Life Insurance Study Guide

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?

$100,000. The insured contributed to his won death, so the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

When the owner of a $250,000 life insurance policy died, the beneficiary decided to leave the proceeds of the policy with the insurance company and selected the Interest Settlement Option. If at the time of withdrawal the interest paid was $11,000, the beneficiary would be required to pay income tax on

$11,000. The death benefit is not income taxable. Any interest earned is income taxable.

An insurer has been found guilty of a Code violation regarding replacement. The insurer then repeats the violation. What will be the MINIMUM penalty?

$30,000

An insurer has been found guilty of a Code violation regarding replacement. The insurer then repeats the violation. What will be the MAXIMUM penalty?

$300,000

L has a major medical policy with a $500 deductible and 80/20 coinsurance. L is hospitalized and sustains a $2,500 loss. What is the maximum amount that L will have to pay?

$900 = (deductible ($500) + 20% of the bill after the deductible (20% of $2,000 = $400). Insurer will pay 80% ($1,600)

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days

What is the required number of participants in a contributory group plan?

75%

What kind of premium do Straight Life policies charge?

A level annual premium throughout the insured's lifetime

What kind of death benefit does a Straight Life policy provide?

A level guaranteed death benefit

What do decreasing term policies feature

A level premium and a death benefit that decreases each year over the duration of the policy term

To sell variable life insurance policies, an agent must receive all of the following

A securities license, a life insurance license, and FINRA registration

For variable products, underlying assets must be kept in

A separate account

What is credit insurance?

A special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor

A provision in a life insurance policy that provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury is called

Accelerated Benefit provision.

What do modified life and straight life policies have in common?

Accumulation of cash value

What does a Return of Premium term life policy pay?

An additional death benefit to the beneficiary equal to the amount of the premiums paid.

The least expensive first year premium is found in which policy?

Annually Renewable Term

What is a Modified Endowment Contract?

Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract. All withdrawals are subject to taxation on a LIFO basis. A 10% penalty is imposed if withdrawn earlier than age 59 1/2.

Are withdrawals taxable or nontaxable in MECs?

Any distributions are taxable

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 may be used to fund a buy-sell agreement

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?

As of the application date because the premium was submitted with the application

After being hired to deliver newspapers to his neighbors, a man is provided with $10,000 of life insurance by the newspaper. He would be covered under which kind of life insurance?

Blanket life

What don't term policies develop?

Cash values

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common disaster

Every expressed warranty made at or before the execution of a policy must be...

Contained in and referred to in the policy or other document and signed by the insured Every express warranty made at or before the execution of a policy must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy

What are the five distinguishing features of managed care?

Controlled access to providers, comprehensive case management, risk sharing, preventive care, high-quality care

What does a key person insurance policy pay for?

Costs of training a replacement for an injured employee

Who is the beneficiary in credit life insurance?

Creditor, creditor is also the owner of the policy

What benefits are available under Social Security

Death, old-age and retirement benefits, disability benefits

Four types of information an insurer needs to obtain to determine the value of someone's life in the needs approach

Debt status, income, mortgage, and expenses

What type of insurance policy is most commonly used in credit life insurance?

Decreasing term

What is the needs approach?

Determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely

In common disaster provision, if both the insured and primary beneficiary dies, where do the proceeds go?

Either the contingent beneficiary or the insureds estate if no contingent beneficiary is designated

Which of the following is not a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach? A. Mortgages B. Expenses C. Estimated longevity D. Outstanding debt

Estimated Longevity

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and executive pays the premium

Which policy component decreases in decreasing term insurance?

Face amount

What type of insurance covers the whole family in a single contract?

Family policy

If taken as a lump sum, life insurance proceeds to beneficiaries are passed

Free of federal income taxation

What kind of policy issues certificates of insurance to insureds?

Group insurance. They do not receive a policy.

Which annuity riders ensure that the owner will receive from an annuity at least the amount paid for the annuity?

Guaranteed lifetime withdrawal

What life insurance policy does not build cash value?

Guaranteed universal life insurance

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true? A. He will have to pay a penalty if he is younger than 59 1/2 B. He will have to pay a penalty regardless of his age C. He will not have to pay a penalty, regardless of his age D. He cannot withdraw money from his MEC before age 59 1/2

He will have to pay a penalty if he is younger than 59 1/2

What is Payor benefit

If the payor (parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21

Is a STOLI policy legal or illegal

Illegal

Representations in insurance contracts qualify as...

Implied warranties

The owner of an adjustable life policy has what privileges?

Increasing or decreasing the premium, changing the premium-paying period, increasing or decreasing the face amount of coverage, changing the period of protection

The type of term insurance that provides increasing death benefits as the insured ages is called

Increasing term

A Return of Premium term life policy is written as what type of term coverage?

Increasing term.

Who makes up the Medical Information Bureau?

Insurers

What is the mortgage redemption provision?

It insures the life of a homeowner for an amount equal to his mortgage. If the insured dies, the insurer assumes the responsibility for the remaining loan balance

If a retirement plan or annuity is "qualified", this means

It is approved by the IRS

What best describes annually renewable term insurance?

