minimum nonforfeiture amount computed after the request for surrender is received by the company. The death benefit under such contracts shall be at least equal to the cash surrender benefit.

Correct answer: D. Mutual funds holding stocks, bonds, money market assets, or a mix

• A. Incorrect. The SEC describes the typical investment options as mutual funds, not a declared-rate fixed account.
• B. Incorrect. The SEC describes the typical investment options as mutual funds, not index-linked accounts.
• C. Incorrect. The SEC describes the typical investment options as mutual funds, not individual stocks held by the owner.
• D. Correct. The SEC says the investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.

You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. [...] The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.

Correct answer: B. It is linked to an outside index, such as the S&P 500

• A. Incorrect. Interest in an indexed universal life policy is tied to an external index, not fixed at issue.
• B. Correct. The NAIC says interest earned in indexed universal life policies is tied to external investment indexes, and the NAIC universal life model defines an interest-indexed policy as one whose interest credits are linked to an external referent.
• C. Incorrect. The NAIC ties the interest to an external index, not to the insurer's surplus.
• D. Incorrect. Returns based on separate account funds describe variable products, not indexed universal life.

Indexed Universal Life [...] Interest earned in these policies is tied to external investment indexes, such as bonds or the S&P 500. [...] Interest-indexed universal life insurance policy [...] Any universal life insurance policy where the interest credits are linked to an external referent.

Correct answer: D. When she withdraws the money

• A. Incorrect. Taxing gains each year as earned is the opposite of the tax deferral the SEC describes.
• B. Incorrect. Policy anniversaries do not trigger tax; the SEC says tax is deferred until withdrawal.
• C. Incorrect. The free look period has nothing to do with when gains are taxed; tax is deferred until withdrawal.
• D. Correct. The SEC says variable annuities are tax-deferred, so no taxes are paid on income and investment gains until the money is withdrawn.

Variable annuities are tax-deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money.

Correct answer: C. 3% per annum

• A. Incorrect. 5% is not the rate named in Section 4B.
• B. Incorrect. 1% is not the fixed annual rate named in Section 4B.
• C. Correct. Section 4B sets the rate as the lesser of three percent (3%) per annum and the rate determined under the items that follow.
• D. Incorrect. 4% is not the rate named in Section 4B.

The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of three percent (3%) per annum and the following, which shall be specified in the contract if the interest rate will be reset:

Correct answer: C. The policy need not offer loans while on extended insurance

• A. Incorrect. The usual loan minimum does not apply here, because no loan provision is required under extended insurance.
• B. Incorrect. No 31-day notice applies here; no loan provision is required at all under extended insurance.
• C. Correct. Section 4E(8) states that a policy loan provision is not required if the policy is under the extended insurance nonforfeiture option.
• D. Incorrect. Section 4E(8) removes the loan requirement for a policy under extended insurance.

No policy loan provision is required if the policy is under extended insurance nonforfeiture option.

Correct answer: D. The grandchildren, taking by representation

• A. Incorrect. Parents are fourth in the order and take only if there are no children or descendants of deceased children.
• B. Incorrect. The executor or administrator comes after children, descendants, and parents in the order of precedence.
• C. Incorrect. The statute does not split proceeds between a parent and descendants; descendants of deceased children take ahead of parents.
• D. Correct. With no designated beneficiary and no widow or widower, the third class is the member's children and descendants of deceased children by representation.

First, to the beneficiary or beneficiaries as the member or former member may have designated by a writing received prior to death [...] Second, if there be no such beneficiary, to the widow or widower of such member or former member; [...] Third, if none of the above, to the child or children of such member or former member and descendants of deceased children by representation; [...] Fourth, if none of the above, to the parents of such member or former member or the survivor of them;

Correct answer: D. To her directly on her own behalf, fully discharging the insurer

• A. Incorrect. Section 1970(f) allows payment directly to a minor widow or widower; it does not require a guardian.
• B. Incorrect. Section 1970(f) does not call for an insurer trust; payment may go directly to the minor widow.
• C. Incorrect. Section 1970(f) allows payment to the minor widow on her own behalf, not to custodians.
• D. Correct. Section 1970(f) allows matured SGLI or VGLI benefits to be paid directly to a minor widow or widower on his or her own behalf, and that payment is a complete acquittance to the insurer.

