Chapter 2- Life Basics -A.D Banker
When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: a. Human life value b. The DIME method of insurance planning c. Needs analysis d. The NAIC Model
c Needs analysis
An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, EXCEPT: a. Collecting the premium b. Obtaining a Statement of Good Health c. Explain the benefits, ratings, riders, and exclusions d. Perform a medical exam
d Perform a medical exam
Classification of Policies
group, individual, permanent, term, participating, non-participating, fixed, and variable
substandard
higher exposure/higher than average
Participating policy
issue by mutual insurer dividends are consider a return of excess premiums and are not guaranteed and non taxable policy owners has dividends to choose from
Individual Policy
it may provide cash accumulation or a estate Coverage on one named insured, may be of any classification or type, and the policyowner receives a policy and maintains control
Term of Policy
lowest premium outlay large needs but limited cash provides temporary coverage may cover short term needs has no cash value or equity benefit must be level, increasing or decreasing
Permanent Policy
provides level premiums and face value Premiums higher than term insurances protections continues to age 100 or until surrender provides protection for beneficiary as cash accumulation Premium higher than term when other factors equal, protection continues to age 100 or until surrendered, and provides cash accumulation
The Needs Analysis Approach always assumes the death of the insured to be: A Immediate B Within 10 years of the assessment C At age 100 D Within 20 years of the assessment
A Immediate The Needs Analysis Approach always assumes the death of the individual to be immediate, and assesses various factors to calculate all financial needs caused by an immediate death.
Which of the following would be considered a good result from an underwriter's action when an individual Life Insurance Policy is issued as applied for? A Issued standard B Issued rated-up C Application is rejected D Issued with exclusions or limitations
A Issued standard To be issued standard is the most favorable action listed, as the coverage requested is issued at the rate that was quoted.
Why have many states prohibited STOLI transactions? A It is a violation of the insurable interest rule B The amount the policyowner obtains is too little in relationship to the death benefit C Consumers are not reporting the cash received as taxable income D Mostly the investors are not licensed to conduct such a transaction
A It is a violation of the insurable interest rule
All of the following are acceptable methods of policy delivery, except: A Leaving it with a neighbor if they are not at home at their scheduled delivery appointment time B Delivered by reasonable means, as determined by the Commissioner, Director, or Superintendent of Insurance C Registered or certified mail with a signed receipt of delivery D Personal delivery, with signed receipt of delivery
A Leaving it with a neighbor if they are not at home at their scheduled delivery appointment time Policy delivery will be accomplished by: personal delivery, with signed receipt of delivery, registered or certified mail with a signed receipt of delivery, deliver by reasonable means, as determined by the Commissioner, Director, or Superintendent of Insurance, but never being left with a neighbor.
California law requires that the purchaser of life insurance be provided with a copy of a Buyer's Guide to Life Insurance produced by: A The NAIC B The Insurance Commissioner's office C The insurer D The Federal Department of Insurance
A The NAIC California law requires that the purchaser of life insurance be provided with a copy of the NAIC Buyer's Guide to Life Insurance.
What information must appear on the policy summary provided to a life insurance client? A The producer's name and address B The producer's name and home address C A copy of the producer's license D The producer's agency's name and address
A The producer's name and address The producer's name and address along with the address of the insurance company must appear on the policy summary.
Which of the following is used by an insurer to collect information from the applicant/insured for underwriting purposes? A A rider B An application C A receipt D An amendment
B An application
In a replacement transaction, all of the following are insurer duties and responsibilities, except: A Maintain copies of the information provided by the producer B Contact the client to assure that they understand the transaction C Notify the existing insurer D Abide by the state required holding period for all replacement documentation
B Contact the client to assure that they understand the transaction
The income-earning ability lost to dependents by the insured's premature death is a way to evaluate an individual's insurance needs. This method is known as the: A Future Earning Value Approach B Human Life Value Approach C Family Values Approach D Needs Analysis Approach
B Human Life Value Approach The objective of the Human Life Value Approach is to provide the proper amount of coverage as determined by the value of the insured individual to his/her dependents.
A producer must include their name and address on which of the following? A Any policy amendment or rider B An insurance policy's cover page C A policy summary D A buyer's guide
C A policy summary Only a policy summary requires that the producer disclose their name and address
A (an)_________ is used when the insured's age, medical history, or amount of coverage does not require a medical exam for underwriting purposes. A Agent's report B Inspection report C Short form D Nonmedical application
D Nonmedical application
Which of the following is not a purpose of the life insurance and annuities replacement rules? A To protect the interests of life insurance and annuity purchasers from the loss of benefits B To reduce the opportunity for misrepresentation C To regulate the activities of agents and insurers and establish penalties for failure to comply with the rules D To assure that the producer receives enough information to make an informed recommendation
D To assure that the producer receives enough information to make an informed recommendation The requirements for the replacement of life insurance and annuities contracts have been established to assure that the purchaser receives enough information to make an informed decision.
The Needs Analysis Approach
The Needs Analysis Approach always assumes the death of the individual to be immediate, and assesses various factors to calculate all financial needs caused by an immediate death.
