Life Insurance Basics

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

- Own life - Family member - Business partners - Individual who has a financial obligation to the policy holder

What are personal uses of life insurance?

- Survivor protection - Estate creation - Estate conservation - Cash accumulation - Liquidity

Who must be a member of insurance guaranty associations?

All insurers authorized to write insurance within a state

When must insurable interest exist in a life insurance policy?

At the time of the application

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

At the time of the policy delivery

What does liquidity mean in a life insurance policy?

Availability of cash value

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Either the date of the application or the date of the medical exam (whichever occurs last)

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

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

Higher payment frequency = Higher overall premium

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

Investigative consumer report

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

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

Medical information

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

Monthly

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

Mortality, interest and expense

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

No

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

Permanent insurance (usually whole life)

What document describes the specific information about a policy?

Policy summary

Who must have insurable interest in the insured?

Policyowner

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

Premium

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 nonguaranteed elements of the policy

What is the main responsibility of a company's underwriting unit?

Risk selection

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 tax free

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

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

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

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 insurance underwriting?

The process of risk selection and classification

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

To discuss the agents personal observations about the proposed insured that may help in the underwriting process.

What is the purpose of key person insurance?

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

What is the purpose of insurance guaranty associations?

To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers