Life insurance

moral hazard

Is the tendency to create a loss on purpose, to collect from the insurance company

3 non forefiture options? which one is automatic.

1) Cash Surrender, 2) Reduced Paid-Up and the automatic option, 3) Extended Term. extended term is automatic

corporation establishes a noncontributory Group Term contract, what percentage test must be met for participation:

100%

corporation establishes a contributory Group Term contract, what percentage test must be met for participation:

75%

Joint life can be written as all of the following, EXCEPT:

AD&D: Joint life insurance policies may be written on any whole life or term insurance plan.

avoid unfairdiscrimination life and health rates must be same for

For those who present essentially the same hazard

Graded premium whole life

Graded premium whole life is sold initially at a discount, but the premium gradually increases over a period of time, although the face amount or policy limit stays the same. It is designed to attract customers who cannot afford whole life right now, but expect their future income to increase.

what happens to death benefit if a life insurance policy owner elects to take the reduced paid-up nonforfeiture option,

If a policy owner selects the reduced paid-up non-forfeiture option, the face amount of their new policy will be reduced from what they had on their original policy. However, if the policy owner selected the extended term option, the face amount of the new policy would be the same as they had on their original policy, although coverage would not continue to age 120 as it does on reduced paid-up.

Which settlement option might provide payments that exceed the proceeds of the policy and the interest earned:

Life Annuity

If the insured understated their age and the error is discovered after the insured's death, the insurance company will:

Pay the amount the premium would have purchased at the correct age. Although lying about your age will not void the policy, the company will adjust your Death benefit to the amount that the correct premium would have purchased had you told the truth.

If an employee dies within the grace period on their group life insurance without converting to an individual policy, the insurer will

Pay the death benefit in full. On group life insurance policies, when the insured dies in the grace period without converting to an individual policy, the full amount of the life insurance that would have been issued to them under such converted policy shall be payable, whether or not application for the converted policy or the payment of the first premium has been made.

A Whole Life policy furnishes a form of Permanent protection because it never has to be:

Renewed or converted: The terms Whole Life and Straight Life are interchangeable. As used, either term means "continuous, level-premium Ordinary Life" insurance. A Whole Life policy may never be changed by the company. The premium can never go up. It never has to be renewed or converted. Therefore, it is known as "permanent protection."

Social security benefits payment

Since Social Security benefits are tied to the Consumer Price Index, the amounts of monthly benefits will usually go up over a period of time.

apparent authority

The authority that a producer has that is based upon their actions and deeds

misstatemnt of age formula

The formula to calculate this is as follows: The client is 40, but states 30, to get a lower rate. The client buys a $100,000 policy. The premium paid is $200 per year. At the correct age, the client should have paid $400 per year. Divide what the client did pay ($200) by what the client should pay ($400) and multiply the answer times the face amount to determine what will be paid at death.

Automatic Premium Loan Provision

The provision in a life insurance policy that provides protection against unintentional policy lapse. Automatic Premium Loan (APL) is a rider that can be added to any life insurance policy that has or will have a cash value. It cannot be added to Term insurance. It is usually free, but the producer or client must check this option on the application. If the policy has a cash value and the insured forgets to pay the premium when due, the policy will not lapse, since it will borrow from itself to pay the overdue premium. Remember: This is a rider, not a non-forfeiture option. However, when the insured dies, all loans are subtracted from policy proceeds, so the beneficiary's pay-out may be reduced.

exposure

condition that results in a loss

Fair Credit Reporting Act

federal law explains to a customer their legal rights when a consumer report will be ordered by an insurer

dividends paid my mutual insurer guarnteed or not guarnteed

must be stated as not guarnteed.

adjustable whole life

Adjustable whole life is sold to people with fluctuating incomes who want a policy whose premium and/or face amount may be adjusted to meet their changing needs.