Who is required to sign a completed application? a. The producer and applicant b. The beneficiary c. Any insurance company officer d. The producer's manager
a The producer and applicant
Fixed policy
a policy with fixed amount of coverage, benefits and premiums (Whole life and Term) Specified amount of coverage, benefits and premium with no inflation protection
The Replacing Insurer's responsibilities include:
- upon receiving proper notification with the new application, the replacing insurer must notify the existing insurer of the planned replacement, maintain copies of the information regarding replacement for a specified period of time as mandated by the state.
standard
Average risk/Same health condition, occupation as reflected in the mortality table
Part I of the application
General info Sex DOB OCCUPATION residence
Non- participating policy
Issued by stock insurers and do not pay policy dividends
Group policy
Master policy given to the sponsor the employer and the employees get a certificate Master policy issued to plan sponsor and typically written as annual renewable term
Net premium is calculated:
Mortality - Interest
Gross premium is calculated
Mortality - Interest + Expenses or Net premium + Expenses
Self-funded employee health care benefit plans which are not fully insured are governed under which of the following federal acts? a. FICA b. ERISA c. COBRA d. FCRA
d. FCRA
The mortality rate is based on mortality tables which show life expectancy and the death rate per _______ people living in the U.S. A 1,000 B 100 C 100,000 D 10,000
A 1,000 Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.
When replacement is involved, the replacing insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within how many days from the date of policy delivery? A 30 B 20 C 15 D 10
A 30 When replacement is involved, the insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within 30 days from the date of policy delivery
Each agent who accepts an application for life insurance or annuity that involves replacement of any existing life or annuity policy must submit to the insurer: A A Notice Regarding Replacement B A comparative summary of the two companies and polices involved in the transaction C All sales literature used during the solicitation D A Buyer's Guide
A A Notice Regarding Replacement
What is the name of the document that shows the cash accumulation in a life policy over a minimum of 20 years on both a 'guaranteed' (maximum cost of insurance, minimum interest credits) and a 'nonguaranteed' (current cost of insurance and interest credits assumptions) basis? A A basic life insurance illustration B A life insurance policy C An in-force illustration D Sales literature
A A basic life insurance illustration
Regarding insurable interest which one of the following is false? A An insurable interest exists in cases where a financial or economic loss by the insured results in the event that the policy owner dies B A creditor has an insurable interest in one of their debtors C An individual has an insurable interest in his or her own self D A parent has an insurable interest in his/her son or daughter
A An insurable interest exists in cases where a financial or economic loss by the INSURED results in the event that the policy owner dies An individual has an insurable interest in his or her own self and in cases where a financial or economic loss by the OWNER results in the event that the insured dies.
The name used to indicate the insured's age at time of policy renewal is the ________ age. A Attained B Issue C Effective D Legal
A Attained
Whose signature is not required on a life insurance application? A Beneficiary B Policyowner C Insured D Producer
A Beneficiary The policyowner has the right to name and change beneficiaries. Beneficiaries do not sign on the application as beneficiaries.
A personal use of life insurance does which of the following? A Creates an immediate estate B Creates an insurable interest C Compensates a business for the death of a key person D Provides protection against living too long
A Creates an immediate estate
What is the difference between net premium and gross premium? A Expense loading B Interest C Mortality costs D Commissions
A Expense loading Net premium + expense loading = gross premium.
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party. A FCRA B NAIC C SEC D FINRA
A FCRA The applicant must be made aware of any information gathering and has rights provided under the FCRA. --- Fair Credit Reporting Act (FCRA)
Which of the following is included in Part II of a Life Insurance Application? A Family member's age and cause of death B Marital status C Gender D Date of birth
A Family member's age and cause of death Part II of the application contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of family members and causes of death of deceased relatives.
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the: A Notice Regarding Replacement B Sales proposal C Conservation statement D Policy summary
A Notice Regarding Replacement
When a producer receives an application for life insurance that is completed and signed, but without premium payment, when does coverage start? A On the date the policy is delivered and premium collected B On the date the application is received C 30 days after the application is received D At the end of the free-look period
A On the date the policy is delivered and premium collected
B was 42 when the life insurance policy was issued. 42 is referred to as the ______ age of the policy. A Original B Effective C Expired D Attained
A Original
Which of the following is not a major source of underwriting information? A Past life insurance owned B Medical exams C The application D Attending Physician's Statement
A Past life insurance owned
What should a producer do if the policy applied for is issued at a higher rate than was expected? A Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium B Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium C Immediately return the policy to the home office because the applicant will never accept it D Have the home office re-issue the policy for a reduced amount of coverage for the original premium quoted so that it will be easier to explain at time of delivery
A Personally deliver the policy, explain the rating, reinforce the value of the policy, and collect the additional premium
The replacement rules apply to which one of the following? A Proposed life insurance that is to replace life insurance issued by a different insurer B Conversion of an existing policy C Credit life insurance D Group life insurance or annuities
A Proposed life insurance that is to replace life insurance issued by a different insurer Replacement rules does not apply to credit life insurance, group life insurance or annuities, conversion of an existing policy, or proposed life insurance that is to replace life insurance issued by the same insurer
In a replacement sale all of the following are producer responsibilities, except: A Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction B Provide copies of the notice regarding replacement and any sales proposals to the applicant and replacing insurer C Obtain information regarding the in force policies including name and policy numbers D Complete a notice regarding replacement with applicant and producer signatures
A Reimburse the applicant for any surrender charges that may be incurred as a result of the transaction
A completed application and a check were submitted by a producer to an insurer on behalf of the applicant. A conditional receipt was given. The insured died prior to the insurer issuing the policy, however the check was no good. What is the result? A Since the check did not clear the bank there is no coverage B The claim will be paid only if it can be shown that the funds were in the account at the time the check was written and given to the producer C The amount of the premium will be deducted from the claim payment D The insurer will pay the claim once they receive a new check
A Since the check did not clear the bank there is no coverage The receipt states the conditions under which a policy will go into effect. No coverage will be in effect if a premium has not been paid.