It is level term insurance, it offers the most insurance at the lowest cost

Which statement is not true regarding a Straight Life policy? A. It has the lowest annual premium of the three types of Whole Life policies B. Its premium steadily decreases over time, in response to its growing cash value C. The face value of the policy is paid to the insured at age 100 D. It usually develops cash value by the end of the third policy year

Its premium steadily decreases over time, in response to its growing cash value

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

An insured and his spouse own a home. When the insured dies, the insurer pays the remaining balance on his home loan. Which type of life insurance provision/rider does this describe?

Mortgage Redemption

Attempting to determine how much insurance a family would require based on their financial objectives is known as

Needs approach

Are the insureds beneficiaries included on the title page?

No

Can the insurer increase the policy premium on an individual basis in a guaranteed renewable provision?

No

In California, can binders be written for life insurance?

No

Are dividends taxable in participating policies?

No, they are not considered to be income for tax purposes.

Are welfare benefits available under Social Security?

No.

What does the triple indemnity accidental death rider do?

Obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident.

What allows the insurer to relieve a minor insured from premium payment if the minor's parents have died or become disabled?

Payor benefit

What is a joint life policy?

Policy covers two lives and would be the least expensive because the premiums are based on average age, and it would pay a death benefit only at the first death

Regarding the taxation of Business Overhead policIes, what is deductible and what is taxed

Premiums are deductible to the business as a business expense, benefits are taxed to the business as received

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of a

STOLI policy

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable?

Spouse.

What is a STOLI policy

Stranger originated life insurance policies are usually purchased by people with no relation to the insured with the intention of selling them for life settlements

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit

In an Adjustable Life policy owner can change what policy feature?

The coverage period

Regarding the insurance amount in a credit life policy

The creditor can only insure the debtor for the amount owed

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data

What is an annually renewable term?

The death benefit remains level, but the premium increases each year with the insureds attained age.

Insured Z's health insurance policy year begins in January. His policy contains a carry-over provision. In November, he has a small claim which is less than his deductible. Which of the following is true regarding the expenses and deductible?

The insured may carry over the amount of this year's expenses to next year, which will help satisfy next year's deductible

For convertible term insurance, the premium for the permanent policy will be based on

The insured's attained age

What are the features of a guaranteed renewable provision?

The insured's benefits cannot be reduced, the insured has a unilateral right to renew the policy for the life of the contract, coverage is not renewable beyond the insured's age 65

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insureds premiums will be waived until she is 21

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur?

The interest will continue to accumulate tax deferred.

Regarding coinsurance, what happens to percentage paid by insured and level of the premium paid?

The larger the percentage that is paid by the insured, the lower the required premium will be

What is a dividend?

The non taxed return of unused premiums

What best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value

Signing and dating a delivery receipt for a life insurance policy helps to establish what timeframes?

The right to rescission, the incontestability period, and the free look period

What does the grace period refer to

The time allowed after subsequent premium payments during which a policy will not lapse

Which of the following statements is true concerning irrevocable beneficiaries A. They can be changed only with the written consent of that beneficiary B. They may be changed at any time C. They can never be changed D. They may be changed only on the anniversary date of the policy

They can be changed only with the written consent of that beneficiary

What are requirements for life insurance illustrations?

They may only be used as approved and unaltered by the agent, they must identify non guaranteed values, they must differentiate between guaranteed and projected amounts

What are written binders good for?

They prove that the insured has insurance coverage, even though the policy has not been insured yet

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contracts

The title page of the policy provides a summary of the benefits and coverages provided by the policy. What information is included in the title page?

Type of policy, amount of coverage provided, premium amount and modal, and the effective date and the termination date of the policy.

What policy does the IRS require corridor or gap between the cash value and the death benefit?

Universal Life - Option A

What characteristic does not describe managed care?

Unlimited access to providers

All of the following are true regarding the convertibility option under a term life insurance policy EXCEPT A. Upon conversion, the death benefit of the permanent policy will be reduced to 50% B. Evidence of insurability is not required C. Most term policies contain a convertibility option D. Upon conversion, the premium for the permanent policy will be based upon attained age

Upon conversion, the death benefit of the permanent policy will be reduced to 50%

If the initial premium is not paid with the application, when will the agent be required to collect it?

Upon delivery of the policy.

An agent and an applicant for a life insurance policy fill out and sign the application. However, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. When will coverage begin?

When the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health

What does the seven-pay test determine?

Whether an insurance policy is over funded or if it's a MEC.

What product does the Replacement Regulation apply to?

Whole life insurance

In the Executive Bonus plan, does the employer reimburse the executive for cost?

Yes

In the Executive Bonus plan, since the executive is receiving compensation, is the amount paid by the employer considered taxable income?

Yes

Regarding taxation with MEC,

accumulations are tax deferred, distributions before 59 1/2 incur a 10% penalty, policy loans are taxable distributions

What is the uniform simultaneous death law, common disaster provision

the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days)