CLU Life Insurance Legal Aspects 5

Question 1

The legal doctrine of subrogation, as it applies to life insurance, differs from property insurance because:

Accepted Answer

Life insurance is not a contract of indemnity, so subrogation generally does not apply

Answer

Because life insurance pays a stated sum rather than indemnifying an actual loss, it is not a contract of indemnity and subrogation rights do not apply—the beneficiary keeps both the proceeds and any wrongful death award.

Question 2

Under the Uniform Transfers to Minors Act (UTMA), when a minor is named as a life insurance beneficiary, proceeds paid to a custodian under UTMA must be distributed to the minor at the latest by age:

Accepted Answer

18 to 25, depending on state law

Answer

UTMA allows states to set the distribution age anywhere from 18 to 25, so the age at which a minor must receive custodial assets varies by state.

Question 3

Which provision in a life insurance policy requires the insurer to notify the policyowner before a policy lapses for non-payment of premium?

Accepted Answer

The notice of lapse (or advance notice) provision

Answer

Many states require insurers to send advance notice of an impending lapse to the policyowner (and sometimes a designee) before the policy terminates for non-payment.

Question 4

In the context of life insurance policy replacement, NAIC Model Regulation 187 primarily requires that:

Accepted Answer

Replacing agents compare the existing and proposed policies and provide a signed comparison to the applicant

Answer

NAIC Model Regulation 187 requires replacing producers to conduct a needs analysis, provide a signed comparison of existing and proposed coverage, and document that the replacement is in the client's best interest.

Question 5

For federal income tax purposes, life insurance death benefits paid to a named beneficiary in a lump sum are generally:

Accepted Answer

Excluded from the beneficiary's gross income under IRC Section 101(a)

Answer

IRC Section 101(a) excludes life insurance death benefits from the gross income of the beneficiary when received because of the insured's death, subject to limited exceptions.

CLU - Chartered Life Underwriter Practice Test

CLU - Chartered Life Underwriter Practice Test

CLU Life Insurance Legal Aspects 5