Notwithstanding the provisions of any other law, payment of matured Servicemembers' Group Life Insurance or Veterans' Group Life Insurance benefits may be made directly to a minor widow or widower on his or her own behalf, and payment in such case shall be a complete acquittance to the insurer.

Correct answer: A. Any time within 2 years

• A. Correct. Section 4D(3) requires reinstatement at any time within two years from the date of default, on written application and satisfactory evidence of insurability, unless the cash surrender value has been paid or extended insurance has expired.
• B. Incorrect. Thirty-one days is the scheduled premium grace period, not the reinstatement period.
• C. Incorrect. Model 270 sets the reinstatement period at two years from the date of default.
• D. Incorrect. The model's reinstatement period is two years from default, not five years.

For scheduled premium policies, a provision that the policy will be reinstated at any time within two (2) years from the date of default upon the written application of the insured and evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired

Correct answer: B. A fair adjustment to premiums, benefits, or both

• A. Incorrect. Section 5E requires an adjustment when age is misstated.
• B. Correct. The provision must specify an equitable adjustment of premiums or benefits, or both, and must clearly state the method of adjustment.
• C. Incorrect. Section 5E calls for an equitable adjustment, not a refund of all premiums.
• D. Incorrect. Section 5E calls for an adjustment, not cancellation of coverage.

The policy shall contain a provision specifying an equitable adjustment of premiums or benefits, or both, to be made in the event the age of a person insured has been misstated. [...] The provision to contain a clear statement of the method of adjustment to be made.

Correct answer: B. No, the Act does not force anyone to agree to use them

• A. Incorrect. The Act preserves the choice; it does not require a person to agree to electronic records or signatures.
• B. Correct. The Act does not require any person to agree to use or accept electronic records or electronic signatures (with an exception only for certain governmental agency records).
• C. Incorrect. Coverage of interstate transactions does not create a duty to agree to electronic signatures.
• D. Incorrect. 7001(b)(2) has no dollar threshold.

This subchapter does not [...] require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency with respect to a record other than a contract to which it is a party.

Correct answer: D. The insurer will check her answers, and false ones could cost her coverage

• A. Incorrect. The guide places the duty on the applicant to tell the truth and review the application; it does not shift responsibility to the agent.
• B. Incorrect. The guide says the insurance company will check the answers and that false statements found after issue could reduce or cancel coverage; it does not limit this to claims.
• C. Incorrect. The guide does not describe correcting answers during the free look period; it says to review the application before signing.
• D. Correct. The guide says it is important to tell the truth on the application, that the insurer will check the answers, and that false statements found after the policy is issued could reduce or cancel coverage.

It's important to tell the truth on the application. The insurance company will check your answers so review the application before you sign. If the insurance company discovers false statements on your application after it issues your policy, it could reduce or cancel your coverage.

Correct answer: B. 30 days

• A. Incorrect. Model 613 gives a thirty-day return right in a replacement, not ten days.
• B. Correct. Section 5A(4) requires notice of the right to return the policy within thirty days of delivery and receive an unconditional full refund of premiums.
• C. Incorrect. Fifteen days is not the period in Section 5A(4).
• D. Incorrect. The replacement return period in Model 613 is thirty days.

