LIFE ONLY_Chapter 3- Life Insurance Basics

When an applicant purchased a life insurance policy, the agent dates the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate polices up to 6 months if it would A. Lower the insured's premium B. Shorten the contestability period C. Eliminate pre-existing conditions D. Help him make a sales quota for the period

A. Lower the insured's premium

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT A. Other insurance coverages B. Family health history C. Alcohol and tobacco consumption D. Recent surgeries

A. Other insurance coverages

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT A. The policy is owned by the company B. Any type of insurance policy may be used C. The employer pays a bonus to a selected employee to fund the policy D. It is considered a nonqualified employee benefit

A. The policy is owned by the company

Which of the following is NOT true of life settlements? B. The seller must be terminally ill B. They could be used for a key person coverage C. They could be sold for an amount greater than the current cash value D. They involve insurance policies with large face amounts

A. The seller must be terminally ill

Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. Estate conservation B. Life insurance proceeds C. State Education Waiver D. Viatical settlement

B. Life insurance proceeds

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value? A. Effect of inflation on income over time B. Predicted needs of the family after the insured's death C. Insured's current and future income D. Insured's annual expenses

B. Predicted needs of the family after the insured's death

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy? A. Premiums are taxable to the employee B. Premiums are not tax deductible as a business expense C. Premiums are tax deductible by the key employee D. Premiums are tax deductible as a business expense

B. Premiums are not tax deductible as a business expense

In terms of Social Security, what is the name for the time period after the youngest child of a family turns 16 and before the surviving spouse may start receiving retirement benefits? A. Benefit reduction B. Accumulation period C. Blackout period D. Nonpayment interval

C. Blackout period

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of business and for what amount? A. Key person agreement B. Split dollar agreement C. Buy-sell agreement D. Profit and loss agreement

C. Buy-sell agreement

Which of the following is an example of liquidity in a life insurance contract? A. The flexible premium B. The money in a savings account C. The cash value available to the policyowner D. The death benefit paid to the beneficiary

C. The cash value available to the policyowner

Which of the following is NOT an example of a business use of Life Insurance? A. Executive bonus B. Key Person C. Workers Compensation D. Buy-sell Funding

C. Workers Compensation

When must insurable interest exist in a life insurance policy? A. At the time of policy delivery B. When there is a change of the beneficiary C. At the time of loss D. At the time of application

D. At the time of application

An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy? A. Permanent B. Variable C. Any type of annuity D. Fixed

D. Fixed

Which of the following is used to compare the cost of one life insurance policy against another in order to guide perspective purchasers to policies that are competitively priced? A. Cost comparison methods B. Policy cost guides C. Consumer price indices D. Policy cost indices

A. Cost comparison methods

All of the following are true of key person insurance EXCEPT A. The plan is funded by permanent insurance only B. There is no limitation on the number of key employees plans in force at any one time C. The employer is the owner, payor and beneficiary of the policy D. The key employee is the insured

A. The plan is funded by permanent insurance only

Which of the following terms means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors? A. Mortality rate B. Risk exposure C. Morbidity D. Life expectancy

Life expectancy

What is the purpose of the buyer's guide? A. To allow the consumer to compare the costs of different policies B. To provide the name and address of the agent/producer issuing the policy C. To list all policy riders D. To provide information about the issued policy

A. To allow the consumer to compare the costs of different policies

Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? A. Standard risk pays a higher premium than a substandard risk B. Standard risk requires extra rating C. Standard risk is also known as high exposure risk D. Standard risk is representative of the majority of people

D. Standard risk is representative of the majority of people

What must happen when an individual policy or annuity has been personally delivered to the policyowner? A. The producer must go over the policy with the policyowner B. A notary public must witness the exchange C. The policyowner must sign a delivery receipt D. The policyowner must pay the annual premium in full

C. The policyowner must sign a delivery receipt

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does this insured have? A. Term B. Securities C. Stock D. Variable

D. Variable