Regarding completing the application and field underwriting of a life insurance policy, which one of the following is false? A The life insurance application is the last source of information for an insurer underwriting a potential risk B An application is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application C It is the producer's responsibility to probe beyond the stated questions contained in the application; this is known as field underwriting D If a copy of the life insurance application is attached to the policy it becomes part of the entire contract
A The life insurance application is the last source of information for an insurer underwriting a potential risk The life insurance application is the PRIMARY source of information for an insurer underwriting a potential risk
The HIV Consent Form specifies which types of individuals may receive __________. A The test results B The name of the medical lab used and lab work C The amount and type of policy applied for D The underwriter's decision
A The test results The HIV Consent Form specifically addresses who may receive test results, most often it is the insured's doctor.
An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct: A There is no coverage B Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied C Temporary term insurance is used to pay the death benefit D Coverage is effective on the date of the application
A There is no coverage
Which of the following describes group life insurance? A A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates B A single policy issued to a business to cover the lives of employees C A single policy issued to an individual covering husband, wife and children D Multiple policies issued to an employer to cover a specific group of executives
B A single policy issued to a business to cover the lives of employees
Which underwriting source is primarily used when an application reveals conditions for which more medical information is required? A Medical Information Bureau Report B Attending Physician's Statement C Agent's Report D Inspection Report
B Attending Physician's Statement The Attending Physician's Statement would be ordered by the underwriter to secure the additional medical information.
All of the following signatures would be required on a life insurance application for an adult, except that of the: A Producer B Beneficiary C Insured D Applicant
B Beneficiary
Premiums for life insurance are based on all of the following, except: A Interest B Expected morbidity C Expected mortality D Expenses
B Expected morbidity
Which of the following statements correctly describes the difference between gross premium and net premium? A Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance B Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses C Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on D Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses
B Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses Gross premium is the total amount a person pays the insurer for his/her coverage. Net premium, sometimes called the "pure premium," does not include interest earnings or business expenses of the insurer.
An insurance plan owned by an employer, creditor or association, providing coverage for the employees, debtors, or members, refers to which of the following? A Ordinary Life Insurance B Group Life Insurance C Industrial Life Insurance D Individual Life Insurance
B Group Life Insurance A Group Life Insurance Policy is owned by the group sponsor (e.g. employer, association). Covered individuals receive Certificates of Insurance.
During the application process, a mistake is made by the applicant in answering one of the health questions and needs to be corrected. What is the best way to go about this? A The producer should simply make a note in the agent report section of the application describing the error and what the true response was supposed to be B Have the applicant initial the change or start over with a completely new application C Submit the application as is and see if the insurance company catches the mistake D The licensed producer has the applicant's implied authority to make any necessary changes to the application on the applicant's behalf
B Have the applicant initial the change or start over with a completely new application
The Needs Analysis Approach always assumes the death of the insured to be: A Within 20 years of the assessment B Immediate C Within 10 years of the assessment D At age 100
B Immediate
Why have many states prohibited STOLI transactions? A Mostly the investors are not licensed to conduct such a transaction B It is a violation of the insurable interest rule C Consumers are not reporting the cash received as taxable income D The amount the policyowner obtains is too little in relationship to the death benefi
B It is a violation of the insurable interest rule The practice of STOLI has resulted in fraudulent abuses causing many states to outlaw STOLI policies due to a lack of insurable interest.
Mortality cost ______ interest (investment earnings) = equals the pure rate. A Multiplied by B Minus C Plus D Divided by
B Minus Mortality cost minus interest (investment return) = net premium (pure rate).
In order for an insurance company to determine if it will issue a policy, what document must always be submitted for review? A A copy of the applicant's driver's license B The application C A conditional coverage receipt D A premium check
B The application The application is what the insurer's home office underwriters use to start their determination of the applicant's insurability in regard to the coverage applied for.
If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be? A Obtain copies of any and all medical records and order a medical exam B The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission C Hold onto the policy until the client recovers from their condition, then deliver the policy D Field underwrite in order to determine the additional premium that needs to be collected
B The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission
What information must appear on the policy summary provided to a life insurance client? A A copy of the producer's license B The producer's name and address C The producer's name and home address D The producer's agency's name and address
B The producer's name and address
In California, in a replacement situation, it is recommended that an existing policy not be terminated until: A The existing policy has been in force for at least 5 years B The replacing policy is issued and delivered C The application for the replacing policy has been completed D The existing policy has been in force for at least 10 years
B The replacing policy is issued and delivered In a replacement transaction it would be wise not to terminate an existing policy until the replacing policy is issued and delivered just in case that there are issues with insurability with the replacing insurer
California law requires that the purchaser of life insurance be provided with a copy of the Buyer's Guide to Life Insurance not later than: A The first policy anniversary B The time of policy delivery C The date of application D One month following the first premium due date
B The time of policy delivery California law requires that the purchaser of life insurance be provided with a copy of the NAIC Buyer's Guide to Life Insurance not later than the time of policy delivery.
