Chapter 2

The benefit is received tax free.

A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?

monthly

All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?

Either on the date of the application or the date of the medical exam (whichever occurs last)

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

No, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insurers is an illegal business practice.

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

Higher frequency of premium payments will result in higher overall premium

How does the premium mode affect the total premium paid for insurance for the year?

The existence of insurable interest between the applicant and the insured

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

It will decrease

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

The predicted needs of a family after the premature death of the insured

In calculating the amount of life insurance needed, what is the needs approach based on?

Estate conservation

Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?

Life expectancy and the death rates for specific groups of individuals

Mortality tables are used by insurance companies to predict what?

Presentations of nonguaranteed elements of the policy

What are illustrations in a life insurance policy?

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner

What are some of the main instances when insurable interest exists in life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

What are the personal uses of life insurance?

Mortality, interest and expense

What are the three factors that determine the premium for a particular life insurance policy?

Policy summary

What document describes the specific information about a policy?

Availability of cash value

What does liquidity mean in a life insurance policy?

Medical information about the prospective insured

What is included in Part 2 of a life insurance application?

The insurance company

Who is responsible for the contents of insurance advertisements?

The employer

Who is the beneficiary on a key-person life insurance policy?

All insurers authorized to write insurance within a state

Who must be a member of insurance guaranty associations?

The policyowner

Who must have insurable interest in the insured?

The process of risk selection and classification

What is insurance underwriting?

Risk selection

What is the main responsibility of a company's underwriting unit?

To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers

What is the purpose of insurance guaranty associations?

To minimize the risk of financial loss caused by the death of a key employee

What is the purpose of key person insurance?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

What is the purpose of the agent's report during the application process?

Premium

What is the term that describes the frequency and the amount of the premium payment?

Premium

What term describes the fee a person pays an insurance company to receive coverage?

Permanent insurance (usually, whole life)

What type of life insurance offers an applicant a cash value element?

Investigative consumer report

What type of report provides information about the applicant's hobbies, habits and financial status?

At the time of application

When must insurable interest exist in a life insurance policy?

At the time of the policy delivery

When must the policy summary for a life insurance policy be delivered to the policyowner?

The insured's current assets, liabilities and survivor's needs

When planning for survivor protection in life insurance, what needs to be considered?