Stimulate Your Exam -- Life insurance prep

What is the tax advantage of a qualified retirement plan?

The earnings in the plan accumulate tax deferred Contributions are tax deferred, and earnings on the money in the plan accrue on a tax-deferred basis.

The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom?

The producer It is the responsibility of the producer (agent) to make sure an application for insurance is filled out correctly.

The Waiver of Cost of Insurance rider is found in what type of insurance? Waiver of Cost of Insurance rider = If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

Universal Life

Which life insurance policies build cash value?

Variable life, Whole life and Universal Life (possibly more) !!! Unlike universal life insurance, guaranteed universal life insurance does not build cash value. As long as the policyowner pays the premiums, the policy remains in force.

Before he died, an annuitant had received $12,500 in monthly benefits from his $25,000 straight life annuity. He was also the insured under a $50,000 paid-up whole life policy that named his wife as primary beneficiary. Considering both contracts, how much will the annuitant's spouse receive in benefits?

$50,000 The life policy would pay the face amount, but because of the settlement option selected on the annuity, payments would cease upon the annuitant's death. Straight life annuity payments stop at death of the annuitant regardless of the principal left in the account.

What is generally considered during underwriting for a group insurance?

- Nature of the group - Past claim experience - Group size NOT medical history!

What are the goals of risk retention?

1. Reduce expenses and improve cash flow 2. increase control of claims reserving and claims settlements 3. fund losses that can't be insured NOT to minimize the insured's level of liability in the event of loss

For how long is an insurance company allowed to defer policy loan requests?

6 months - This excludes loan requests used to pay policy premiums. Insurers writing variable life insurance policies may defer loan requests for up to 6 months.

What is true according to tax deduction fro life insurance?

As a general rule, premiums paid for life insurance are not tax deductible. The exception to this rule is when an employer buys group term life insurance for his employees since it is considered a business expense.

Any insurance agent who engages in the insurance business and violates the Code with respect to insurance replacement shall on the first violation

Be fined a sum of $1,000

What are beneficiary designation options?

Beneficiary designations determine the order in which benefits will be paid: - -- primary or contingent, which includes secondary and tertiary. NOT specified

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?

Collateral assignment

What is the Medical Information Bureau (MIB) and why was it created?

Created to protect Insurance companies from adverse selection by high risk persons. The ______ makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Who does the Replacement Regulation not apply to?

Credit life, groups life, and group annuities, or transactions with the same insurer. Does apply to whole life insurance (and more?)

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire Contract —\—/—\—/— This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

The insurance solicitor is only found in which field of insurance?

Fire and Casualty

Peril

the cause of loss insured against in an insurance policy.

A new insurance must be treated as a replacement if a new insurer sells a policy to a group which discontinued its group medical insurance within how many days?

60 days There is an assumption of responsibility by an insurer if they sell a new policy to a group within 60 days of discontinuance.

What are the acceptable life insurance policy delivery methods?

Acceptable methods of delivery include - Registered or Certified Mail, - Personal Delivery with a signed, - written delivery receipt, - 1st Class Mail with a signed written Delivery Receipt, - or any reasonable means determined by the Commissioner. - Priority mail does not establish an exact date of delivery or to whom it was delivered, and - personally delivering the policy needs to be done by a properly licensed representative who can answer questions.

What best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report

Must be informed of the source of the report. Under the Fair Credit Reporting Act, if an insurance policy is declined or modified because of information contained in a consumer report, - the consumer must be advised and provided with the name and address of the reporting agency.

Selection of coverage in employee benefits plans refers to

The employee choosing benefits Selection of coverage allows the employee to choose benefits that best suit his/her needs. There may also be a choice of providers for coverage.

To make sure that an agents license stays active, the agent of an insurer must see that what is done?

An agent may not act as an agent until - legally appointed with the insurer, - an appointment notice has been executed by the insurer, and - the insurer files a notice of appointment with the Commissioner's office. DOES NOT file a surety bond with the Commissioner!

In insurance, an offer is usually made when

An applicant submits an application to the insurer. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

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 A Joint Life policy covering two lives 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 insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. !!! However, it does not apply to statements relating to age, sex and identity.

What is true upon policy reinstatement?

Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

What is considered a risk-sharing arrangement?

When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal. NOT: stock, mutual or surplus lines

What are terms used for the period of time during which the annuitant or the beneficiary receive income?

Annuitization, Pay-out, and Liquidatian period The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period. NOT depreciation

What is a short-term annuity that limits the amounts paid to a certain fixed period or until a certain fixed amount is liquidated?

Annuity certain Annuity Certain option allows the annuitant to select the time period or the amount of the benefits to be paid out. Under the installments for a fixed period, distribution begins on a specific date and stops on a specific date.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? (Flip) _____ states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

Insuring clause (Definition?)

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

When does a party have the right to rescind from a contract?

The injured party has the right to rescind the contract whenever there is a violation of a material warranty, intentional or unintentional concealment, or intentional or fraudulent omissions. - The amount of paid claims would not rescind the policy.

What is true regarding a market value adjusted annuity?

The owner is guaranteed a fixed interest rate for a specific period of time. Under a market value adjusted (modified guaranteed) annuity, the insurer guarantees a competitive interest rate for a specific period (the longer the period, the better the guaranteed rate). At the end of the period, the owner has the option of taking the accumulated value or reinvesting the values at a new interest rate.