Insurance exam

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

The amount of premium payment. The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

The following is true about annuitants

They must be a natural person, They receive the annuity benefits, Their life expectancy is taken into consideration for the annuity.

Insurers must annually pay the divisible surplus, if any, that will accrue to the policyholders on the policy anniversary date. this must occur no later than the end of the...

Third policy year

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract

Annuities certain option

payments guaranteed for a fixed period until a certain fixed amount is paid out. no life option.

An insured died by suicide one year after the life insurance policy was issued. The insurer will...

refund paid premiums

Idemnity

stipulates that the insured can only collect the amount of loss even if the plan has larger benefits

What is the maximum penalty for habitual and willful noncompliance with the Fair Credit Reporting Act?

$2,500

Once a claim is processed, and all claim investigations are completed, within how many days must the insurer mail or deliver a claim check?

10 working days

Law of Large Numbers

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

market value adjusted annuity

A single-premium deferred annuity that allows a contract owner to lock in a guaranteed interest rate over a specified maturity period.

Two types of assignments are

Absolute and collateral: absolute assigns the entire policy, collateral assigns a part or all of the benefits

Riders that affect the death benefit

Accidental Death, Guaranteed insurability, Return of premium

In insurance, an offer is usually made when

An applicant submits an application to the insurer. Then, acceptance takes place when an insurer's underwriter approves the application and issues a policy.

What type of life insurance is most commonly used for group plans?

Annually renewable term

The death protection component of Universal Life Insurance is always

Annually renewable term.

When does policy coverage become effective?

If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.

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

If they live to be 100

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

It is reduced to the amount of what the cash value would buy as a single premium

Is suggesting negotiations in settling a claim an unfair claim settlement practice?

No

What must be included in a disclosure statement

Producer's and Insurance company's names, date of app, type and amount of insurance, amount of premium (NOT the mode).

What is the purpose of insurance regulation

Promote the public welfare

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid up

Traits of the accumulation at interest option

The annual dividend is retained by the company, the interest is credited at a rate specified by the policy, and the policyholder has the right to withdraw the accumulations at any time.

Nonforfeiture values guarantee which of the following for the policyowner?

The cash value will not be lost. Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Peril

The cause of a possible loss

What happens if a deferred annuity is surrendered before the annuitization period?

The owner will receive the surrender value of the annuity

What is a requirement for a consultant

They have to be a resident of Arkansas

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

When would a 20-pay whole life policy endow?

When the insured reaches age 100. The "20-pay" part just means the policy is paid off in 20 payments.

Can an annuitant be the same person as the annuity owner?

Yes

Fixed Anuity

an annuity that offers fixed payments and guarantees a minimum rate of interest to be credited to the purchase payment or payments.

Inspection report

cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act. Can include the insured's financial status, hobbies and habits.

refund life annuity option

guaranteed lifetime income. If the annuitant dies, the balance is "refunded" to the beneficiary. The installment refund option pays the beneficiary until the purchase amount is paid out. The cash refund option refunds the balance of the original annuity purchase amount minus the payments made to the annuitant.

fixed annuities

guaranteed, fixed payment amount, premiums in general account

Cost of Living Rider

increases DB to keep pace with inflation

Upon receipt of any iqnuiry from the AR insurance dept regarding a claim, insurers must provide a response within how many days

15 working days

Insurers are required to complete investigation of a claim within what time period?

45 calendar days

twisting

A form of misrepresentation in which an agent persuades an insured/owner to cancel, lapse, or switch policies, even when it's to the insured's disadvantage.

What can an agent do to accomplish a lower premium for the insured?

Backdate the application up to 6 months

Adjustable life

Can be term or whole life and can convert from one to another, flexible premium and face amount, cash value is invested in a general account with a fixed rate of return

What does liquidity mean in a life insurance policy?

Cash value can be borrowed at any time

A producer's daughter works part time in her fathers agency. What is she *not* allowed to do?

Collect premiums for in force policies and explain coverages written by the producer

Hazards

Conditions or situations that increase the probability of an insured loss occurring.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration.

Waiver of premium

Continuation of life insurance coverage if the insured becomes totally disabled and is unable to pay the premiums.

What does Accelerated Death Benefit *not* cover?

Disability

Which of the following regulatory authorities participated in creating the National Do Not Call Registry?

Federal Trade Commission (FTC) AND the Federal Communications Commission (FCC)

If a loan request is for payment of due premiums on the policy, how soon must the insurer issue a loan?

Immediately. Request of any other reason may be deferred up to 6 months.

What are the two components of a universal policy

Insurance and cash account

life only settlement option

Insured cannot outlive income. Any monies not paid out are retained by company at insured's death. Pays highest monthly amount.

Who makes up the Medical Information Bureau?

Insurers

indexed annuities

Interest rate tied to an index. Earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds

Do fixed annuities protect against inflation?

No. The insurance company bears the risk of investment but no protection against inflation is offered.

Are insurers required to give customers a copy of a report

No. They have to tell them *who* did the report, but do not have to give a copy

is money borrowed from the cash value taxable in regards to a policy loan?

