IL Life Insurance

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called

"Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

Dividend Options

-Cash -Reduction of Premium -Accumulation at Interest -Paid-up Additions (default) -Paid-up Insurance -One-year Term

Settlement Options

-Cash (default) -Life Income -Interest Only -Fixed Period -Fixed Amount

The following will not incur a 10% penalty for early distribution (pre-59 1/2) from a qualified plan:

-Payment of post-secondary education -Disability of the participant -The money is used to make the down payment on a home (not to exceed $10,000, and usually for first-time homebuyers) -Withdrawals are for catastrophic medical expenses, or upon death

Nonforfeiture Options

-Reduced Paid-up -Extended Term (default) -Cash

The accelerated benefits provision will allow for an early payment of the death benefit when the insured

-becomes terminally ill -chronic care -long term care

Traditional IRAs have a premature distribution penalty for distributions taken before what age?

59 1/2

When would an insurer pay accelerated benefits?

Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

What license(s) are required for an agent to sell variable annuities or variable life?

Agents are required to have both a life insurance license and a securities license to sell variable annuities and variable life insurance.

What is annually renewable term insurance?

Annually renewable term is a form of level term insurance that offers the most insurance at the lowest cost.

Automatic premium loan provision (APL)

Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

When the insured of a children's term rider reaches the age of expiration from the policy rider, will he/she need to provide evidence of insurability when converting to his/her own policy?

Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

What provision in an insurance policy extends coverage beyond the premium due date?

Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

What is true of the lump sum death benefit to a beneficiary?

It is taxed as regular income

In group coverage, what is the policy called?

Master Policy

Guaranteed Insurability Rider

Optional policy rider that enables the policyowner to purchase additional coverage at predetermined times without proof of insurability. However, new premiums will be determined based on the insured's attained age.

Waiver of Premium Rider

Optional policy rider that waives the premium for the policy if the insured becomes totally disabled, until the insured can return to work, or until the insured reaches age 65 (whichever comes first). There may be a 6-month waiting period from the time of disability until the first premium is waived.

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term?

Policies that are guaranteed renewable and convertible may be renewed, without evidence of insurability, for another like term, or may be converted to permanent insurance, without evidence of insurability.

Return of Premium Rider

Policy rider that is implemented by using increasing term insurance. When added to a whole life policy, it provides that at death prior to a given age, the beneficiary receives all premiums previously paid, in addition to the death benefit. This rider typically expires after the insured turns 60.

Which nonforfeiture option will provide coverage for the longest period of time?

Reduced paid up. The cash value buys as much reduced paid up whole life policy as you can buy - this will provide coverage for the longest period of time.

What kind of premium does a Straight Life policy have?

Straight Life policies charge a level annual premium for the lifetime of the insured and provide a level, guaranteed death benefit.

What policy is called the "second-to-die" policy?

Survivorship life (also referred to as "second-to-die" or "last survivor" policy) is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age.

Accidental Death Rider

The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

Who owns a key person life insurance policy?

The business the key person works for

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries

The joint and survivor option pays while either beneficiary is still living.

What is the difference between immediate and deferred annuities?

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.

What is the accumulation period of an annuity?

The period of time over which the annuitant makes payments (premiums) into an annuity. This is the period of time during which the payments earn interest and grow tax deferred.

Mode

The premium mode is the manner or frequency that the policyowner pays the policy premium.

The nonforfeiture option providing coverage for the longest period of time

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.

What is the purpose of establishing the target premium for a universal life policy?

The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

What is a variable annuity?

Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts. The annuitant's payments into the annuity are invested in the insurer's separate account. Agents selling variable annuities are required to have a securities license in addition to their life agent's license.

Variable Whole Life Insurance is based on what type of premium?

Variable Whole Life insurance is a level fixed premium investment-based product.

Who is the annuitant?

While they don't have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant's life expectancy is taken into consideration, the annuitant must be a natural person.

When will the insured be able to receive the full face amount from a whole life policy?

Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured).

Settlement option that allows the insured's spouse to receive a portion of the proceeds and for their children to receive the principal amount when they reach a certain age.

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.

Policy Rider

Written modifications attached to a policy that provides benefits not found in the original policy. Riders may require an additional premium.

Required Signatures

agent, application, owner (if not the applicant)

When must insurable interest exist?

at the time of application

When the insurable interest in life insurance must exist

at the time of application

Insurable Interest

between the policy owner and the insured: policy owner's own life; the life of a family member; the life of a business partner, key employee, or someone who has a financial obligation to the policy owner

An insured received a new life policy 1 week ago, then decides to return it and requests a full refund of the premium paid. What provision gives the insured the right to return this policy?

free look

What's the second best way to handle a change on the insured's application

get the applicant's initials on the changes of the application

What are the consequences of incomplete applications?

inconvenience the underwriters and the applicant by delaying the process of issuing the policy

Which settlement option potentially allows the beneficiary to receive more than the initial death benefit?

life income. If you live a longer life, you may reap more than you would have otherwise (beyond the death benefit).

Mutual Insurance Company

owned by policy owners; participating policies generating non-taxable, non-guaranteed dividends

Stock Insurance Company

owned by stockholders; nonparticipating policies - owners do not share in profits or losses and have taxable dividends

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's the best way to handle a change on the insured's application

start a new application

When a policy owner surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable, the insured will need to pay a _.

surrender charge

If the insured dies during the grace period, what is the insurer obligated to pay?

the face amount of the policy minus any owed premium

Insurance

transfer of risk of loss from an individual or a business entity to an insurance company