Where a replacement is involved in the transaction, the replacing insurer shall: [...] Provide to the policy or contract owner notice of the right to return the policy or contract within thirty (30) days of the delivery of the contract and receive an unconditional full refund of all premiums or considerations paid on it, including any policy fees or charges

Correct answer: D. 15 days

• A. Incorrect. The statute gives the agency up to 15 days, not 5.
• B. Incorrect. The deadline is 15 days after the request is received, not 30.
• C. Incorrect. The deadline is 15 days after the request is received, not 45.
• D. Correct. 1681j(a)(2) requires the agency to provide it not later than 15 days after the date on which the request is received.

All consumer reporting agencies described in subsections (p) and (w) of section 1681a of this title shall make all disclosures pursuant to section 1681g of this title once during any 12-month period upon request of the consumer and without charge to the consumer. [...] A consumer reporting agency shall provide a consumer report under paragraph (1) not later than 15 days after the date on which the request is received under paragraph (1).

Correct answer: A. None, since the withdrawal is due to her disability

• A. Correct. The 10 percent additional tax does not apply to a distribution attributable to the taxpayer's becoming disabled within the meaning of 72(m)(7).
• B. Incorrect. Age 59½ is one exception, but the disability exception applies separately, so no additional tax is due.
• C. Incorrect. 72(q) has no repayment rule; the disability exception removes the additional tax.
• D. Incorrect. The disability exception removes the 10 percent additional tax entirely; it does not reduce it.

If any taxpayer receives any amount under an annuity contract, the taxpayer's tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income. [...] Paragraph (1) shall not apply to any distribution [...] attributable to the taxpayer's becoming disabled within the meaning of subsection (m)(7),

Correct answer: A. She may convert at any time, and no medical exam is required

• A. Correct. Section 1977(e) gives the right to convert at any time on written application and payment of premiums, and the individual policy is issued without medical examination.
• B. Incorrect. Section 1977(e) allows conversion at any time, not only within 31 days.
• C. Incorrect. Conversion is allowed at any time, and the policy is issued without medical examination.
• D. Incorrect. Section 1977(e) says the individual policy is issued without medical examination.

An insured under Veterans' Group Life Insurance shall have the right at any time to convert such insurance to an individual policy of life insurance upon written application for conversion made to the participating company the insured selects and payment of the required premiums. The individual policy will be issued without medical examination on a plan then currently written by such company

Correct answer: D. The viator

• A. Incorrect. Model #697 defines the viatical settlement provider as a person other than the viator; Harold, the owner who sells, is the viator.
• B. Incorrect. Model #697 names the policy owner who enters into a viatical settlement contract the viator.
• C. Incorrect. Harold is a party selling his own policy, which Model #697 defines as the viator.
• D. Correct. Model #697 defines the viator as the owner of a life insurance policy who enters or seeks to enter into a viatical settlement contract.

a written agreement between a viator and a viatical settlement provider [...] in return for the viator's [...] assignment, transfer, sale, devise or bequest of the death benefit or ownership of any portion of the insurance policy [...] the owner of a life insurance policy or a certificate holder under a group policy who resides in this state and enters or seeks to enter into a viatical settlement contract [...] a person, other than a viator, that enters into or effectuates a viatical settlement contract with a viator resident in this state

Correct answer: B. Governor appoints, with the Senate's consent

• A. Incorrect. The Director is appointed, not elected statewide.
• B. Correct. Section 38-1-20(19) defines the Director as the person appointed by the Governor upon the advice and consent of the Senate.
• C. Incorrect. The General Assembly does not choose the Director by joint vote; the Governor appoints with Senate consent.
• D. Incorrect. The Chief Justice plays no role in the appointment under this definition.

(19) "Director" means the person who is appointed by the Governor upon the advice and consent of the Senate and who is responsible for the operation and management of the department.

Correct answer: A. Before she starts using the assumed name

• A. Correct. Section 38-43-10(C) requires notice to the Director or designee prior to using the assumed name.
• B. Incorrect. Notice must come before use, not within 30 days after.
• C. Incorrect. Notice must come before use, not within 10 days after.
• D. Incorrect. Waiting until renewal is too late; notice is required before use.

