Life Insurance

When risks with higher probability of loss are seeking insurance more often that other risks, this is known as what?

Adverse selection

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

Agent's report

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

Any form of life insurance

If during the underwriting process an insurer obtains personal information about an application from the applicant, when must the insurer provide notice of its information practices?

At time of policy delivery

What type of document is required for an insurance company to transact insurance?

Certificate of Authority

A producer who fails to separate premium monies from his own personal funds is guilty of

Commingling

Which of the following is not an example of a valid insurable interest?

Debtor in the life of a creditor

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

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

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?

Estate Conservation

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?

Human life value approach

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies, and habits. What type of a report is that?

Inspection Report

What are the two components of a universal policy?

Insurance and cash account

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

Investigative Consumer Report

Which of the following best describes annually renewable term insurance?

It is level term insurance

Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?

Joint Life - Since this covers two lives it would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Mutual

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase this policy?

Mutual

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Mutual company

What is the major difference between a stock company and a mutual company?

Ownership (Mutual companies are owned by policyholders, Stock companies are owned by stockholders)

What is the term for the causes of loss insured against in an insurance policy?

Peril

What document describes the specific information about a policy?

Policy summary

Which of the following would be included in a policy summary?

Premium amounts and surrender values

Term used to describe the frequency and amount of the premium payment?

Premium mode

Pertaining to insurance, which would be an example of a producer's fiduciary responsibility?

Promptly forwarding premiums to the insurance company

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Reasonable expectations

A man decided to purchase a $100,000 Annually Renewable Term Life Policy to provide additional protection until his children finished college. He discovered that his policy

Required a premium increase each renewal. (ART policies premiums are adjusted each year to the insured's attained age; however, the policy may be guaranteed renewable. Death benefits remain level, and as with any term policy, there are no cash values.)

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 known as

Survivor protection

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. 5 days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

The date of medical exam

Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?

The employer is the owner and beneficiary

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer.

All of the following statements concerning the use of life insurance as an Executive Bonus are correct Except

The policy is owned by the company

What is insurance underwriting?

The process of risk selection and classification

In an adjustable life policy all of the following can be changed by the policy owner EXCEPT

The type of investment

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

Are insurance company underwriters allowed to discriminate?

Yes, but not unfairyly

4 elements on an insurance contract

- Agreement (offer and acceptance) - Consideration - Competent parties - Legal purpose

5 Characteristics of an ideally insurable risk:

- Due to chance - definite and measurable - statistically predictable - not catastrophic - Coverage cant be mandatory

Two elements necessary for a life insurance contract to have a legal purpose:

- Insurable interest - Consent

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

- Insured's current assets - liabilities - Survivor's needs

3 main instances when insurable interest exists in life insurance?

- Insuring your own life - Insuring the life of a family member - Insuring the life of a business partner or someone with financial obligation to the policyowner

Personal uses of life insurance:

- Survivor protection - Estate creation and conservation - Cash accumulation and liquidity

3 factors that determine the premium for a particular life insurance policy?

- mortality - interest - expense

How long must an insurer keep the receipt of policy delivery to the policyowner if the delivery was by mail

2 years

All of the following could own group life insurance EXCEPT

A group needing low-cost life insurance. (Groups purchasing group life insurance must be formed for a reason other than purchasing insurance.)