What is the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid? A They must work together B There must be an insurable interest C They must be married D They must be dating
B There must be an insurable interest
Every insurer and life agent offering for sale individual life insurance policies, or individual annuity contracts that are issued for delivery to senior citizens in California with the use of non-preprinted illustrations of non-guaranteed values must disclose on those illustrations, or on an attached cover sheet, which one of the following statements? A Make sure that you are dealing with a licensed agent/producer who has a professional industry recognized designation B This is an illustration only which is not intended to predict actual performance, therefore interest rates, dividends, or values that are contained herein are not guaranteed, except for those items clearly labeled as guaranteed C Contact the Insurance Commissioner to find out what the actual performance of similar policies have been in the past D This illustration is unique in that it is custom designed to meet your particular needs and objectives so comparisons with other company's policies is not recommended CORRECT!
B This is an illustration only which is not intended to predict actual performance, therefore interest rates, dividends, or values that are contained herein are not guaranteed, except for those items clearly labeled as guaranteed
Life insurance policy illustration requirements apply to which one of the following? A Individual and group annuity contracts B Traditional whole life insurance C Credit life insurance D Variable life insurance
B Traditional whole life insurance Policy illustration requirements apply to all group and individual life insurance policies, except: Variable life insurance, Individual and group annuity contracts, Credit life insurance, Life insurance policies with no illustrated death benefits on any individual exceeding $10,000.
Through the purchase of insurance, a person is essentially: A Eliminating risk B Transferring risk C Avoiding risk D Retaining risk
B Transferring risk
Premiums paid in advance are considered what type of premiums until coverage has been provided? A Deposit B Unearned C Earned D Residual
B Unearned Premiums paid in advance are considered unearned premiums until coverage has been provided, and the insurer has 'earned' the right to retain the premium.
Expense loading ___________ from company to company. A Is the same B Varies C Is lower D Is higher
B Varies Expense loading is a cost area that can vary from company to company based on its operations and efficiency. These factors are used by all insurers.
If a policy is not approved as applied for, the insurer may make: A An acceptance to the applicant/insured B An offer to the insured C A 'counteroffer' to the applicant D The producer redo the application to get the policy issued as originally applied for
C A 'counteroffer' to the applicant
At the time of a life insurance policy delivery, a producer must provide which of the following? A A copy of the insurance company's most recent annual report B A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance C A copy of the illustration that matches the policy for which it was approved D A copy of the fact finding data collected on the initial sales appointment
C A copy of the illustration that matches the policy for which it was approved
A personalized computer-generated illustration detailing premiums, cash values, interest rates, and surrender values is called __________. A Sales literature B An advertisement C A policy summary D A hypothetical
C A policy summary
The MIB is used in the underwriting of all of the following types of insurance, except: A Life B Disability Income C Auto and Homeowners D Critical Illness
C Auto and Homeowners The MIB's Underwriting Services are used exclusively by MIB-member life and health insurance companies to assess an individual's risk and eligibility during the underwriting of life, health, disability income, critical illness, and long-term care insurance policies.
A business owner buys a life policy on his own life. He/she may be all of the following, EXCEPT _________. A Insured B Applicant C Beneficiary D Owner
C Beneficiary The insured may not be the beneficiary of his own policy. The owner and the applicant may also be the insured.
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? A Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake B Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application C Contact either her agent or the insurance company and make sure they have the correct information D Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct
C Contact either her agent or the insurance company and make sure they have the correct information
A current and prior HIV positive test result (two positive blood tests) may be the basis for a life insurer to: A Require the applicant/insured to pay for the HIV test B Offer the coverage at no better than a standard rate C Decline the application for life insurance D Issue the policy with an exclusion
C Decline the application for life insurance
Upon receipt of all of the necessary information, the home office underwriters can issue the coverage applied for in all of the following ways, except: A Preferred B Substandard C Declined D Standard
C Declined Declined means that the policy would not be issued. The other choices indicate an acceptable risk at different pricing based on insurability.
Life insurance applications cannot contain questions about prior HIV testing unless the question is limited to prior testing for the purpose of obtaining: A A gun permit B Employment C Insurance D A drivers license
C Insurance
Which of the following best describes a Statement of Good Health? A It is a sworn oral statement made by the insured at time of delivery which allows for coverage to come into effect B It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery C It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date D It is what comes along with the policy at the time of delivery confirming the underwriting class the insured falls into if the policy was issued standard or better
C It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date Generally, this is used when the policy was issued with an outstanding premium requirement to assure the issuer that the health status of the insured has not significantly changed since the time of application.
Mortality cost ______ interest (investment earnings) = equals the pure rate. A Plus B Divided by C Minus D Multiplied by
C Minus Mortality cost minus interest (investment return) = net premium (pure rate).
Loading includes all of the following, except: A Medical exam costs B Producer commissions C Mortality D Operating expenses
C Mortality The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium.