(C) An insurance producer doing business under any name other than the producer's legal name is required to notify the director or his designee prior to using the assumed name.

Correct answer: C. No exam is needed for lines she held in her former state

• A. Incorrect. The statute does not require the state portion for lines previously held.
• B. Incorrect. The 90 days is the time to apply, not a time to pass an exam.
• C. Correct. Section 38-43-101(B) says an examination is not required of a person to obtain any line of insurance previously held in another state.
• D. Incorrect. Her former state does not waive South Carolina's exam; the statute itself removes the requirement.

(B) A person licensed as an insurance producer in another state who moves to this State shall make application within ninety days of establishing legal residence to become a resident licensee pursuant to Section 38-43-100. An examination is not required of a person to obtain any line of insurance previously held in another state.

Correct answer: C. At least five years

• A. Incorrect. The minimum is five years, not three.
• B. Incorrect. The minimum is five years, not seven.
• C. Correct. Section 38-43-250 requires the records to be kept for a minimum of five years.
• D. Incorrect. The minimum is five years, not ten.

These records must be kept for a minimum of five years.

Correct answer: C. with intent to deceive

• A. Incorrect. The section applies to any person, not only agents.
• B. Incorrect. The section does not require the insurer to become insolvent.
• C. Correct. The prohibition covers any false statement of financial condition of an insurer filed or circulated with intent to deceive.
• D. Incorrect. Filing with an official is covered; the section is not limited to advertising.

(1) No person may file with any supervisory or other public official, or make, publish, disseminate, circulate, or deliver to any person, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or delivered to any person or placed before the public, any false statement of financial condition of an insurer with intent to deceive.

Correct answer: A. 3 years

• A. Correct. S.C. Code 38-63-220(j) allows reinstatement at any time within three years after the date of default.
• B. Incorrect. The statute allows three years, not one.
• C. Incorrect. The statute allows three years, not two.
• D. Incorrect. The statute allows three years, not five.

All individual life insurance policies must contain in substance the following: [...] (j) a provision that the policy may be reinstated at any time within three years after the date of default in the payment of any premium, unless the policy has been surrendered for its cash value or unless the extended term insurance, if any, has expired, upon evidence of insurability satisfactory to the insurer and the payment of all overdue premiums and payment (or within the limits permitted by the then cash value of the policy reinstatement) of any other indebtedness to the insurer upon the policy with interest as to both premiums and indebtedness at a rate not exceeding eight percent a year compounded annually.

Correct answer: D. Send the Appendix B notice with the policy

• A. Incorrect. The regulation provides the Appendix B notice, not rejection.
• B. Incorrect. Direct response sales involve no producer reading a notice.
• C. Incorrect. The regulation covers a failure to respond by sending the notice with the policy.
• D. Correct. If the applicant fails to respond to the statement, the insurer must send, with the policy, a notice regarding replacement in Appendix B.

A. In the case of an application that is initiated as a result of a direct response solicitation, the insurer shall require, with or as part of each completed application for a policy or contract, a statement asking whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change an existing policy or contract. If the applicant indicates a replacement or change is not intended or if the applicant fails to respond to the statement, the insurer shall send the applicant, with the policy or contract, a notice regarding replacement in Appendix B, or other substantially similar form approved by the director.

Correct answer: C. 31 days

• A. Incorrect. The statute says thirty-one days, not ten.
• B. Incorrect. The statute says thirty-one days, not thirty.
• C. Correct. The policyholder is entitled to a grace period of thirty-one days for any premium due except the first.
• D. Incorrect. The statute says thirty-one days, not sixty.

No policy of group life insurance may be delivered in this State unless it contains in substance the following provisions [...] (1) A provision that the policyholder is entitled to a grace period of thirty-one days for the payment of any premium due except the first, during which grace period the death benefit coverage continues in force, unless the policyholder has given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy.