STUDY

The nonforfeiture option that provides the most AMOUNT of coverage for the least duration is:

Extended term provides the most amount of coverage for the least duration, whereas reduced paid-up provides the least amount of coverage for the longest period of time.

Defined Benefit

In a defined benefit plan the sponsoring employer takes on the responsibility for making sure the money will be available to fund the pension retirement checks for retired employees.

Buyer's Guide

A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision. In life insurance, the Buyer's Guide is required to be provided not later than at time of policy delivery.

An annuity that is purchased with contributions made as often and in whatever amounts the owner wishes, subject only to the insurer's minimums and maximums, is called:

A flexible premium annuity

A group insurance plan is normally owned by

A group insurance plan is normally owned by an employer, creditor, or association. NOT debtors

Reciprocal Insurance Company

A group-owned insurer whose main activity is risk sharing. Reciprocal companies may only transact liability insurance

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Premium Reduction

A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer.

A prospectus

A prospectus is a disclosure document that provides the prospective buyer with information about all fees, charges, expenses, and risks. It must be provided by the producer prior to sale of the variable annuity.

A typical life insurance application contains how many parts?

A typical life insurance application contains two parts, part 1 is general information and part 2 is medical information.

Universal Life

Premium/death benefit is adjustable, Cash values may increased based on companys general account flexible

The ___________ branch writes and passes state insurance laws, or statutes, to protect the insuring public.

C Legislative

When it comes to life insurance, insurable interest on one's own life is:

C Unlimited

The surrender charge schedule for a variable universal life policy generally ________ over time.

Decreases

commonly known as a pension

Defined benefit The company assumes the responsibility for making sure money will be available to fund a pension for retiring workers when a defined benefit plan is in place.

One of the benefits of an annuity in regards to taxes is:

Earnings are tax deferred during the accumulation phase

Benefits of having an employer sponsored retirement plan be ERISA qualified

Employer contributions are immediately tax deductible to the employer at the time the contribution is made. These contributions are not taxable to the employee until withdrawn. Earnings grow tax deferred.

When an annuitant annuitizes their annuity that has a cost basis in it, the amount of the income benefit payment subject to tax is determined by using the

Exclusion ratio The exclusion ratio allows the annuitant to account for the cost basis overtime so that the initial payments are not 100% taxable until all cost basis has been fully accounted for.

Expense loading

Expense loading is a cost area that can vary from company to company based on its operations and efficiency. These factors are used by all insurers.

Agent Authority

Express - WRITTEN in contract Implied- ASSUMED- collecting premiums Apparent- APPEARANCE- business cards, rate book

The following statement is true concerning the income received from an individually owned disability income policy:

Premiums paid with after tax dollars, Income benefit not taxable The premiums are not tax deductible and the benefits are not subject to federal income or FICA tax.

Medicare—Part D

Prescription drug coverage

Inspection Report

a general report of the applicant's finances, character, morals, work, hobbies, and other habits.

Needs Approach

a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death The Needs Analysis Approach factors in paying off all bills, creating a lifetime stream of income for the surviving spouse, creating a college fund for surviving children, and paying off the mortgage. Once totaled, this amount is reduced by financial assets already in place.

facility of payment clause

allows the Insurer to pay to a relative or anyone it deems entitled to the benefits in the absence of a designated beneficiary

Key Person Insurance

applicant, policy owner. policy payer, beneficiary NOT tax deductible

Premiums are based on

expected mortality, interest, and expenses

Medicare Part A

hospital insurance pays 100% of first 60 days covers room, meals, nursing services, equipment, operating room (original medicare) mostly premium free, deductible and copays

Annutization

if you take money out before 59 1/2 you will pay interest tax and a 10% penalty

The Medical Information Bureau provides information to the insurer regarding the individual risk of an applicant

including hazardous hobbies, medical information, free existing conditions

executive bonus

income. taxable to the employee, tax deductible to the company.

Debit life insurance is classified as

industrial life or home service life insurance. Industrial- small amount of life insurance $2000 or less - premiums are collected weekly in person by producers -home service - larger face value 10k to 25k - paid by mail

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

insuring clause

TRICARE for life

is a Medicare Supplement for military retirees.

Variable Life Insurance

life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder cash values are not guaranteed

Under an annuity with a Joint Life Payment Option, what will the survivor receive upon the death of the first annuitant?

nothing The Joint Life Payment Option ceases all distributions at the first death of any of the annuitants. This would not be the case if a Life Income Joint and Survivor Option were chosen.

Annuities

protect against the risk or living longer than expected. Annuities provide a guaranteed life income to protect against the risk of depleting retirement funds.

defined contribution plan

retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account the employee chooses how much of his/her pay to contribute to the plan each payroll period. The employer deducts that amount from the employee's pay before income tax is calculated and remits that amount to the plan's custodian for the benefit of the employee.

