Terms to Know Chapter 1

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?

$50,000

a person who receives the benefits of an insurance policy

Beneficiary

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

Death benefit

a person's net worth

Estate

A temporary license holder can receive a commission from a sale made to all of the following EXCEPT

The license holder's sister-in-law.

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history 1 year later. What will probably happen?

The policy will not be affected.

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions

Will be tax deductible.

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions_

Will be tax deductible.

Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit?

Within 2 months

A Straight Life policy has what type of premium?

A level annual premium for the life of the insured

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

Agent/Producer

Who can make a fully deductible contribution to a traditional IRA?

An individual not covered by an employer-sponsored plan who has earned income

a person applying for insurance

Applicant or proposed insured

If an insurer meets the State's financial requirements and is approved to transact business in the state, it is considered to be

Authorized.

The owner of a small restaurant submits a claim to his insurer after a loss due to fire. The insurer's investigation finds a police report that shows that a fire may have been of suspicious origin. The insurer can do which of the following?

Delay an acceptance or rejection decision

The death benefit in a variable universal life policy

Depends on the performance of a separate account.

Which settlement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to the beneficiary at regular intervals?

Interest only

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants

Methods used to pay the death benefits to a beneficiary upon the insured's death are called

Settlement options.

All of the following are unfair claims settlement practices EXCEPT

Suggesting negotiations in settling the claim.

What is true about nonforfeiture values?

They are required by state law to be included in the policy.

What is the purpose of settlement options?

They determine how death proceeds will be paid

Which of the following is NOT true regarding Equity Indexed Annuities?

They earn lower interest rates than fixed annuities

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal life

A party wishing to buy an annuity that will advance with economic and market conditions should buy a

Variable annuity.

the company who issues an insurance policy

Insurer (principal)

policy termination due to nonpayment of premium

Lapse

A rider attached to a life insurance policy that provides coverage on the  insured's family members is called the

Other-insured rider

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data.

Which of the following is NOT true regarding a Variable Universal Life policy?

The death benefit is fixed.

Which of the following is INCORRECT concerning a noncontributory group plan?

The employees receive individual policies.

If a person is compensated for a testimonial in an advertisement, which of the following statements should be included in the advertisement?

Paid endorsement

In terms of Social Security, what is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called?

Blackout Period

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic premium loan

coverage on human lives

Life insurance

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

Lump sum

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Mutual

In which of the following instances would the premium be tax deductible?

PREMIUMS PAID BY AN EMPLOYER on a $30,000 group term life insurance plan for employees

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance.

All of the following statements are correct regarding Credit Life Insurance EXCEPT

Benefits are paid to the borrower's beneficiary.

an insurance producer who is not appointed by an insurance company and who represents the client

Broker

If a beneficiary wanted a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what option would a beneficiary select?

Fixed period

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee

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

Insurance policy

a person covered by the insurance policy; may or may not be the policyowner

Insured

An insured purchased a Life Insurance policy. The agent told him that depending upon the company's investments and expense factors, the cash values could change from those shown in the policy at issue time. The policy is a/an

Interest-sensitive Whole Life.

A participating insurance policy may do which of the following?

Pay dividends to the policyowner

A prospective insured receives a conditional receipt and dies before the policy is issued. The company will

Pay the policy proceeds only if it would have issued the policy.

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

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

Policyowner

the money paid to the insurance company for the insurance policy

Premium

Which of the following will be included in a policy summary?

Premium amounts and surrender values

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment

Who bears all of the investment risk in a fixed annuity?

The insurance company

An agent explains the details of a life insurance policy to a client. The agent does not realize, however, that the state has recently rewritten two of the provisions. As a result, the agent inadvertently misrepresents the policy, making it more attractive than it really is. What best describes this situation?

There is no misconduct