All important terms life insurance questions and ultimate study guide

adhesion

"take it or leave it." insurance company makes the terms & conditions of a policy and are non negotiable for the insured

Before the Commissioner will issue a broker's license, the licensee must obtain a bond for at least

$15k

exceptions to life insurance death proceeds as taxable income

1. interest income: If the life insurance death benefit is paid out in installments with interest, the interest portion may be subject to taxation 2. Estate tax: Life insurance death benefits may be included in the insured person's estate for federal estate tax purposes if they have incidents of ownership over the policy 3. Gift Tax: If the policy is transferred as a gift, the gift tax rules may apply, particularly if the gift exceeds the annual gift tax exclusion amount 4.State Taxes: in NC, life insurance death benefits are typically not subject to state income tax, North Carolina does not have an inheritance tax or estate tax 5. interest accumulation: If the policyholder has a significant amount of interest accumulation within a permanent life insurance policy and they access it (e.g., by taking out a loan or withdrawing the cash value), there may be tax implications

insurance companies are required to provide proof of loss forms to the claimant within _____________________ days after receipt of notice of loss

15 days

A licensee who ceases to maintain residency in North Carolina is required to deliver any insurance licenses to the Commissioner by mail or in person within ___________ days after terminating residency

30 days

After an insurer appoints a new agent, the Commissioner must be notified within

30 days

The reinstatement provision in life insurance policies in this state allows an owner of a lapsed policy to reestablish it within _________ years

5 years

adjustable life policy

An adjustable life policy in life insurance is a flexible insurance policy that allows the policyholder to modify their coverage, premiums, and death benefits based on changing financial needs and circumstances

Which of the following acts would be grounds for a person's license suspension, revocation, or refusal to renew?

An agent fails to pay state income tax

All other factors being equal, the least expensive first-year premium payment is found in

Annually Renewable Term

In whole life insurance, when is the policy cash value scheduled to equal the face amount?

At the insured's age 100

If a life insurance policy contains a minimum 10-day unconditional refund provision (free look), when is the latest that the buyer's guide and policy summary must be delivered?

At the time of policy delivery

fixed-period and fixed-amount settlement options

Both guarantee that the principal and interest will be fully paid out

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option The answer, "Cash option," refers to the specific arrangement where the policyholder chooses to receive the dividends in the form of cash payments rather than using them for other purposes, such as reducing premiums or purchasing additional coverage. This arrangement provides the policyholder with immediate access to the dividend funds.

When an insurer requires a written proof of loss after notice of such loss has been given by the insured or beneficiary, the company must

Furnish a blank form to be used for that purpose

Life insurance death proceeds are

Generally not taxed as income

In which of the following situations is it legal to limit coverage based on marital status?

It is NEVER legal to limit coverage based on marital status

A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?

Level term

Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?

Limited pay whole life

Dividends received on participating life insurance policies are

NOT TAXABLE because they are a return of unused premiums

Cash Value guarantees in whole life policy are called

Nonforfeiture values

taxation of premiums in a key-person life insurance policy

Premiums are NOT tax deductible as a business expense.

The regulation of the insurance industry primarily rests with

The State

The initial amount of credit life insurance may NOT exceed

The amount to be repaid under the contract

The policyowner of an adjustable life policy wants to increase the death benefit. Which of the following statements is correct regarding this change?

The death benefit can be increased by providing evidence of insurability

Which of the following determines the cash value of a variable life policy?

The performance of the policy portfolio

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?

The policyowner can specify the way proceeds are split in the policy.

When the breadwinner that is insured by a Family Policy dies, what rights are provided to other family members that are covered under the policy?

They can convert their coverage to permanent life insurance without evidence of insurability.