All of the following are true regarding disclosures at the point of sale and issues relating to AIDS, except: A Insurers must require the maintenance of strict confidentiality of personal information obtained through testing B Insurers must avoid unfair discrimination between those in the same underwriting class for the risks of AIDS C Much like illegal drugs and nicotine, the applicant does not have to provide consent prior to insurer's testing for HIV D Insurance companies may refuse to issue a policy to individuals based on positive HIV test results
C Much like illegal drugs and nicotine, the applicant does not have to provide consent prior to insurer's testing for HIV
Which of the following is included in Part I of a Life Insurance Application? A Present health B Family health history C Name and Occupation D Hospitalizations and surgeries
C Name and Occupation
Which of the following types of policies is eligible for policy dividends? A Variable B Fixed C Participating D Nonparticipating
C Participating Insurance is either permanent or temporary. Examples of permanent insurance are Whole Life and Endowments, etc. ---Term is temporary insurance. ---Participating policies are issued by mutual companies and are eligible for policy dividends if and when declared by the company's board of directors.
Policies that may pay dividends to the policyowner are known as: A Interactive B Proactive C Participating D Mutual
C Participating The question is describing a 'Participating' policy. Participating policies have the potential to pay dividends. 'Nonparticipating' policies do not generate dividends.
Which of the following is not a major source of underwriting information? A The application B Medical exams C Past life insurance owned D Attending Physician's Statement
C Past life insurance owned
What is earned by a life insurer for each day a life insurance policy is in force? A Respect and trust B Interest and dividends C Premiums D Commissions
C Premiums
The factors necessary for an insurer to calculate a Net Premium are: A Expenses and rate of interest assumed B Premiums paid plus interest earned C Rate of interest assumed and mortality rate D Mortality rate and expenses
C Rate of interest assumed and mortality rate Mortality Rate - Rate of Interest Assumed = Net Premium
All of the following are examples of a third-party ownership, EXCEPT: A T applies for and owns his 2-year-old son's policy, but names his wife as beneficiary B J is named as the owner and beneficiary of G's policy C S applies for a policy on herself and names her husband as the beneficiary D J applies for his life insurance policy and names his trust as the owner and beneficiary
C S applies for a policy on herself and names her husband as the beneficiary Third-party ownership exists when the insured and the owner of the policy are different persons.
If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds? A Issue a binding receipt B Submit a whole life application C Submit a trial application D Submit a term life application
C Submit a trial application A trial application is one submitted without a premium. The policy would not take effect until the policy is issued by the insurer, delivered by the agent, and the premium is paid. It is used when insurability and pricing are in doubt.
Which of the following best describes producer field underwriting? A Interviewing the applicant's neighbors about the applicant's morals and character B Conducting blood pressure readings, taking the applicant's pulse, and drawing blood C Taking the time to probe beyond the stated questions on the application based upon the applicant's responses D Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB
C Taking the time to probe beyond the stated questions on the application based upon the applicant's responses
A life insurance applicant pays the initial premium at the time of application and receives a Conditional Receipt. If coverage is issued as applied for, when did coverage go into effect? A The date the policy was issued B The date the policy was delivered C The date of the application or upon the completion of any required medical exam (whichever is later) D The day the check clears the bank
C The date of the application or upon the completion of any required medical exam (whichever is later)
The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A Planned retirement age B Personal and financial information C The number of cars the insured and family members own D Occupation
C The number of cars the insured and family members own
When replacement is involved, the replacing insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within how many days from the date of policy delivery? A 20 B 10 C 15 D 30
D 30 When replacement is involved, the insurer must provide in its policy or a separate written notice that the applicant has a right to an unconditional refund of all premiums paid within 30 days from the date of policy delivery.
Under California life insurance replacement legislation, conservation is defined as: A Any transaction in which new life insurance is to be purchased and it is known to the agent that existing insurance will be forfeited, lapsed, or surrendered B Replacing an existing policy with a new policy in order to reduce premium C An attempt on the part of the replacing insurer to have one of their policies replace 2 of the existing insurer's policies D An attempt by the existing insurer or agent to keep a policy in force where replacement is contemplated
D An attempt by the existing insurer or agent to keep a policy in force where replacement is contemplated
How does life insurance reduce financial loss upon the insured's death? A By eliminating the risk B Through applicant risk retention strategies C Through reinsurance risk techniques D By transferring the risk to the insurer
D By transferring the risk to the insurer For a premium, the applicant can transfer a specific dollar amount of risk to the insurer, thereby reducing but not eliminating the entire risk.
How does life insurance reduce financial loss upon the insured's death? A By eliminating the risk B Through reinsurance risk techniques C Through applicant risk retention strategies D By transferring the risk to the insurer
D By transferring the risk to the insurer For a premium, the applicant can transfer a specific dollar amount of risk to the insurer, thereby reducing but not eliminating the entire risk.
In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer. A Replacing B Conserving C Insolvent D Existing
D Existing The existing insurer is the insurer who has a policy subject to replacement.
Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk. A Insured's primary care physician B Field underwriter C Home office actuary D Home office underwriter
D Home office underwriter It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.
