Chapter 2 Life Insurance Basics

when may an agent backdate an application

an agent may backdate an application for up to 6 months to accomplish a lower premium rate for the insured.

describe a buy-sell agreement

an agreement that determines what will be done with a business in the event that the owner dies or becomes disabled

when an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy this is an example of what

an executive bonus. This is when an employer offers to give an employee a wage increase in the amount of the premium of a new policy

the full premium was submitted with the app for life insurance and the policy was issued 2 weeks later as requested. When does the policy coverage become effective

as of the application date since the full premium was submitted with the application

what is the buyers guide of a life insurance policy

buyers guide provides generic info about the life insurance policies that contains and is limited to language approved by the department of insurance

what are 3 common reasons business use life insurance policies

compensating executives, funding against financials loss of key employees and funding business continuation agreements

what is life insurance

coverage on human lives

define cash value

equity amount accumulated in permanent life insurance

what information is included in the general information section

gender, occupation, marital status, address, name, age, are some of the items in the general info section

what is the life and health insurance guaranty association

guaranty associations are formed to protect policyowners, insureds, beneficiaries and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers. Insurers cannot advertise protection by the insurance guaranty association

define illustrations

illustration are a presentation or depiction of nonguaranteed elements of a life insurance policy

the term illustration in a life insurance policy refers to what

illustration means a presentation or depiction that included nonguaranteed elements of a individual or group life insurance over a period of years.

an insurer receives a report regarding a potential insured that includes the insureds financial status, hobbies, and habits. What type or a report is that

inspection reports cover moral and financial info regarding potential insured, usually supplied by private investigators and credit agencies.

what is the medical information bureau or M.I.B.

it is a database of all the information from an insurers past claims and medical history

what is a good description of the MIB

it is a nonprofit organization that maintains underwriting info on applicants for life and health insurance

a policyowner decides to sell their life insurance policy to a viatical settlement company. Who is responsible to inform the policy owners insurance company

it is the viatical settlement provider's responsibility to inform the policyowner's insurance company that the policy has been vitiated

what is the liquidity in a life insurance contract

liquidity in life insurance refers to availability of cash to the insured. Some policies offer cash values that can be borrowed at any time and used for immediate needs

what is the needs approach

needs method determines how much benefit would be necessary to replace the loss of income and increased expense should the insured die prematurely

can an agent backdate an application to shorten contestability period

no. an agent may only backdate an app to lower the insured's premium

can a business open a life insurance policy to fund against general financial loss

no. funding against general financial loss is not insurable

how often may a viatical settlement provider contact an insured regarding the insured health status if the insured life expectancy is more than one year

once every 3 months

what is the difference between a participating and nonparticipating policies

only participating policies distribute dividends to the policy owners.

define lump sum

payment of the entire benefit in a single payment or sum

if someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy

permanent. Unlike term insurance, permanent insurance provides lifetime death protection including premature death, and a savings or investment option

what are the responsibilities of the field underwriter

proper solicitation of applicants, helping prevent adverse selection, completing the application, obtaining signatures, collecting initial premium, and delivering the policy

what is another name for a substandard risk classification

rated. Substandard risk classification is also referred to as rated since these policies could be issued with the premium rated up, resulting in a higher premium

define liquidation

selling assets in order to raise capital

what describes a viatical settlement purchaser

someone who gives money as consideration for a life insurance policy

what are the 4 classifications of risk

standard, substandard, preferred or declined.

a producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance know as what

survivor protection.

define adverse selection

tendency of individuals with higher probability of loss to purchase insurance more often than those who present a lower risk

an insured has been diagnosed with a cancer and has no longer than 6 months to live. The purposes of a viatical settlement the insured would be classified as what?

terminally ill. Terminally ill individuals have an illness or sickness that can reasonably be expected to resulted in death within 24 months

who is the field underwriter

the agent is the company's front line, and is referred to as a field underwriter because the agent is usually the one who has solicited the potential insured.

define death benefit

the amount paid upon the death of the insured in a life insurance policy

in the executive bonus plan, who is the owner of the policy, and who pays the premium

the executive is the owner and the executive pays the premium.

