Insurance exam

Modified endowment contracts

- contract that makes different tax considerations to a policy - It must pass the "7-pay test" If the total amount a policyowner pays into the contract during its first seven years exceeds the sum of the net level premiums that would have been payable to provide paid-up future benefits. There's a 10% penalty if withdrawn prior to 59 1/2; taxation occurs when cash is distributed

conditional contract

A contract that one or more parties must perform only under certain conditions.

Variable Life

A whole life policy with fixed, level premium; Life ins that creates an estate upon death of insured; characterized by guaranteed minimum death benefit. if investment performance is poor, death benefit will not go lower than policy's guaranteed minimum

Unfair trade practices

Act that doesn't allow misrepresentation & false advertising, coercion and intimidation, unfair discrimination, and inequitable administration of claim settlements

Consideration clause in life insurance includes what?

Amount of premium payments and when they are due

Endowment policy

Characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date (before the age of 100). ex: Person owns $25k life policy that pays face amount to him if he lives to 70 or bene if he dies before 70

Which type of policy cannot have Automatic premium loan provision

Decreasing term

Types of agent authority; of the same nature

Express, Implied, apparent

Indemnity insurance

Health insurance contracts. Only reimb actual cost of loss

Level Term

Life ins written to cover a need for specified period of time at lowest premium

Group credit life policy is limited to what amount of coverage

Limited to the insured's total loan value; amount on life of a debtor is limited

Social Security

Old-Age, Survivors and disability insurance is also known as what

Insurance policies are considered aleatory because...

Performance is conditioned upon future occurrence

Equity Index Universal Life Insurance

Permanent life ins allows policyholders to tie accumulation values to stock market index. contract minimum guaranteed fixed interest rate.

Term rider

Policy covers family head with permament insurance and coverage on spouse and children in term insurance in form of rider

Return of premium life insurance

Policy is whole life and increasing term w/death benefit rider of increasing term ins equal to amount of premiums paid

Family maintenance policy

Policy provides an income for specific period time starting at death of insured

Family maintenance policy

Policy that pays monthly income from date of death of insured to end of preselected period.

Variable universal life insurance

Policy where policyowner controls where investment will go and selects amount of premium payment

Straight whole life insurance

Policy where premium is paid for the whole lifetime of the insured. Premiums are payable for as long as there is insurance coverage in force. Provides permanent level protection w/level premiums until insureds death or age 100

Not possible with Universal life policy

Premiums cannot be applied as a credit against income tax

Apparent authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Aleatory Contract

The exchange of value is unequal.

Contract of Adhesion

The insurance company drafts the contract wording and the insured simply follows it. Courts always favor insured over insurer. Terms must be accepted or rejected in full

Modified endowment contract

When a life insurance policy exceeds certain IRS table values, the result would create modified endowment. Exceeds max amount of premium that can be paid into a policy and still have it recognized as life insurance contract. They don't meet 7-pay test and will lose favorable tax treatment

Whole LIfe Insurance policy endows when?

When cash value equals death benefit

at what point does informal agreement become a binding contract?

When consideration is provided by one of the parties to the contract.

Family Maintenance Policy

Whole life and level term (begins date of death). Provides income to a beneficiary for a selected period of time if an insured dies during that period. At the end of the income- paying period, the beneficiary also receives the entire face amount of the policy. If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.

Stranger-originated life insurance

a consumer purchases a life insurance policy with the agreement that a third party agent/broker or investor will purchase the consumer's policy and receive the proceeds as a profit upon the consumer's death

Decreasing term rider

a rider that can be added to whole life policy for additional coverage

10 year convertible term

a type of term life policy that contains renewability provision

Cost of living rider

gives insured additional death benefits

Decreasing term policy

has death benefit that adjusts periodically and is written for specific period of time.

Equity Index insurance

insurance that yields greater gains than bonds but will protect principal with minimum of risk. Premiums cannot be lowered or raised, based on investment performance bc it is a permanent life insurance allowing policyholders to tie accumulation values to stock market

Whole life policy premium is what kind

level premium

Graded premium policy

life policy premiums are lower during policy's early year

30 pay life

limited pay whole life policies that have level premiums and are limited to certain period.

Settlement option

method of distributing Life insurance policy's death benefit other than lump sum payment

Legal contract must have

offer & acceptance, considerations, competent parties, legal purpose

Survivorship life policy

policy insures 2 people and is designed to pay a benefit upon second death

Joint life policy

policy that promises to pay face amount on death of first of 2 lives

Endowment policy

policy used to ensure funds will be avail when needed

Investor-originated life insurance

policy where policyowner (investor) benefits upon death of insured

Term life policy

provides greatest amount of protection for temporary period

Policy Loan provision

provision in life insurance policy that pays policyowner an amount that doesn't surpass guaranteed cash value

Insurable interest

requires individual have valid concern for continuation of life or well-being of insured. Without it a contract not legally enforceable and would be considered wagering contract.. Included at inception of contract.

20-pay life

shorter pay period, faster cash value growth

Settlement options

the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies

Divisible Surplus

the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes

Express authority

the explicit authority granted to the agent by the insurer as written in the agency contract.

implied authority

unwritten authority of producer to perform incidental acts necessary to fulfill purpose of agency agreement.

Family income policies

whole life and decreasing term insurance-begins date of purchase. If death occurs after specified period, only face value is paid

Child term rider

whole life policy rider that covers children of insured