_______________ is the process of selection, classification and rating, and determining if someone is insurable. A The agent's report B Field underwriting C Completing the application D Home office underwriting
D Home office underwriting
If a copy of the application, which led to a life insurance policy being issued, is attached to the policy: A It is a way for the insurer and policyowner to evidence who the producer was at the time of application B It is provided merely as a convenience to the policyowner so that they will have a record of the transaction C It can be used by the insurance company later on if the insured wants to increase their coverage instead of using a new one D It is considered part of the entire contract
D It is considered part of the entire contract
Which of the following best describes a Statement of Good Health? A It is a sworn oral statement made by the insured at time of delivery which allows for coverage to come into effect B It is what comes along with the policy at the time of delivery confirming the underwriting class the insured falls into if the policy was issued standard or better C It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery D It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date
D It verifies that the insured has not suffered a serious illness or injury requiring surgery or hospitalization since the application date
Loading includes all of the following, except: A Medical exam costs B Producer commissions C Operating expenses D Mortality
D Mortality The mortality rate is used to determine net premium. Loading are additional charges to net premium to derive gross premium.
When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: A The DIME method of insurance planning B Human life value C The NAIC Mode D Needs analysis
D Needs analysis
When an applicant does not smoke, exercises regularly, seldom drinks, and eats moderately and is considered to be a better-than-average risk, they would likely qualify for: A Substandard status and pay a higher premium B Preferred status and pay a higher premium C Standard status and pay a standard premium D Preferred status and pay a lower premium
D Preferred status and pay a lower premium
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer DECLINING the application based upon the results of the medical exam, what is the insurer's responsibility? A Pay the claim in full since the death occurred prior to denial of the application B Pay a death claim less the premiums paid and costs for the medical exam C Refund the premiums paid in excess of any medical exam costs incurred by the insurer D Refund any and all premiums paid with the application
D Refund any and all premiums paid with the application Since the producer issued a conditional receipt and all of the conditions were not satisfied (issuance of a policy as applied for) then the insurer must refund all premiums paid.
Any transaction in which a new life policy or annuity is to be purchased, and the producer knows, or should know, that existing contract(s) will be: lapsed, forfeited, surrendered, terminated, reduced in value, amended with a reduction in benefit or term, have a reduced cash value, or is subjected to borrowing, is best known as a __________. A Reissuance B Re-entry C Conversion D Replacement
D Replacement
When calculating premium of life insurance policies, insurers assume all of the following, Except: A Claims are paid at year end B Premiums are paid in advance C Premiums will be invested and earn interest D The actual life expectancy of each group of insured's
D The actual life expectancy of each group of insured's
When the initial premium is not paid with the application, what happens if the applicant is not in good health at the time of policy delivery? A The agent is to collect additional premium and remit to the insurer immediately B The agent is to deliver the policy, collect the premium, and put the coverage in force as soon as possible C The agent is to delay delivery of the policy until the health condition clears up D The agent is to return the policy to the insurer for further underwriting
D The agent is to return the policy to the insurer for further underwriting
When the initial premium is not paid with the application, what happens if the applicant is not in good health at the time of policy delivery? A The agent is to delay delivery of the policy until the health condition clears up B The agent is to deliver the policy, collect the premium, and put the coverage in force as soon as possible C The agent is to collect additional premium and remit to the insurer immediately D The agent is to return the policy to the insurer for further underwriting
D The agent is to return the policy to the insurer for further underwriting
Which of the following is not true about life insurance applications? A Applications for life insurance are typically divided into two parts: General Information and Health History B The application more fully identifies the insured C The application may contain all the information underwriting needs to approve the insured D The application is confidential communication between the agent and the insurer
D The application is confidential communication between the agent and the insurer A copy of the application will be included as part of the policy, and is therefore not confidential.
The HIV Consent Form specifies which types of individuals may receive __________. A The underwriter's decision B The name of the medical lab used and lab work C The amount and type of policy applied for D The test results
D The test results
Life insurance policy illustration requirements apply to which one of the following? A Credit life insurance B Variable life insurance C Individual and group annuity contracts D Traditional whole life insurance
D Traditional whole life insurance Policy illustration requirements apply to all group and individual life insurance policies, except: Variable life insurance, Individual and group annuity contracts, Credit life insurance, Life insurance policies with no illustrated death benefits on any individual exceeding $10,000.
In establishing the rates to charge premium payers on life insurance, a company will use:
Mortality - interest (Rate of interest assumed) + Expenses
preferred
Qualify for a lower premium /better health/ no over weight
Refused/decline
Refusal to issue coverage
Classification of Risks
Standard, Preferred, Substandard, Declined
Needs Analysis Approach This approach determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be INMEDIATE and factors the following steps into arriving at the proper amount of coverage needed: Calculate all financial needs caused by an immediate death, including debts, medical bills, and final expenses Provide lifetime income to the spouse Pay off a mortgage or other debt Provide funds for children's education An Emergency Reserve Fund may be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured Subtracts any assets available to fund financial needs after death (such as retirement plan assets, other insurance, liquid investments, separate savings)
When a producer takes into account a variety of factors related to lost future income, he/she is using a needs approach
Which of these modes would result in the insured paying the least amount per year for life insurance? a. Annual b. Semi-annual payroll deduction c. Monthly automatic bank draft d. Quarterly
a Annual
All of the following are examples of a third-party ownership, EXCEPT: a. J is named as the owner and beneficiary of G's policy b. S applies for a policy on herself and names her husband as the beneficiary c. T applies for and owns his 2-year-old son's policy, but names his wife as beneficiary d. J applies for his life insurance policy and names his trust as the owner and beneficiary
b S applies for a policy on herself and names her husband as the beneficiary
A business owner buys a life policy on his own life. He/she may be all of the following, EXCEPT: a. Owner b. Applicant c. Beneficiary d. Insured
c Beneficiary
Which of the following statements correctly describes the difference between gross premium and net premium? a. Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses b. Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on c. Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying claims and other expenses d. Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance
c Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying claims and other expenses
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? a. Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application b. Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake c. Contact either her agent or the insurance company and make sure they have the correct information d. Hope that nothing happens in the first year after the policy
c. Contact either her agent or the insurance company and make sure they have the correct information
Part II of the application
contains questions pertaining to medical background, present health, any medical visits in recent years, medical status of family members and causes of death of deceased relatives.