Waiver of Premium rider:

It is a rider that can be added to any policy that will pay the insured's premium after a waiting period if the insured becomes totally disabled. The waiver of premium rider can be added to any policy and will waive the insured's premium after a six-month waiting period if the insured becomes totally disabled. During the six-month period the insured is responsible for paying their premium. If, after the six months, they are still totally disabled, the rider goes into effect and will pay the insured back the premium they paid during the six months and waive the ongoing premium as long as they are disabled. Waiver of premium is a rider NOT a non-forfeiture option.

A life insurance dividend option that would result in cash value that is in excess of that guaranteed in the policy is:

Mutual insurers often pay dividends, although they are not guaranteed. If the insurer does pay a dividend, the policy owner may select one of several dividend options. If they select the "paid-up" additions option, each dividend will be used as a single premium to buy a small, additional whole life insurance policy. Since each policy purchased develops its own cash value over a period of time, the policy owner will end with more cash value than that guaranteed by their initial policy. Remember, "reduced paid-up" is a non-forfeiture option, not a dividend option.

All of the following are true regarding an individual life insurance grace period, EXCEPT:

The full death benefit is payable Explanation: On individual life insurance policies, when the insured dies in the grace period, the face amount of the policy is paid to the beneficiary, less the overdue premium.

Incontestability Clause

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time. The Incontestability Clause protects the client who may have lied (misrepresentation) on the original application for life insurance. The company has two years to investigate the insured from the original date of application. If the client dies within the first two years and the insurance company can prove that they lied about a material fact on the original application, they can deny the claim. However, after the two-year period has elapsed, they must pay the claim even if the client lied. So, those who lied can quit worrying after two years!

Duties of SEC

They are responsible for enforcing Federal securities laws

All of the following are true about Life insurance "inspection reports" EXCEPT:

They relate to an applicant's medical history: A Life insurance "inspection report" is also known as an investigative consumer report. It is usually ordered by the underwriter to verify an applicant's credit, character and habits. Inspection reports fall under the provisions of the Federal Fair Credit Reporting Act.

The time period covered by the 10-Day Free Look Provision of a life insurance contract starts:

When the insured receives the contract and makes the first premium payment, if needed Explanation: The 10-day Free Look never begins until the policy is actually delivered. Even if the premium had been paid previously, the 10-day Free Look would not have begun until policy delivery. The client then has 10 days to rescind the policy and get all of the money back.

An insurance prospect wants to purchase a policy that will accumulate the largest amount of cash by the age of 65. Which policy would be most likely to satisfy the prospect's needs:

endownment age 65: Since an Endowment at age 65 reaches maturity at age 65, rather than age 120, it will be much more expensive than an LP 65. Since it is more expensive, it will also build cash values much faster, since the face amount and the cash value must be at least equal by age 65.

who owns the policy when Life insurance is used to fund an Executive Bonus plan

the employee does. employer pays premium however.

Can you take loans on Universal life insurance

yes. minimum guarnteed rate of return. flexible premium.

There are five settlement options from which a beneficiary may select upon death of the insured

1) Cash, 2) Fixed Period (proceeds, plus interest, are all paid out over a fixed period of time, say 10 years), 3) Fixed Amount (the beneficiary elects to receive $1,000 per month, plus interest, for as long as the money lasts), 4) Interest (the proceeds are left with the company to accumulate additional interest) and 5) Life Annuity (paid as long as the beneficiary/annuitant lives).

how long is double or triple indeminity in force after accident

90 days. after that back to single indemnity. assumed to die form natural causes

Collateral assignment

A collateral assignment is a temporary assignment that a policy owner might make to a bank as collateral for a loan.

Change of insured

An employer may transfer a Key Person life insurance policy from one key person to another by making change of insured. Some insurers offer a "Change of Insured" rider, which allows the policy owner to transfer coverage from one key person to another, subject to proof of insurability.

