Insurance exam
Modified endowment contracts
- contract that makes different tax considerations to a policy - It must pass the "7-pay test" If the total amount a policyowner pays into the contract during its first seven years exceeds the sum of the net level premiums that would have been payable to provide paid-up future benefits. There's a 10% penalty if withdrawn prior to 59 1/2; taxation occurs when cash is distributed
conditional contract
A contract that one or more parties must perform only under certain conditions.
Variable Life
A whole life policy with fixed, level premium; Life ins that creates an estate upon death of insured; characterized by guaranteed minimum death benefit. if investment performance is poor, death benefit will not go lower than policy's guaranteed minimum
Unfair trade practices
Act that doesn't allow misrepresentation & false advertising, coercion and intimidation, unfair discrimination, and inequitable administration of claim settlements
Consideration clause in life insurance includes what?
Amount of premium payments and when they are due
Endowment policy
Characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date (before the age of 100). ex: Person owns $25k life policy that pays face amount to him if he lives to 70 or bene if he dies before 70
Which type of policy cannot have Automatic premium loan provision
Decreasing term
Types of agent authority; of the same nature
Express, Implied, apparent
Indemnity insurance
Health insurance contracts. Only reimb actual cost of loss
Level Term
Life ins written to cover a need for specified period of time at lowest premium
Group credit life policy is limited to what amount of coverage
Limited to the insured's total loan value; amount on life of a debtor is limited
Social Security
Old-Age, Survivors and disability insurance is also known as what
Insurance policies are considered aleatory because...
Performance is conditioned upon future occurrence
Equity Index Universal Life Insurance
Permanent life ins allows policyholders to tie accumulation values to stock market index. contract minimum guaranteed fixed interest rate.
Term rider
Policy covers family head with permament insurance and coverage on spouse and children in term insurance in form of rider
Return of premium life insurance
Policy is whole life and increasing term w/death benefit rider of increasing term ins equal to amount of premiums paid
Family maintenance policy
Policy provides an income for specific period time starting at death of insured
Family maintenance policy
Policy that pays monthly income from date of death of insured to end of preselected period.
Variable universal life insurance
Policy where policyowner controls where investment will go and selects amount of premium payment
Straight whole life insurance
Policy where premium is paid for the whole lifetime of the insured. Premiums are payable for as long as there is insurance coverage in force. Provides permanent level protection w/level premiums until insureds death or age 100
Not possible with Universal life policy
Premiums cannot be applied as a credit against income tax
Apparent authority
The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
Aleatory Contract
The exchange of value is unequal.
Contract of Adhesion
The insurance company drafts the contract wording and the insured simply follows it. Courts always favor insured over insurer. Terms must be accepted or rejected in full
Modified endowment contract
When a life insurance policy exceeds certain IRS table values, the result would create modified endowment. Exceeds max amount of premium that can be paid into a policy and still have it recognized as life insurance contract. They don't meet 7-pay test and will lose favorable tax treatment
Whole LIfe Insurance policy endows when?
When cash value equals death benefit
at what point does informal agreement become a binding contract?
When consideration is provided by one of the parties to the contract.
Family Maintenance Policy
Whole life and level term (begins date of death). Provides income to a beneficiary for a selected period of time if an insured dies during that period. At the end of the income- paying period, the beneficiary also receives the entire face amount of the policy. If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.
Stranger-originated life insurance
a consumer purchases a life insurance policy with the agreement that a third party agent/broker or investor will purchase the consumer's policy and receive the proceeds as a profit upon the consumer's death
Decreasing term rider
a rider that can be added to whole life policy for additional coverage
10 year convertible term
a type of term life policy that contains renewability provision
Cost of living rider
gives insured additional death benefits
Decreasing term policy
has death benefit that adjusts periodically and is written for specific period of time.
Equity Index insurance
insurance that yields greater gains than bonds but will protect principal with minimum of risk. Premiums cannot be lowered or raised, based on investment performance bc it is a permanent life insurance allowing policyholders to tie accumulation values to stock market
Whole life policy premium is what kind
level premium
Graded premium policy
life policy premiums are lower during policy's early year
30 pay life
limited pay whole life policies that have level premiums and are limited to certain period.
Settlement option
method of distributing Life insurance policy's death benefit other than lump sum payment
Legal contract must have
offer & acceptance, considerations, competent parties, legal purpose
Survivorship life policy
policy insures 2 people and is designed to pay a benefit upon second death
Joint life policy
policy that promises to pay face amount on death of first of 2 lives
Endowment policy
policy used to ensure funds will be avail when needed
Investor-originated life insurance
policy where policyowner (investor) benefits upon death of insured
Term life policy
provides greatest amount of protection for temporary period
Policy Loan provision
provision in life insurance policy that pays policyowner an amount that doesn't surpass guaranteed cash value
Insurable interest
requires individual have valid concern for continuation of life or well-being of insured. Without it a contract not legally enforceable and would be considered wagering contract.. Included at inception of contract.
20-pay life
shorter pay period, faster cash value growth
Settlement options
the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies
Divisible Surplus
the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes
Express authority
the explicit authority granted to the agent by the insurer as written in the agency contract.
implied authority
unwritten authority of producer to perform incidental acts necessary to fulfill purpose of agency agreement.
Family income policies
whole life and decreasing term insurance-begins date of purchase. If death occurs after specified period, only face value is paid
Child term rider
whole life policy rider that covers children of insured