An illustration or policy summary
must be provided prior to or at the time a policy is delivered. If the policy is not the same as that which was illustrated previously, the client must be given a new illustration matching the policy that is issued. In practice, insurance companies include a matching illustration or summary with every policy approved for delivery.
When calculating premium rates, life insurers assume that:
premiums are paid in advance of the period of coverage, premiums will be invested and earn interest and claims are paid at the end of a year. Insurers assume that the average life expectancy of each group will materialize.
A basic life insurance illustrations
should be presented to be understandable and not misleading. ---A basic life insurance illustration is a document that shows the cash accumulation in a life policy over a minimum of 20 years on both a 'guaranteed' (maximum cost of insurance, minimum interest credits) and a 'nonguaranteed' (current cost of insurance and interest credits assumptions) basis.
The attained age is:
the insured's age at any point in time typically used at renewal or conversion. The effective date is the date when insurance coverage begins, and the expiration date is the date in which insurance coverage ends.
The individual who has the ownership rights of a policy is called the: A Beneficiary B Insured C Policyowner D Applicant
C Policyowner
The MIB is used in the underwriting of all of the following types of insurance, except: A Critical Illness B Life C Disability Income D Auto and Homeowners
D Auto and Homeowners
Policy delivery in California will be accomplished by all of the following, except: A Registered or certified mail with a signed receipt of delivery B Personal delivery with a signed receipt of delivery C First-class mail with a signed receipt of delivery D Calling the applicant/insured to inform him/her that the policy was issued and keep in the client file
D Calling the applicant/insured to inform him/her that the policy was issued and keep in the client file
The issue (original) age of the insured is:
the age on the policy issue date
Which of the following personal uses of life insurance is specifically designed to provide benefits to the policy owner while the insured is still alive? A Cash accumulation B Estate conservation C Estate creation D Charitable bequests
A Cash accumulation Cash accumulation is the only choice given that will provide benefits while the insured is still alive. All of the other choices are available once the insured has died.
All of the following are things a producer should do when meeting with the client after the policy has been issued, except: A Disclose the amount of commission earned on the sale B Explain the policy to the applicant C Review any endorsements and riders D Go over the benefits and ratings
A Disclose the amount of commission earned on the sale
All of the following are underwriting criteria taken into account by the insurer in the underwriting of individual life insurance cases, except: A Education level completed B Physical condition C Gender D Medical history
A Education level completed
When producer Pete delivers a policy, he should also do which of the following? A Explain the policy, provisions, riders, and any exclusions B Collect any amounts due for postage and handling C Demand the balance of the annual premium D Collect at least 3 referrals
A Explain the policy, provisions, riders, and any exclusions
Applicants must consent to be tested and be informed that testing for ________ may determine insurability. A HIV B Nicotine C Illegal drugs D Blood alcohol
A HIV
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer declining the application based upon the results of the medical exam, what is the insurer's responsibility? A Refund any and all premiums paid with the application B Refund the premiums paid in excess of any medical exam costs incurred by the insurer C Pay the claim in full since the death occurred prior to denial of the application D Pay a death claim less the premiums paid and costs for the medical exam
A Refund any and all premiums paid with the application Since the producer issued a conditional receipt and all of the conditions were not satisfied (issuance of a policy as applied for) then the insurer must refund all premiums paid.
A young couple just starting out on a limited budget, but having a large need for life insurance coverage, most likely would be best suited for ________ life insurance: A Term B Whole C Variable D Universal
A Term Term is for the price conscious. It provides the largest amount of coverage for the lowest premium initially.
variable policy
A policy with variable benefits based upon performance of underlying separate account. Securities license required to sell (Variable and Variable Universal). No guarantee return on cash value may help protect against inflation insurance and FINRA registration in order to sell client assumes 100 percent of the investment risk
What is the primary reason why States have 'outlawed' Stranger/Investor Originated Life Insurance (STOLI) transactions? A The 'strangers' or 'investors' are exempt from licensing B At policy inception there is a lack of insurable interest C The insured may not be able to meet the premium requirements D The transaction avoids State taxes
B At policy inception there is a lack of insurable interest If a policy is issued without proper insurable interest it becomes a wager contract which is prohibited by State insurance law.
The term 'mode' refers to the: A Rate the underwriters apply to the policy B Frequency of premium payments C Claims process D Method used in policy delivery
B Frequency of premium payments Mode refers to the frequency of premium payment, such as monthly or annually.
