Chapter 2: Life Basics

A business owner buys a life policy on his own life. He/she may be all of the following, EXCEPT _________. A - Beneficiary B - Insured C - Applicant D - Owner

A - Beneficiary The insured may not be the beneficiary of his own policy. The owner and the applicant may also be the insured.

An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? A - Contact either her agent or the insurance company and make sure they have the correct information B - Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct C - Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application D - Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake

A - Contact either her agent or the insurance company and make sure they have the correct information The insurance company is entitled to have the most correct information available before it approves a person for insurance. Incorrect information in the application may only be changed before the policy is issued.

When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: A - Human life value B - Needs analysis C - The DIME method of insurance planning D - The NAIC Mode

B - Needs analysis When a producer takes into account a variety of factors related to lost future income, he/she is using a needs approach.

A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the: A - Sales proposal B - Conservation statement C - Notice Regarding Replacement D - Policy summary

C - Notice Regarding Replacement A statement signed by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction is the Notice Regarding Replacement.

All of the following statements are true regarding HIV testing, except: A - The insured must pay for the cost of the testing B - Test results must remain confidential C - A current and prior HIV positive test result may be the basis of declined life insurance D - All tests require informed consent by the applicant

A - The insured must pay for the cost of the testing All tests require informed consent and the results must remain confidential in accordance with privacy protection provisions, and the insurer must pay for the cost of the testing.

Who is required to sign a completed application? A - The producer and applicant B - Any insurance company officer C - The beneficiary D - The producer's manager

A - The producer and applicant Only the applicant/insured and the producer's signatures are required in an application for insurance.

An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct: A - There is no coverage B - Temporary term insurance is used to pay the death benefit C - Coverage is effective on the date of the application D - Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied

A - There is no coverage A conditional receipt will not be effective until the date of application or medical exam, whichever is later. Since the applicant died before the medical exam was performed there is no coverage.

At the time of a life insurance policy delivery, a producer must provide which of the following? A - A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance B - A copy of the illustration that matches the policy for which it was approved C - A copy of the fact finding data collected on the initial sales appointment D - A copy of the insurance company's most recent annual report

B - A copy of the illustration that matches the policy for which it was approved An illustration or policy summary must be provided prior to or at the time a policy is delivered. If the policy is not the same as that which was illustrated previously, the client must be given a new illustration matching the policy that is issued. In practice, insurance companies include a matching illustration or summary with every policy approved for delivery.

All of the following are examples of a third-party ownership, EXCEPT: A - J applies for his life insurance policy and names his trust as the owner and beneficiary B - S applies for a policy on herself and names her husband as the beneficiary C - J is named as the owner and beneficiary of G's policy D - T applies for and owns his 2-year-old son's policy, but names his wife as beneficiary

B - S applies for a policy on herself and names her husband as the beneficiary Third-party ownership exists when the insured and the owner of the policy are different persons.

Which of the following describes group life insurance? A - A single policy issued to an individual covering husband, wife and children B - Multiple policies issued to an employer to cover a specific group of executives C - A single policy issued to a business to cover the lives of employees D - A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates

C - A single policy issued to a business to cover the lives of employees Group insurance is underwritten as a single policy that covers many lives. A policy issued to an individual that covers all family members is still an individual policy. A group specifically formed for the purpose of obtaining insurance is not a valid group under state insurance laws.

Which of these modes would result in the insured paying the least amount per year for life insurance? A - Monthly automatic bank draft B - Quarterly C - Annual D - Semi-annual payroll deduction

C - Annual Paying premiums on an annual basis is always the least costly premium mode. Paying premiums monthly is usually the most expensive mode. Although some insurers may offer a discount for automatic monthly bank drafts, not all do, so this is not an acceptable choice. Payroll deduction is not a "mode."

A personal use of life insurance does which of the following? A - Creates an insurable interest B - Compensates a business for the death of a key person C - Provides protection against living too long D - Creates an immediate estate

D - Creates an immediate estate Life insurance is often described as creating an immediate estate.

Which of the following statements correctly describes the difference between gross premium and net premium? A - Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on B - Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses C - Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance D - Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses

D - Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses Gross premium is the total amount a person pays the insurer for his/her coverage. Net premium, sometimes called the "pure premium," does not include interest earnings or business expenses of the insurer.

An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, except: A - Collecting the premium B - Explain the benefits, ratings, riders, and exclusions C - Obtaining a Statement of Good Health D - Perform a medical exam

D - Perform a medical exam If the application is submitted without the initial premium, the producer, upon delivery, will collect the initial premium and obtain a Statement of Good Health, verifying the insured has not suffered injury or illness since the application date. If the applicant is not in good health, the producer will send the policy back to the insurer for further underwriting. The producer does not perform medical exams.

Which of the following is not true about life insurance applications? A - The application may contain all the information underwriting needs to approve the insured B - The application more fully identifies the insured C - Applications for life insurance are typically divided into two parts: General Information and Health History D - The application is confidential communication between the agent and the insurer

D - The application is confidential communication between the agent and the insurer A copy of the application will be included as part of the policy, and is therefore not confidential.