Human Life Value Approach

the present value of the family's share of the deceased breadwinner's future earnings Replacing a person income The human life value approach takes into consideration the individual's age and gender, the individual's occupation, the individual's annual wage and employment benefits, and the individual's planned retirement age.

Fixed Annuity

type of annuity that guarantees a certain rate of return low to no investment risk

Stock Redemption

used when the corporation buys one policy on each shareholder

Tax-Sheltered Annuity (TSA)

A Tax-Sheltered Annuity established under IRC section 403(b) is designed for employees of nonprofit organizations and public schools under which all monies invested and interest earned are tax-deferred until received.

Entire contract

(remember "AIR"): --Application of insurance --Insurance Policy--Riders

Mandatory health provisions

- Entire contract - time limit. on contesting application - Grace period - Reinstatement -Notice of claim - Claim forms -time payment of claims -payment of claims -medical exam - legal action - change of. beneficiary

The claimant has _ year from the date of the event to bring legal action against the insurer.

1

Claim timeline: forms, accept/deny, legal. action - Health

15 days Proof of loss --must be provided to the insurer within 90 days Accept or deny 30 days Legal action against insurer--Earliest 60 days after proof of loss --Maximum three years after proof of loss

When a life insurance policy does not pass the ______-pay test, it becomes classified as a MEC.

7

A Single Premium Immediate Annuity (SPIA) begins paying out its benefit:

A No later than within 1 year

Comprehensive Major Medical

A Comprehensive Major Medical Policy combines the best features of the Basic Medical Expense policies and a Major Medical policy into a single policy that provides the most complete medical expense coverage.

Fair Credit Reporting Act

Act that protects privacy of background information and ensures that information supplied is accurate. If an individual is denied coverage, they can request a copy of the report

If a client chooses to pay premiums other than annually, what can he or she expect?

Additional charges are included in modes other than annual to offset the lost interest earnings and the increased administration costs.

Law of agency

Agent works for the insurer NOT insured Company is responsible for the Agents actions Agent is responsible for felid work

Who is most likely to pay the highest premium for a disability income policy, all other factors being equal?

All things being equal, males have a higher mortality risk. The male with the higher risk occupation will most likely pay the highest premium.

An applicant completes the application and submits it to the insurer along with a premium check. When is the applicant's offer considered accepted?

An application accompanied by a premium check is a legal offer. Policy issuance is a legal acceptance. In other words, the offer is not accepted until the insurer issues a policy.

The __________ is the person on whose life the annuity contract's income benefit is based.

Annuitant

Variable Annuity

Annuity that has a varying rate of return based on the mutual funds in which one has invested Higher Risk

Janelle is the beneficiary of a life insurance policy in which the insured has died. What is the only way she can receive the claim amount totally free from income taxes?

Any settlement option will generate taxable income to the beneficiary. The only way to be exempt from any income taxation is to receive the death benefit in a lump sum.

A Basic Hospital Expense Policy provides coverage for the insured while ________.

Confined to the hospital A Basic Hospital Expense Policy covers hospital expenses as an inpatient.

Consumer-driven health care allows individuals to use a _____-tiered approach to funding the costs of medical services and treatment.

Consumer-driven health care allows individuals to use a 3-tiered approach to funding the costs of medical services and treatment.

The deductible that applies after the Basic Plan is exhausted and before the Supplemental Major Medical Coverage begins is called:

Corridor Deductible

Buyer Guide

Helps the buyer compare policies, generic

A SEP uses employer funded _______ accounts.

IRA Section 501(c)(3) is the section of tax code that defines what a non-profit organization is. Section 403(b) is the section of tax code that specifies who may participate in a 403(b) retirement plan.

Key employee

Key employee life insurance plans provide the funds to recruit, hire, and train a replacement employee.

Whole Life

Level premium, level coverage, growing cash value - low interest rate Guaranteed death benefit If money is taken out only the interest is income taxable

The _________ settlement industry has increased awareness of STOLI/IOLI.

Life

A policy that covers inpatient doctor visits and may be expanded to include payment for office visits, diagnostic x-rays, laboratory charges, ambulance and nurse's expenses when not hospitalized, and maternity benefits for an additional premium is considered

Medical Expense Policy The question describes a Medical Expense Policy, sometimes referred to as a Regular (Basic) Medical Expense Policy.

A type of coverage with a small face amount, typically purchased to pay the burial expenses of the insured, is called a

Pre-need plan

Medicare Part C (Medicare Advantage)

Must have A&B Private company. PPO , HMO , POS includes additional benefits rx, dental, vision,

A generic brochure was developed by the ________ to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance and comparisons of their relative costs.

NAIC A buyer's guide is a generic brochure developed by the NAIC to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance, as well as comparative costs of each type of plan.

For an individually purchased life insurance policy, the premiums are considered a __________.

