NWM Life Insurance Basics

Name the 10 classes of life insurance policies

1. Permanent 2. Term 3. Participating 4. Nonparticipating 5. Fixed 6. Variable 7. Group 8. Individual 9. Ordinary 10. Industrial (home service)

What is the four step process of issuing a life insurance policy?

1. Solicitation and sales presentation. 2. Underwriting 3. Premium determination 4. Policy issue and delivery

What are some of the important concepts about viatical settlements that I should know?

1. The insureds are referred to as viators. 2. Viatical settlement provider means a person, other than a viator, that enters into a viatical settlement contract 3. Viatical producers represent the providers. 4. Viatical brokers represent the insureds

What are the three types of classification risks?

1. standard 2. substandard 3. preferred

Name the six uses of life insurance.

1. survivor protection 2. estate creation 3. cash accumulation 4. liquidity 5. estate conservation 6. viatical settlements

Which of the following statements is NOT true concerning insurable interest as it applies to life insurance? A. A debtor has an insurable interest in the life of a lender. B. Business partners have an insurable interest in each other. C. A husband or wife has an insurable interest in their spouse. D. An individual has an insurable interest in his or her own life.

A. A debtor has an insurable interest in the life of a lender.

Which of the following is usually true of a participating life insurance policy? A. Pays dividends to policyowners. B. May be converted to a term life policy. C. Pays dividends to stockholders. D. Assesses premiums against stockholders.

A. Pays dividends to policyowners.

Which of the following types of risk will result in the highest premium? A. Substandard risk B. Standard risk C. Preferred risk D. All risks pay equal premiums

A. Substandard risk

All of the following are true of key person insurance EXCEPT A. The plan is funded by permanent insurance only. B. There is no limitation on the number of key employee plans in force at any one time. C. The employer is the owner, payor and beneficiary of the policy. D. The key employee is the insured.

A. The plan is funded by permanent insurance only.

Which of the following statements regarding deferred compensation funds is INCORRECT? A. They are usually qualified plans. B. They can be established by employers. C. They can be made with cash deposits to an annuity. D. They generally provide additional retirement benefits.

A. They are usually qualified plans.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant A. With the policy. B. Upon issuance of the policy. C. Within 30 days after the first premium payment was collected. D. Prior to filling out an application for insurance.

A. With the policy.

What is the time period called during which the surviving spouse of the insured does not receive Social Security income benefits? A. Retention of capital B. Probationary period C. Blackout period D. Waiver of premium

C. Blackout period

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Board of directors is the owner, and the board of directors pays the premium. B. Company is the owner, and the company pays the premium. C. Executive is the owner, and the executive pays the premium. D. Company is the owner, but the executive pays the premium.

C. Executive is the owner, and the executive pays the premium.

An insured purchased an individual life insurance policy with a face amount of $15,000. He pays a premium each month. What type of policy is that? A. Home service insurance B. Commercial life C. Ordinary life D. Industrial life

C. Ordinary life

For what reason may a life insurance producer backdate a life insurance policy? A. To make a policy effective during a period when the agent's appointment was in force B. To shorten the period of contestability C. To avoid an increase in premium rate for the insured D. To meet sales quotas established by the insurer

C. To avoid an increase in premium rate for the insured

Which of the following is NOT an example of a business use of Life Insurance? A. Executive Bonuses B. Key Person C. Workers Compensation D. Buy-sell Funding

C. Workers Compensation

________________________________ means the applicant may be covered as early as the date of the application

Conditional receipt

________________ is used in partnerships when each partner buys a policy on the other

Cross purchase

What are the four types of buy-sell funding?

Cross purchase, entity purchase, stock purchase, and stock redemption

A producer agent must do all of the following when delivering a new policy to the insured EXCEPT A. Explain the policy provisions, riders, and exclusions. B. Collect any premium due. C. Explain the rating procedures if the policy is rated differently than applied for. D. Disclose commissions earned from the sale of the policy.

D. Disclose commissions earned from the sale of the policy.

All of the following are business uses of life insurance EXCEPT A. Compensating executives. B. Funding against financial loss caused by the death of a key employee. C. Funding business continuation agreements. D. Funding against company's general financial loss.

