Other Life Topics

What is the name for an overfunded life insurance policy?

A Modified Endowment Contract (MEC)

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

Adverse selection

According to the Law of Agency, a principal is represented by whom?

Agent or producer

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

What type of insurer is formed under the laws of another country?

Alien

Who must be a member of insurance guaranty associations?

All insurers authorized to write insurance within state

When must insurable interest exist in a life insurance policy?

At the time of application

When must the policy summary for a life insurance policy be delivered to the policy owner?

At the time of policy delivery

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

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

Certificate of Authority

When a charge needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application

What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?

Death benefits are generally not subject to income taxes

Why are dividends in life insurance policies not taxable?

Dividends are not considered income for tax purposes; they are a return of unused premium.

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

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 the date of the medical exam (whichever occurs first)

What are the three types of agent authority?

Express, implied and apparent

The requirement that agents must account for and promptly remit all insurance funds collected is knowns as what type of agent responsibility?

Fiduciary

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What are the three main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policy-owner

What portion of a non-qualified annuity payment would be taxed?

Interest earned on principal

If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?

Interest only

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

Investigative consumer report

Insurance is a contract that protects the insured from what?

Loss

The reduction, decreased, or disappearance of value of the person or property insured in a policy is known for what?

Loss

What are the five characteristics of an ideally insurable risk?

Loss must be 1) due to chance, 2) definite and measurable, 3) statistically predictable, 4) non catastrophic, and 5) coverage cannot be mandatory.

What is included in Part 2 of a life insurance application?

Medical information about the prospective insured

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Moral

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Morale

What are the three factors that determine the premium for a particular life insurance policy?

Mortality, interest and expense

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

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

Mutual company

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

No, advertising of the existence of the guaranty association for the purposes of solicitation and sale of insurance policies by insurers is an illegal business practice.

Is the death benefit of a life insurance policy taxed to the beneficiary if it's received as a lump sum?

No, lump-sum benefits are received tax free.

Upon surrender of a life insurance policy, what portion of the cash value will be taxed?

Only the portion in excess of the premium paid

What term describes the fee a person pays an insurance company to receive coverage?

Premium

What is the term that describes the angle between the relative wind and the chord line of an airfoil?

Premium mode

What is the term that describes the frequency and the amount of the premium payment?

Premium mode

What are illustrations in a life insurance policy?

Presentations of non-guaranteed elements of the policy

What type of risk is insurable?

Pure

A situation in which a person can only experience a loss and no gain presents what type of risk?

Pure Risk

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to the applicant for signature

Who is the beneficiary on a key-person life insurance policy?

The employer

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

Who is responsible for the contents of insurance advertisements?

The insurance company

In calculating the amount of life insurance needed, what is the needs approach based on?

The predicted needs of a family after the premature death of the insured

What is the purpose of insurance guaranty association?

To protect policy-owners, insureds and beneficiaries from financial losses caused by insolvent insurers

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

When it is intentional and material

In insurance, when is the other usually made on a contact?

When the insurance application is submitted

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

When would life insurance policy proceeds be included in the insured's taxable estate?

When there is an incident of ownership at the time of death

Premium

an amount to be paid for an insurance policy.

Whom does an insurance agent represent?

insurance company

life insurance

insurance paid to named beneficiaries when the insured person dies

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

Peril

What type of life insurance offers an applicant a cash value element?

Permanent insurance (usually, whole life)

What does liquidity mean in life insurance policy?

Availability of cash value

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

According to the taxation rules of life insurance policies, how are cash value increases taxed?

Cash value growth is tax deferred

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

An insurance company is domiciled in California and transacts insurance in Nevada . What is this insurer's classification in Nevada?

Foreign

An insurance company that is formed under the laws of another state is known as what type of insurer?

Foreign

In a direct rollover, how is the money transferred from one retirement plan to a new one?

From trustee to trustee

Conditions that increase the chance of a loss are known as what?

Hazards

How does the premium mode affect the total premium paid for insurance for the year?

Higher frequency of premium payments will result in higher overall premium

In the agent/insurer relationship, who is considered the principal?

Insurer

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

Insurer

What entities make up the Medical Information Bureau?

Insurers

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

It will decrease.

Mortality tables are used by insurance companies to predict what?

Life expectancy and the death-rates for specific groups of individuals

What type of insurance creates an immediate estate?

Life insurance

All others factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?

Monthly

What are the three types of hazards?

Physical, Moral, Morale

What document describes the specific information about a policy?

Policy summary

Who must have insurable interest in the insured?

Policyowner

What are the strategies used by underwriters to prevent adverse selection?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

What is the best way to handle incomplete insurance applications?

Return the application to applicant for completion

What is the main responsibility of a comapany's underwriting unity?

Risk selection

Wagering on a sporting event is known as what type of risk?

Speculative

The insurer organized to return a profit to the stockholders is what type of insurer?

Stock Company

Who owns stock companies?

Stockholders

What are the personal uses of life insurance?

Survivor protection, estate creation and conservation, cash accumulation and liquidity

If an applicant does not receive his or her insurance policy, who would be held responsible?

The agent

Whose responsibility is it determine that all the questions on an insurance application are answered?

The agent's

What is the purpose of the agent's report during the application process?

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

A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?

The benefit is received tax free.

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

The insured's current assets, liability and survivor's needs

What is insurance underwriting?

The process of risk selection and classification

What is the main purpose of the 7-pay test?

To determine if a life insurance policy is a Modified Endowment Contract

What is the purpose of key person insurance?

To minimize the risk of financial loss caused by the death of a key employee

For the purpose of insurance, what is risk?

Uncertainty of loss

What are the three types of authority?

express, implied, apparent