Quiz: LIFE INSURANCE BASICS

What does "liquidity" refer to in a life insurance policy?

Cash values can we borrow at any time. Liquidity in life insurance refers to availability of cash to the insured through cash value.

What does a key person insurance policy pay for?

Costs of training a replacement. A key person insurance policy will pay for costs of running the business and replacing the employee.

Who must have insurable interest in the insured?

Policyowner

In the use of life insurance as an executive bonus through a company, who owns the policy?

The policy is owned by the employee.

When must insurable interest exist in a life insurance policy?

At the time of application

Insurance illustrations must be a part of the contract for the policy. True or false?

False An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected not guaranteed values.

Applicants are considered substandard risk because?

Physical condition Personal or family, history of disease Occupation Dangerous habits.

What must happen when an individual policy or annuity has been personally deliver to the policy owner?

The policy owner must sign a delivery receipt. When an individual policy or annuity is delivered by hand to the policy owner, a delivery receipt must be signed. The receipt will be in duplicate and state the date the contract was received.

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. What does this mean for the policy premium?

The premium will likely be higher, because the applicant is a substandard risk. Applicants are considered substandard risk because of physical condition, personal or family, history of disease, occupation or dangerous habits. Substandard risks are usually issued a higher premium than standard risks.

Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called?

Suitability Insurance producers must adhere to the concept of suitability by ensuring that to the best of their belief the purchase, sale, or exchange of a policy is in the best interest of the insured.

Is national origin a factor that an underwriter could use to select and classify risk in a life insurance policy?

No The company will discriminate in favor of good risks, and not of poor risks, however, it cannot discriminate unfairly by using factors, such as race or national origin in their underwriting.

What are the three recognized areas in which insurable interest can exist?

1. A policy owner insuring their own life. 2. A policy owner, ensuring the life of a family member (relative or spouse). 3. A policy owner, ensuring the life of a business partner, key employee, or someone who has a financial obligation to the policy owner. !! A debtor does not have an insurable !!___________interest in the creditor___________