D. Funding against company's general financial loss.

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will A. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B. Return the premium to Y's estate, since it has no obligation to pay the death claim. C. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D. Issue the policy anyway and pay the face value to the beneficiary.

D. Issue the policy anyway and pay the face value to the beneficiary.

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? A. A notice regarding replacement B. A privacy notice C. A buyer's guide D. A policy summary

D. Policy summary

Another name for a substandard risk classification is A. Controlled. B. Declined. C. Elevated. D. Rated.

D. Rated.

In a life settlement contract, whom does the life settlement broker represent? A. The insurer B. The beneficiary C. The life settlement intermediary D. The owner

D. The owner

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A. Travel expenses for family to come to the funeral B. Debt cancellation C. Day care D. Vacation travel expenses

D. Vacation travel expenses

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize? A. Estate liquidation B. Nonpayment of premium C. Change of beneficiary D. Viatical settlement

D. Viatical settlement

_______________________________ refers to any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan

Deferred compensation funding

________________________ permits the employee to defer part of their salary or bonus as a tax-deferred savings

Elective plans

_______________ is used when the partnership buys the policies on the partners

Entity purchase

T/F Under executive bonuses since the premium is treated as a bonus, that amount is tax deductible to the employer but not income taxable to the employee.

False, IT IS income taxable to the employee

T/F Under excutive bonuses the premium is not treated as a bonus

False, IT IS treated as a bonus

T/F The purchase of life insurance does not create an immediate estate

False, it does create one

T/F The higher the risk, the lower the premium

False, the higher the risk, the HIGHER the premium

T/F Viatical settlements are not policy options, they are alos not seperate contracts in which the insured sells the death benefit to a third party

False, they ARE seperate contracts

A life insurance producer is the company's _____________________

Field underwriter

______________________ refers to life insurance or annuities that are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract. ____________________ refers to life insurance or annuities that are contracts in whic hthe cash values accumulate based upon a specific portfolio of stocks without guarantees of performance.

Fixed and variable

What are the two parts of an application?

General and medical information

Net Premium + Expense (loading) = _________________________

Gross premium

____________________ must do all the following. Distinguish between guaranteed and projected amounts, clearly state that an illustration is not a part of the contract, and identify those values that are not guaranteed as such.

Illustration

_____________________ is designed to pay an amount in addition to the employee's qualified retirement plan

In-addition funding plans

Written in small amounts (less than $1,000), premiums are payable on a weekly or monthly basis, premiums are collected by a rep of the insurance company at the home of the insured, and policies are written as nonmedical. These are all distinguishing features of what type of life insurance?

Industrial (home service insurance)

_________________ refers to any financial transaction in which the owner of a life insurance policy sells the existing policy to a third party for some form of compensation.

Life settlements

Mortality - Interest = _____________________

Net single premium

NO premium equals _______________

No coverage

If the initial premium is not paid with the application, then when does the policy go into effect?

Not until the premium has been collected

Larger face amounts (more than $1,000), premiums can be paid annually, premiums are paid by the insured directly to the insurance company, and a physical may be required to prove the applicant's insurability. These are all distinguishin features of what type of life insurance?

Ordinary life insurance

________________________ life insurance policy refers to any policy that distributes its dividends to policyowners by cash payments, reduced premiums, a savings program, or by the purchase of term insurance

Participating

Mortality, interest, expense are all factors in what?

Premium determination

_______________ violate the principle of insurable interest

STOLI's

All life insurance polices fall into these two categories ___________ and _________________

Term and permanent

If the premium was submitted with the application, but a medical exam is required when does the policy go into effect?

The date of coverage will coincide with the date of the medical exam.

What exceptions are there to allow a viatical settlement within the first two years?

The owner is terminally ill or disabled, death of a spouse, divorce, retirement from full-time employent, bankruptcy

How do viators make money?

They receive a percentage of the policy's face value from the person who purchases the policy

T/F Estate Conservation may be used to pay inheritance taxes and federal estate taxes

True

T/F In the state of Wisconsin mutual insurers and fraternals may issue only participating policies

True

T/F Insurers cannot refuse coverage solely on the basis of adverse information on a Medical Information Bureau (MIB) report

True

T/F The policyowner must have insurable interest in the life of the insured

True

When insurers plan to seek and use information from investigators, they must first provide the applicant or insured with a ______________________________.

written disclosure authorization notice

Who must approve the written disclosure authorization notice?