Which individual policy conversion is usually permitted without any evidence of insurability:

Conversion from a Term policy to a Whole Life policy Explanation: The conversion privilege is simply a marketing tool that allows insureds who buy Term insurance to convert to Whole Life without proving continued good health. Without this privilege, few would buy Term insurance. You cannot convert Term-to-Term or convert to a higher or lower face amount, and you cannot convert Whole Life-to-Term.

suicide claus payout

If an insured dies by suicide within the first two years of a new life insurance policy, there is no coverage. However, the insurance company will refund the premium paid to the beneficiary.

Most collateral assignments of life insurance policies are made in order to protect the:

Insured's personal or business credit

If an insurer keeps the death benefit amount and pays the beneficiary earnings on a monthly basis, the beneficiary has selected which settlement option:

Interest only Explanation: If the beneficiary selects the interest only settlement option, the insurer will retain the death benefit and pay the beneficiary interest, which is taxable, monthly.

premium payment schedule for a Whole Life policy:

Premiums are payable throughout the insured's lifetime, and coverage continues until the insured's death.An insured buying Straight Whole Life, which matures at age 120, could also stop paying their premiums at age 65 by selecting the Reduced Paid Up Non-forfeiture option. This would result in the insured having a new Whole Life policy paid up to age 120 with a cash value and a death benefit somewhat reduced from their original policy, but no further premiums would be due.

Payor Provision

The Payor Provision (sometimes called Payor Waiver of Premium) is an optional provision (or rider) often added to a policy insuring the life of a minor. The adult (usually the parent) may become sick or disabled and become incapable of paying the premium. This rider will then pay the premium on behalf of the sick or disabled payor. However, it is exactly like the Waiver of Premium Rider you would see on your own life insurance policy in that both riders have a six-month waiting period before premiums are retroactively paid. Both riders cost extra and will automatically drop off at age 60 or 65 at which time the premium would be reduced. The extra premium for these riders must be shown separately from the premium charged for the life insurance. None of the extra premium charge goes toward cash-value accumulation

which dividend option is taxable

interest: Dividends paid to policyholders of a mutual insurer are not taxable as the IRS considers them to be a return of overpayment of premium. However, if the policyholder selects the interest dividend option, the interest the insurer pays the policyholder would be taxable as ordinary income.

Which of the following is a non-forfeiture option that provides continuing cash-value build up:

reduced paid up. client selects the Reduced Paid-Up option, the company then uses all of the accumulated cash value to buy the client internally a new Whole Life policy paid up to age 120. It would have an immediate cash value, but no further premiums would ever be due. The face amount would be more than the accumulated cash value, but less than the original face amount of the initial policy, so it is called Reduced Paid-Up.Cash value would continue to accumulate, and at maturity (age 120) the cash value would equal the face amount. No physical exam is required. Of course,

In which company may stockholders share in the profits and losses of the insurer:

stock: Stockholders may receive dividends from the shares of stock they own in a stock company. These dividends are not guaranteed, but if paid, are taxable as ordinary income.

If an insured with a participating whole life policy elects the one year term dividend option, the amount of term life insurance purchased by the dividend will equal:

the death benefit. Some participating life insurance policies offer a dividend option known as "one year term" insurance. If a policy holder has borrowed against their policy, then part of the dividend can be used to buy one year term insurance equal to the face value of the policy. If the insured should die during the one year term before paying back the loan, the beneficiary will still receive the full value of the policy.

An insured died during the grace period of their life insurance policy and had not paid the required annual premium. The insurance company is obligated to pay which of the following to the beneficiary:

The face amount of the policy less any earned premiums Explanation: There are three grace periods to remember: 28 days on Industrial Life, 30 days on all other life except group, and 31 days on group life. The purpose of the grace period is to protect the insured who honestly forgot to pay on the due date. The policy will not actually lapse until the end of the grace period. If a client dies within the grace period, it is assumed they would have paid the premium, so the company will pay the face amount to the beneficiary, less any overdue premiums.