Nondeductible personal expense

Notice of claim - Health

Notice of claim--20 days after loss

Loading includes

Operating expenses, Producer commissions, Medical exam costs

Which of the following types of life insurance is the most common out of all life coverage in force in the United States?

Ordinary

When an individual is covered by a three-tiered, consumer driven health plan, the second source or tier of payment usually comes from a/an: A

Out-of-pocket funds The Tier 1 source is usually a pre-tax plan, which may often cover less than the deductible of an associated High Deductible Health Plan. The participant covers such gaps with out-of-pocket funds.

Medicare Part B

Outpatient care. clinic visits, ambulance, preventive care, at home (original medicare) premiums, coinsurance 80/20, deductibles,

Basic Medical Expense

Pays for office visits, nonsurgical doctor visits, diagnostic x-rays, laboratory charges, ambulance, and nursing expenses when not hospitalized. Some plans may include coverage for prescription drugs.

Whose signature is required on a life insurance application?

Producer, Insured, Policyowner

The ____________ market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers.

Residual

The primary categories of Social Security Benefits provided are:

Retirement, Death, and Survivor

Personal Uses of Life Insurance

SECLE Survivor protection Estate creation Cash accumulation - (Whole life & Universal Life) Liquidity Estate conservation

If a lump sum from a lawsuit, a lottery winning, or inheritance, is used to purchase a guaranteed lifetime income. It is referred to as a ___________.

Structured settlement

Lloyd's of London is not an insurance company, but consists of groups of underwriters called _________, each of which specializes in insuring a particular type of risk.

Syndicates

_____________ are allowed as a way to access annuity values without having to elect a settlement option or surrender the contract.

Systematic withdrawals

Which of the following best describes producer field underwriting?

Taking the time to probe beyond the stated questions on the application based upon the applicant's responses

Which is true regarding the taxation of the cash value in a Universal Life Policy prior to withdrawal? A

Tax deferred All life insurance cash value accumulations are tax deferred. The primary benefit of Universal Life is the potential of a higher interest crediting rate than the fixed rate in whole life policies.

The interest earned on dividends is:

Taxable

Insuring Clause

The Insuring Clause in a life insurance policy defines who is covered, by whom, and for what amount of coverage. It states the insurer's obligation to address the risk, premature death.

Under the Modified Endowment Contract rules the 7-Pay Test is defined as:

The comparison of premiums paid during the first 7 years with the net level premiums that would have been paid on a 7 year pay whole life of the same death benefit A MEC occurs at any time within the first seven years of a policy (or of a material change to a policy, such as a death benefit increase or decrease) if the sum of premiums paid exceeds the amount of premiums that would be paid in a 7-pay contract.

The _________ gives the owner of a variable annuity the ability to withdraw a maximum percentage of the annuity value until the initial investment amount has been recouped. A

The guaranteed minimum withdrawal benefit provides variable annuity owners with a measure of protection against loss, without requiring them to annuitize.

Mortality /morbidity

The mortality table is used when determining life insurance rates. The morbidity table is used to determine health insurance rates.

Blackout period

The period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse. (16-65)

Who are the parties in a third-party life insurance ownership situation?

The three parties involved in third-party ownership are the policyowner, the insured, and the insurer. The beneficiary is not a party to the contract.

A producer submits a completed application to the insurer along with the premium check after giving the applicant a conditional receipt. If the applicant completes the required medical exam, but dies prior to the insurer issuing a policy as applied for, what is the insurer's responsibility?

To pay the claim in full as long as the conditions of the receipt were fully satisfied by the insurer Since all of the conditions of the receipt were satisfied is does not matter that the insured died prior to the policy being issued. Coverage was in effect as of the time the medical exam was completed.

The contract type in which only one party is legally bound to its contractual obligations after a premium is paid is a(n)_______ contract.

Unilateral

During the accumulation phase of a(n) ____________ annuity, premium dollars buy more accumulation units. A

Variable Annuities are valued in terms of units, rather than dollars. The more dollars deposited the more units acquired. Upon annuitization, accumulation units are converted to annuity units, and the income paid is based on the value of the annuity units.

Viatical Settlement

Viatical settlements are a way for a terminally ill insured to sell his or her policy for much needed cash when no other sources are readily available.

Absolute assignment

When a change of ownership takes place and no money is involved, this is known as an absolute assignment.

Stranger Originated Life Insurance

When investors hope to gain off of the insured's induced purchase of a life insurance policy for later sale of their mortality for profit

Cross Purchase Plan

When there are lots of partners, each partner would beed to buy a policy on the other partners. EG: 7 parnters, each buy insurance on the other 6 partners so there are 42 (7x6) contracts

The lien plan

With the lien plan, initially, only the premium would be refunded in case of death. The death benefit increases over time with the full face amount eventually payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.