what method of calculating the amount of life insurance needed takes into account the wages, years until retirement and inflation

the human life value approach or H.L.V.A

what is the key source of information for underwrites in writing a policy

the insurance application is the key source underwriters use for information about the applicant

an application for a viatical settlement provider license must be submitting to what entity

the insurance department. The viatical settlement providers and brokers can obtain licenses through the insurance department. Licenses may be renewed annually on the anniversary month

what is a conditional receipt.

the most common type of receipt is a conditional receipt which is used only when the applicant submits a prepaid application. It is for coverage t to be effective either on the date of app or date of medical exam. Whichever occurs last

what must happen when an individual policy or annuity has been personally delivered to the policyowner

the policyowner must sign a delivery receipt

how must a replacing producer respond to an applicant wishing to replace existing life insurance

the producer must provide the applicant with a notice regarding replacement

whose responsibility is it to make certain that an application for insurance is filled out completely and correctly

the producer, who is also the agent, is responsible to ensure the application is filled out completely and correctly

what is the best reason to purchase life insurance rather than annuities

to create an estate

what is insurable interest

to purchase insurance the policyowner must face the possibility of losing money or value in the event or loss. This is called an insurable interest and must exist at time of application

true or false. The creditors have rights to proceeds of a deceased insurance policy if they can show evidence of valid assignment

true. The creditors have rights to proceeds of a deceased insurance policy if they can show evidence of valid assignment

who negotiates a viatical settlement contract on behalf of a viator

viatical settlement broker

who effectuates viatical settlement contracts

viatical settlement providers are the people who enter into or effectuate a viatical settlement contract, other than the viator. The viator is the person who sells the insurance policy to the provider

who effectuate a viatical settlement contract

viatical settlement providers.

who is a person who gives money as consideration for a life insurance policy or interest in the death benefits of a life insurance policy.

viatical settlement purchaser. This is anyone who gives a sum of money as consideration for a policy.

who do viatical settlement brokers represent

viators. A viatical settlement broker is a licensed person that, for a fee, negotiates a viatical settlement between a viator and a settlement provider

if an application has a higher risk then the applicant will have what

will have a higher premium. Higher the risk equals higher premium

at the time of initial licensing, what fee must a viatical settlement provider pay

$300

true or false. Using the needs approach method a need is predicted using the number of years until the insured retirement.

FALSE. Using the needs approach method a need is predicted using the number of years until the insured retirement.

can an agent backdate an application to eliminate pre-existing conditions

no. the agent can only backdate to lower premium

once a mail order solicitation has been filed, how long may it be used

2 years. Mail order solicitations that have been file may be used for 2 years

you have sold your life insurance policy to a viatical settlement provider. How long do you have to inform the insurer that the life policy has been vitiated

20 days

how ling must insurers maintain the evidence from the agent that a disclosure statement about a life insurance policy was delivered to the applicant

3 years

what term best describes the condition of a person who is unable to perform at least 2 activities of daily living or requires substantial supervision to protect the individual from threats to their own health and safety

Chronically ill is this condition.

can an insure refuse coverage based on the M.I.B. report

no. insurers cannot refuse coverage solely on the basis of adverse information on an M.I.B. report

when you apply for life insurance and are required to get a medical exam. Who pays and who performs the exam

a paramedic or examining physician at the insurer's expense

define a minor

a person under legal age

define estate

a person's net worth

what is the policy summary of a life insurance policy

a policy summary is a written statement describing the features and elements of the policy being issued.

who is the owner of a life insurance policy that enters into a viatical settlement contract

a viator. A viator means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract

define solvency

ability to meet financial obligations. Examples is an insurance company maintains enough assets to pay claims

a perspective insured receives a conditional receipt but dies before the policy is issued. What is the responsibility of the insurer

pay the policy proceeds if it would have issued the policy.

what are some characteristics of a group life insurance policy

written as a master policy, individual covered under the policy receive a certificate of insurance. Certificate holders may convert coverage to an individual policy without evidence of insurability

are insurance company underwriters allowed to discriminate

yes, but not unfairly. The company will discriminate in favor of good risks and not of poor risks. However it can't discriminate unfairly be using factors such as race or national origin