What happens if a policy is issued with questions unanswered on the application submitted? A If discovered by the insurer within the first 2 years they have the right to increase the premium based on the failure to disclose B It is assumed the information is immaterial to the issuance of the policy and the insurer waives its right to challenge a claim based on the incomplete application C This automatically extends the insurer's contestable period for an indefinite period of time D The insurer must inform the Insurance Commissioner of the agent's lack of professionalism and attention to detail
B It is assumed the information is immaterial to the issuance of the policy and the insurer waives its right to challenge a claim based on the incomplete application
Which one of the following will pay the highest premium for a life insurance policy all other factors being equal? A Male age 65 B Male age 70 C Female age 70 D Female age 65
B Male age 70 The higher the age group, the higher the mortality rate which translates in to a higher premium and the Mortality Table shows that males have a higher mortality rate than females, therefore based on this statistic, males will pay a higher rate than females.
Which of the following is true? A The insured and the policyowner are always the same B The insured and the policyowner are usually the same, but not necessarily C Any changes to a policy must be approved by both the insured and policyowner in writing D The applicant, insured, and policyowner must approve any changes to a policy in writing
B The insured and the policyowner are usually the same, but not necessarily The applicant, insured, and owner might all be different parties, and any changes to the policy must be approved only by the policyowner.
If the producer discovers that the applicant is not in good health at time of policy delivery, what should the next step be? A Hold onto the policy until the client recovers from their condition, then deliver the policy B The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission C Obtain copies of any and all medical records and order a medical exam D Field underwrite in order to determine the additional premium that needs to be collected
B The policy should be returned to the insurer, or the deliver the policy only after the insurer grants permission
A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer ISSUING a policy as applied for, what is the insurer's responsibility? A To refund any and all premiums paid B To pay the claim in full as long as the conditions of the receipt were fully satisfied by the insurer C To keep the premium and reject the claim D To refund premiums paid less costs associated with any medical exams
B To pay the claim in full as long as the conditions of the receipt were fully satisfied by the insurer Since all of the conditions of the receipt were satisfied is does not matter that the insured died prior to the policy being issued. Coverage was in effect as of the time the medical exam was completed.
If a client chooses to pay premiums other than annually, what can he or she expect? A Better client service B Higher surrender charges on some policies C Additional charges to offset lost interest, earnings, and increased administrative costs D Lower overall total premium costs
C Additional charges to offset lost interest, earnings, and increased administrative costs Additional charges are included in modes other than annual to offset the lost interest earnings and the increased administration costs.
Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk. A Insured's primary care physician B Home office actuary C Home office underwriter D Field underwriter
C Home office underwriter It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.
Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer? A Conditional receipt B Acceptance approval receipt C Temporary insurance agreement D Trial receipt
C Temporary insurance agreement If premium is paid, coverage will begin immediately for a specific length of time regardless of whether the applicant is ultimately approved by the insurer. This may also be referred to as a temporary insurance agreement or a binding receipt.
Which of the following listed policies has the best likelihood of keeping pace with inflation? A Term B Straight Whole Life C Variable Universal Life D Universal Life
C Variable Universal Life Any variable policy has the best chance of keeping pace with inflation due to its ability to invest in the separate accounts of the insurer.
J buys a life insurance policy specifically intending for the death benefit to be used to cover estate taxes. What is the correct term for using life insurance in this way? A Survivor protection B Preneed planning C Estate creation D Estate conservation
D Estate conservation Using life insurance proceeds to pay estate taxes is a means of "conserving" the estate for the heirs.
Which of the following would be considered a good result from an underwriter's action when an individual Life Insurance Policy is issued as applied for? A Issued with exclusions or limitations B Issued rated-up C Application is rejected D Issued standard
D Issued standard To be issued standard is the most favorable action listed, as the coverage requested is issued at the rate that was quoted
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the: a. Conservation statement b. Notice Regarding Replacement c. Sales proposal d. Policy summary
b Notice Regarding Replacement
Which of the following is not true about life insurance applications? a. The application more fully identifies the insured b. The application is confidential communication between the agent and the insurer c. The application may contain all the information underwriting needs to approve the insured d. Applications for life insurance are typically divided into two parts: General Information and Health History
b The application is confidential communication between the agent and the insurer
An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct? a. Coverage is effective on the date of the application b. There is no coverage c. Temporary term insurance is used to pay the death benefit d. Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied
b There is no coverage
A personal use of life insurance does which of the following? a. Creates an insurable interest b. Creates an immediate estate c. Provides protection against living too long d. Compensates a business for the death of a key person
b Creates an immediate estate
At the time of a life insurance policy delivery, a producer must provide which of the following? a. A copy of the insurance company's most recent annual report b. A copy of the fact finding data collected on the initial sales appointment c. A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance d. A copy of the illustration that matches the policy for which it was approved
d A copy of the illustration that matches the policy for which it was approved
Retention Question 15 Which of the following describes group life insurance? a. A single policy issued to an individual covering husband, wife and children b. Multiple policies issued to an employer to cover a specific group of executives c. A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates d. A single policy issued to a business to cover the lives of employees
d A single policy issued to a business to cover the lives of employees
All of the following statements are true regarding HIV testing, EXCEPT: a. All tests require informed consent by the applicant b. Test results must remain confidential c. A current and prior HIV positive test result may be the basis of declined life insurance d. The insured must pay for the cost of testing
d The insured must pay for the cost of testing
