New Jersey Life & Health Insurance Exam — All Questions

In an executive bonus (Section 162) plan, the employer:

• a.Owns the life insurance policy outright and names itself as the beneficiary, while the executive simply agrees to be the insured person
• b.Pays a bonus, deductible to the employer and taxable to the executive, that the executive uses to pay premiums on a policy they own✓
• c.Provides no real benefit to the executive
• d.Cannot deduct any part of the arrangement

In a Section 162 executive bonus plan, the employer pays a deductible bonus (taxable to the executive) and the executive owns the policy and pays its premiums. The employer does not own the policy.

A split-dollar life insurance arrangement is:

• a.An agreement in which an employer and employee share the costs and benefits of a life policy, such as premiums, cash value, and death benefit✓
• b.A type of deferred annuity
• c.A term insurance rider that an employer attaches to the executive's personal life insurance policy in order to provide extra temporary death benefit at a low cost
• d.A government insurance program

Split-dollar is an arrangement between an employer and employee (or two parties) to split the premium costs and policy benefits of a life policy. It is not a government program, annuity, or rider.

Which body is responsible for licensing life and health insurance producers in New Jersey?

• a.A private national producer association
• b.The New Jersey Department of Banking and Insurance (DOBI)✓
• c.A federal department of insurance
• d.The New Jersey attorney general's consumer bureau

Producers in New Jersey are licensed and disciplined by the New Jersey Department of Banking and Insurance (DOBI). Licensing is a state function; there is no federal insurance-licensing department, and private associations do not issue government licenses.

The New Jersey Department of Banking and Insurance is headed by which official?

• a.A board of insurance company executives
• b.A federal insurance commissioner
• c.A Commissioner of Banking and Insurance appointed by the Governor✓
• d.A judge of the state supreme court

The regulator is led by a Commissioner of Banking and Insurance appointed by the Governor. Knowing how the state's top insurance official is chosen -- elected or appointed -- is a common New Jersey exam point.

In New Jersey, what is the effect of an insurer 'appointing' a licensed producer?

• a.It authorizes the producer to represent and transact business for that insurer✓
• b.It replaces the need to hold a producer license
• c.It guarantees the producer a minimum commission set by the state
• d.It exempts the producer from continuing education

An appointment is the insurer's authorization for a licensed producer to represent it, filed with the regulator. It does not replace the license itself, set commissions, or waive continuing education.

How does a New Jersey resident producer generally keep a life and health license in force?

• a.By selling a minimum dollar amount of policies each year
• b.By renewing on schedule and completing required continuing education, including ethics✓
• c.By re-taking the full state licensing exam every year
• d.By obtaining a new appointment from the guaranty association

New Jersey conditions license renewal on timely renewal plus continuing education that includes an ethics component. There is no sales quota, no annual re-examination, and the guaranty association does not appoint producers.

What is the purpose of the free-look (right-to-examine) provision required on New Jersey life policies?

• a.It lets the insurer cancel the policy at any time in the first year
• b.It lets the owner return the policy within the stated period for a full premium refund✓
• c.It extends the contestable period to ten years
• d.It guarantees the policy can never lapse

The free-look period lets the policyowner examine the issued policy and return it during the stated window for a full refund if not satisfied. It is a consumer-protection right, not an insurer cancellation right, and it does not change the contestable period or prevent lapse.

When a new policy is sold to replace existing life insurance in New Jersey, replacement rules primarily require the producer to:

• a.Guarantee the new policy will cost less
• b.Obtain approval from the guaranty association
• c.Provide required notices and a fair comparison so the client can decide knowingly✓
• d.Cancel the old policy before the new one is issued

Replacement regulations protect consumers by requiring disclosure, notice, and a fair comparison of old and new coverage. They do not guarantee lower cost, involve the guaranty association, or require canceling old coverage before the new policy is in force.

How may a New Jersey producer use the New Jersey Life and Health Insurance Guaranty Association in a sales presentation?

• a.As a selling point that the state insures the policy
• b.It may not be used as an inducement to buy insurance✓
• c.As a substitute for disclosing policy limitations
• d.To promise the client cannot lose any money

The guaranty association is a statutory safety net that pays certain claims, within limits, if a member insurer becomes insolvent. State law prohibits producers from advertising or using it as an inducement to purchase insurance.

A New Jersey producer gives a client false information about a competitor's policy to convince the client to replace it. This prohibited practice is best described as:

• a.Rebating
• b.Sliding
• c.Twisting✓
• d.Commingling

Twisting is using misrepresentation or incomplete comparisons to induce a policyowner to lapse or replace a policy to their detriment. Rebating involves unlawful inducements, sliding involves adding unauthorized coverage, and commingling involves mishandling client funds.

Under New Jersey law, offering an applicant cash or a gift not specified in the policy as an inducement to buy is:

• a.Rebating, which is prohibited✓
• b.Permitted if the client asks for it
• c.Required to be reported to the guaranty association
• d.Allowed for group policies only

New Jersey, like most states, prohibits rebating -- giving inducements not stated in the policy. Both offering and accepting an unlawful rebate can be penalized; a client's request does not make it lawful.

A New Jersey producer collects premium from a client. Under the producer's fiduciary duty, those funds must be:

• a.Deposited into the producer's personal account for convenience
• b.Held in trust for the insurer or client and remitted promptly, never commingled✓
• c.Used to pay the producer's business expenses first
• d.Kept by the producer until the policy's free-look period ends

Premiums are trust funds held in a fiduciary capacity. They must be kept separate and remitted promptly to the insurer; using them personally or commingling them with the producer's own money is a serious violation.