Colorado Life Insurance

What is the maximum civil penalty per violation if an unauthorized entity violates the Commissioner's cease and desist order?

$25,000, The Commissioner may take the following actions against an unauthorized insurer that violated a cease and desist order: impose a civil penalty of $25,000 per violation, or direct the entity to make complete restitution to all parties affected by the violation, or both.

The term insurance transaction includes:

1) Solicitation; 2) Negotiation; 3) Sales; 4) Advertising

A purchaser of life insurance policy has the right to return the policy for a full refund of the premium if done within:

15 days of its delivery.

Of the required 50 hours of prelicensing education, what is the minimum number of hours an applicant must complete on the subject of ethics?

3 hours, Of the 50 hours, at least 3 hours will pertain specifically to insurance industry ethics.

Within how many days are insurers required to notify the Commissioner that a producer's employment has been terminated?

30 days, The Commissioner must be notified within 30 days following the effective date of the termination.

What is the number of credits required for fully insured status for Social Security disability benefits?

40, The term "fully insured" refers to someone who has earned 40 quarters of coverage (10 years of work times 4 maximum annual credits).

If a life insurance policy develops cash value faster than a seven-pay whole life contract, it is:

A Modified Endowment Contract. Any cash value life insurance policy that develops cash value faster than a seven-pay whole life contract is called a Modified Endowment Contract. It loses the benefits of a standard life contract.

Application Statement - Warranty

A absolutely true statement

According to the Entire Contract provision, a policy must contain:

A copy of the original application for insurance. An insurance contract must contain a copy of the original application.

Material Fact

A fact that would lead to a different underwriting decision had the insurer known about it

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Beneficiary

A person who receives the benefits of an insurance policy

The term "illustration" in a life insurance policy refers to:

A presentation of nonguaranteed elements of a policy. The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

adhesion contract

A take-it-or-leave-it offer made by a party who holds most of the power in a bargaining session

Elements of a Legal Contract

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

Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive?

Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit. If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

Utmost Good Faith

An obligation to act in complete honesty and to disclose all relevant facts.

In order to get a nonresident license in this state, a producer must:

Apply and pay a fee to a nonresident state that reciprocates. A producer may apply for a nonresident license by showing that they are in good standing as a producer in their home state and by paying a fee, if the two states reciprocate.

How often must the Commissioner examine all insurers to guard against insurance company insolvency?

At least once every 5 years, The Commissioner may conduct an examination or investigation of any company or person as often as deemed appropriate, but at least once every 5 years.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

What is consideration in a policy?

Consideration is something of value that is transferred between the two parties to form a legal contract.

Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?

Defamation, Defamation is making statements that are false as to the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance.

In group life policies in this state, when may the insurer use suicide as a cause of death as a defense against paying a claim?

If the suicide occurs during the first year of coverage. The suicide of a policyholder after the first policy year of any life insurance policy issued by any life insurance company in this state will not be a defense against the payment of a life insurance policy, whether the suicide was voluntary or involuntary, and whether the policyholder was sane or insane.

Blood or Business

Insurable Interest

Adverse Selection (insurance def)

Insuring the risks that are more prone to losses than the average risk

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which two terms are associated directly with the premium?

Level or flexible A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors?

Life expectancy, Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Key Person Insurance

Life insurance that protects a firm against losses due to the death of a key employee is known as

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life, Premium payments will cease at her age 65, but coverage will continue to her death or age 100.

What is the other term for the cash payment settlement option?

Lump sum, Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of:

Misrepresentation. Issuing or circulating any sales material that is false or misleading would be considered misrepresentation and is illegal.

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.

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider, Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit, If the payor (usually a 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.

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense. The business cannot take a tax deduction for the expense of the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to:

Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Another name for a substandard risk classification is:

Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up, The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium, The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

The regulations regarding replacement apply to which of the following?

Renewable term, Replacement rules apply to all life insurance policies except group life policies, group annuities, credit life or nonconvertible term which will expire in 5 years or less and cannot be renewed. Purchasing additional coverage under the GIR is not a replacement of coverage, simply an addition of coverage.

A domestic insurer issuing variable contracts must establish one or more:

Separate accounts. Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.

What is the official name for the Social Security program?

Social Security is formally called Old Age Survivors Disability Insurance - OASDI.

Personal Uses of Life Insurance

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

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term, Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Aleatory Contract

The exchange of value is unequal.

Who has the right to assign incidents of ownership under a group life insurance policy?

The individual insured, A person insured under a group life insurance policy has the right to assign all or any part of incidents of ownership under such policy, including, but not limited to, the privilege to have issued to the insured an individual life insurance policy and the right to name a beneficiary.

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to:

The insured's estate. In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

Believing a producer has violated provisions of the Insurance Code, the Commissioner will schedule a hearing:

To allow the producer to show why penalties should not be assessed. Once the Commissioner has reasonable grounds to believe that a person has violated insurance laws, the Commissioner must conduct a hearing to allow the person to defend themselves. Upon failure of the person to redeem their actions, the Commissioner may impose fines or suspend or revoke the person's license.

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 contract. It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.

Application Statement - Representations

True to the best of the applicants knowledge

In a survivorship life policy, when does the insurer pay the death benefit?

Upon the last death, Survivorship life pays on the last death rather than upon the first death.

The main difference between immediate and deferred annuities is:

When the income payments begin. The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.

insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Conditional Contract

a contract that becomes enforceable only on the happening or termination of a specified condition

Agent/Producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Applicant or proposed insured

a person applying for insurance

Express Authority

authority declared in clear, direct, and definite terms

Agent Authority

express, implied, apparent

Concealment

intentional failure of the applicant for insurance to reveal a material fact to the insurer

Fraud

intentional misrepresentation of a material fact, made with the intention to deceive

Types of Term Insurance

level, increasing, decreasing

Level Term Insurance

pays the same death benefit over the term of the policy

Insured

person covered by the insurance policy; may or may not be the policy owner

lapse

policy termination due to nonpayment of premium

Unilateral Contract

promise in exchange for an act - a one-sided promise

Insurable Interest

something of value that, if lost, would cause you financial harm

Decreasing Term Insurance

term insurance in which the annual premium remains constant but the face amount of the policy declines each year

Death Benefit

the amount paid upon the death of the insured in a life insurance policy

Insurer (principal)

the company who issues an insurance policy

Increasing Term Insurance

the death benefit increases over the life of the policy, and the premium remains level

Policyowner

the person entitled to exercise the rights and privileges in the policy