Head of the Department of Insurance

What are the five business uses of life insurance?

1. Buy-sell funding 2. Key person 3. Executive bonuses 4. Deferred compensation funding 5. Split dollar plans

What are the four types of information that must be gathered for the needs approach?

1. Debt 2. Income 3. Mortgage 4. Expenses

______________________ and _________________ are the two types of determining the amount of personal life insurance.

1. Human life value approach 2. Needs approach

What are the two major classes of deferred compensation funding?

1. In-addition funding plans 2. Elective plans

Which of the following individuals must have insurable interest in the insured? A. Underwriter B. Producer C. Policyowner D. Beneficiary

C. Policyowner

_________________ provides generic information on various types of policies. _____________________ provides specific information on the policy being issued.

A buyer's guide and a plicy summary

What are illustrations?

A presentation or depiction of nonguaranteed elements of a life insurance policy

_____________________ is the key source underwriters use for information about the applicant

An insurance application

Under the Key person use, the key employee is insured, and the business is all of these four things...

Applicant, policyowner, premium payer, and beneficiary

_________________ is the starting point and basic source of information used by the company in the risk selection process.

Application

At what point must an insurable interest exist between the policyowner and the insured?

At the time of application

In the event the key employee quits or is terminated, what provision provides for the owner of the policy to transfer coverage to the replacement employee, provided the new employee provides evidence of insurability? A. Free look B. Change of insured C. Consideration D. Misstatement of age

B. Change of insured

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A. Underwriter's Report B. Inspection Report C. Medical Information Bureau's report D. Agent's Report

B. Inspection Report

An applicant wants to buy a policy that has a cash value element. Which type should she buy? A. Term B. Permanent C. Stock D. Investment

B. Permanent

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A. Effect of inflation on income over time. B. Predicted needs of the family after the insured's death. C. Insured's current and future income. D. Insured's annual expenses.

B. Predicted needs of the family after the insured's death.

Which of the following is the best reason to purchase life insurance rather than annuities? A. To liquidate a sum of money over a lifetime B. To create an estate C. To liquidate a sum of money over a period of years D. To create regular income payments

B. To create an estate

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as A Survivorship insurance B. Juvenile protection provision C. Survivor protection D. Life planning

C. Survivor protection

What is the purpose of the buyer's guide? A. To list all policy riders B. To provide information about the issued policy C. To allow the consumer to compare the costs of different policies D. To provide the name and address of the agent/producer issuing the policy

C. To allow the consumer to compare the costs of different policies

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should that person buy? A. An annuity B. A Modified Endowment Contact C. Term D. Permanent

D Permanent

What does "liquidity" refer to in a life insurance policy? A. The death benefit replaces the assets that would have accumulated if the insured had not died. B. The policyowner receives dividend checks each year. C. The insured receives payments each month in retirement. D. Cash values can be borrowed at any time.

D. Cash values can be borrowed at any time.

Which of the following is NOT an example of insurable interest? A. Business partners in each other B. Employer in employee C. Child in parent D. Debtor in creditor

D. Debtor in creditor

What does a viatical settlement allow?

It allows someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed before their death

What type of premium payment mode equalys the highest premium?

Monthly payments

________________ is used by privately owned corporations when each stockholder buys a policy on each othe the others

Stock purchase

_______________ is used when the corporation buys one policy on each shareholder

Stock redemption

__________________ is a type of insurance that is initiated on behalf of a 3rd party that has no insurable interest in the life of the insured

Stranger-Originated Life Insurance (STOLI)

What is the term limit before a viatical settlement is allowed?

Two years

__________________________ is the risk selection and classification process.

Underwriting

What is an insurable interest?

When the policyowner faces the possibilityof losing money or something of value

What type of life insurance provides permanent protection?

Whole life

What is a beneficiary?

a person who receives the benefits of an insurance policy

What is an estate?

a person's net worth

What is solvency?

ability to meet financial obligations

What is cash value?

equity amount accumulated in permanent insurance

Which use of life insurance allows you the ability to borrow against it at any time?

liquidity

What is a lump-sum?

payment of the entire benefit in one sum

What is a death benefit?

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