No. but the insurer can charge interest.

cash value guarantees in a whole life policy are called

Nonforfeiture values

In adjustable life, what needs to happen for the policyowner to increase the DB?

Providing evidence of insurability

What rule would apply if an agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?

Replacement rule

What kind of arrangement is reciprocal insurance?

Risk-sharing

The annuitant dies while the annuity is still in the accumulation stage. What happens?

The beneficiary will receive the greater of the money paid into the annuity or the cash value.

What is consideration?

The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

What happens if the insurer misstates the age or gender of an insured?

The death benefit is adjusted to whatever the premium would have purchased at the actual age or gender.

In an exec bonus plan, who is the policy owner and who pays the premium?

The executive does both

What is "level" in a term policy?

The face amount (death benefit)

Payor rider

When an adult insures a child, premiums will be waived until the child reaches 21, if the adult dies or is disabled

Is interest taxable in regards to the accumulation at interest option?

Yes. The interest credited under this option is taxable, whether or not the policyowner receives it.

What kind of e=insurance is required for a key person policy

any type

Accidental Death Rider

if the insured dies from an accident, DB is a multiple of the Face Amount.

Credit life

insurance on the life od a debtor

Family term rider

is a single rider that provides coverage on every family member. It incorporates the spouse and children's term rider

Misrepresentation

issuing or circulating any sales material that is false or misleading

Human life value approach is protection against..

loss of income

Churning

replacing insurance policies for the sole purpose of making commissions

Guaranteed Insurability Rider

the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child.

Universal life

A combination of Annual Renewable Term and a cash account invested in the general fund of the insurance company

Who cannot own group insurance?

A group needing low cost life insurance (and for the reason only)

Joint and survivor option

A settlement option which guarantees that benefits will be payed on a life-long basis to two or more people. This option may include a period certain and the amount payable is based on the ages of the beneficiaries. When one dies, the survivor gets 1/2 or 2/3 the original payment amount.

Why is an equity indexed annuity considered to be a fixed annuity?

It has a guaranteed minimum interest rate. While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate.

Reduced Paid-Up Insurance

Nonforfeiture option where cash value is used to make a single premium payment to purchase as much of the same type of insurance as possible. Face amount of the new policy would be less than the original policy but no further premium payments would be necessary. Policy can be reinstated.

Reciprocal insurers

associations that provide insurance for their members and are formed for the purpose of providing insurance.

lump-sum settlement option

at annuitization, and all interest accumulated is taxable. Additional 10% penalty can be imposed prior to annuitant's reaching 59 1/2

What is another term for a policy

master contract or master policy

variable annuities

payment not guaranteed; premiums in separate account, and invested in stocks and bonds

When does the blackout period begin and end?

16 y/o and when surviving spouse qualifies for retirement (as early as 60 y/o)

Joint life option

2 or more annuitants receive payments until the first death, then payments cease.

How long is the incontestability period

2 years

Within how many days must the insurer notify the consumer that a report is requested

3 days

How long do advertisement records have to be kept?

4 years

Authorized insurers must be examined at least once every...

5 years

How long must an employee be insured under a group plan before they can convert to individual insurance OF THE SAME COVERAGE?

5 years

Payor Benefit Rider

pays the premium if the payor is disabled or dies. Does NOT increase death benefit.

Universal life

perm insurance with renewable term protection component, flexible premium (minimum or target), flexible face amount, cash value invested in general account and a guaranteed at a minimum level option a - level death benefit option b -increasing death benefit

Variable life

perm, premium can be fixed (if whole life) or flexible (if universal life), face amount can increase or decrease to a stated minimum, cash value is not guaranteed and invested in a separate account.

In regards to taxation of premiums in a key-person life policy...

premiums are not tax deductible as a business expense

Who typically pays for creditor insurance

the borrower

What is the advantage of reinstating a policy vs getting a new one?

The reinstatement provision allows you to use your original age rather than current age to determine premium

In order to get a nonresident license in this state, a producer must

Apply and pay a fee to a nonresidential state that reciprocates

Payor Benefit Rider

Found in juvenile polices which waivers the premiums if the person paying them (often the parent) is disabled or dies while the child is still a minor

How is the commissioner selected?

He or she is appointed by the governor

Interest only option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Extended Term Nonforfeiture Option

the insurer uses the policy cash value to convert to term insurance for the *same face amount* as the former permanent policy. This is the automatic option.

How is "need" determined in the needs approach?

the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately.

Int he replacement of a policy, who notifies the existing insurer that the policy is being replaced?

the replacing company

Fraternal benefit society

these insurers operate on the basis of a lodge or charitable organization, but they may also sell insurance benefits for their members.

Describe reciprocity

this occurs when the state in which the person resides accords the same privilege to residents of arkansas.

Which plan earns lower interest rates, fixed or equity indexed annuities?

typically fixed annuities. Equity indexed are more aggressive and yield higher returns.

How long may a temporary license be issued by the commissioner?

up to 180 days

How long does the entitled party have to elect another available option before a paid-up nonforfeiture benefit will become effective?

within 60 days of the premium default due date

In an exec bonus plan, is the amount paid by the employer to the executive income taxable?

yes

Can you borrow from decreasing term insurance?

yes and the face amount is reduced according to the debt