insurable interest

a financial stake or legitimate reason to purchase an insurance policy on someone's life, typically based on a close relationship or a financial interest in that person's well-being

policy dividend

a refund or distribution of excess premiums or investment earnings paid by the insurance company to the policyholder, typically found in participating whole life insurance policies

payor benefit rider

a rider or provision that covers the premium payments if the policyholder, often a parent or guardian, becomes disabled or dies before the insured child reaches a certain age

defamation

act of making false and damaging statements or spreading false information about an individual or company involved in the insurance industry, which can harm their reputation

paid up addition

additional insurance policies or coverage that a policyholder can purchase with their policy's dividends, increasing the total coverage without the need for additional premiums

paid up additions

additional insurance policies or coverage that a policyholder can purchase with their policy's dividends, increasing the total coverage without the need for additional premiums

fixed period settlement options

allows the beneficiary to receive the policy proceeds in equal installments over a predetermined period, regardless of the policyholder's lifespan

reduced paid up

allows the policyholder to convert their existing policy into a fully paid-up policy with a reduced death benefit, with no further premium payments required

cash option

allows the policyholder to surrender their policy in exchange for a lump-sum payment, typically representing the policy's cash value, rather than receiving the death benefit

net premium

amount of money the policyholder pays for their insurance coverage AFTER accounting for deductions and expenses

life annuity w/ period certain

an annuity option that provides regular payments for the duration of the policyholder's life, with a guarantee that payments will continue to beneficiaries for a specified period, even if the policyholder dies

extended term non forfeiture

an option that allows the policyholder, in the event of policy lapse due to non-payment, to convert the cash value of the policy into a term life insurance policy of the same face value without the need for further premium payments

viatical settlements

arrangements where individuals with terminal illnesses sell their life insurance policies to a third party for a lump sum, providing them with immediate funds while the third party collects the death benefit upon the insured's passing

commissioner reports any violations of insurance laws and regulations to the

attorney general

when must the policy summary be presented

before accepting the initial premium deposit

unconditional refund provision // free look

clause that allows the policyholder to receive a full refund of premiums paid within a specific period after the policy is issued, typically within 10 to 30 days, without providing a reason for canceling the policy

underwriter's report

comprehensive document created by the underwriter, summarizing the applicant's risk profile, medical history, and other relevant factors, which helps the insurance company make informed decisions about policy issuance and pricing

aleatory

concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company. it is an unequal exchange in value

variable annuity

contract that allows the policyholder to invest in a range of sub-accounts, typically composed of stocks and bonds, with the potential for higher returns but also greater market-related risks

medical information bureau (MIB)

cooperative database that provides life insurance companies with information about an applicant's past medical history and underwriting activities to help assess risk and prevent fraud

operating expense

costs incurred by an insurance company for its day-to-day operations, including salaries, rent, and administrative expenses

joint life

covers 2 people. death benefit is paid out upon the first person's death, providing support to the surviving individual

inspection report

document created by a THIRD PARTY INSPECTOR who assesses an applicant's health, lifestyle, and other relevant information to help the insurance company underwrite the policy accurately

agent's report

document prepared by the insurance AGENT that provides detailed information about the applicant's health, lifestyle, and other relevant details, which is used by the underwriter to assess the risk and determine policy eligibility and pricing

pay in period // accumulation period

duration for which the policyholder is required to make premium payments to keep the policy in force

non contributory group plan

employee benefit program where the employer pays the entire premium, and employees do not contribute financially towards their coverage

mortality - interest + Expense =

gross premium

good faith

honest and truthful disclosure of information by the policyholder, when providing information about themselves

rebating

illegal practice of offering policyholders a portion of the insurance agent's commission or other incentives as an inducement to purchase a policy

representation

information like age, health, & lifestyle of the insured is used to determine terms & cost of the insurance policy

cost of living rider

is an option that adjusts the policy's benefits over time to account for inflation and rising living expenses

subrogation

legal process where the insurance company steps into the shoes of the policyholder or beneficiary to recover funds from a third party responsible for the insured loss, preventing double recovery. your insurance co avoids paying for something that someone else should be responsible for.

buy-sell agreement

legally binding contract between business partners that outlines what happens to a partner's share of the business in the event of their death, typically funded by life insurance to facilitate a smooth transfer of ownership

modified life

lower initial premiums that increase after a specified period typically designed to make coverage more affordable in the early years

non forfeiture

means you don't lose everything if you can't pay your premiums or decide to stop your policy; you might get something back, like a reduced form of insurance or the money you've saved in the policy

fraternal

non-profit organizations that provide insurance and other member benefits to their members, often based on a common bond or affiliation, such as a social, religious, or fraternal group

guaranteed insurability rider

option that allows the policyholder to purchase additional coverage at specified future dates or life events without the need for a medical exam or underwriting

another term for accumulation period for an annuity

pay in period

deferred annuity

payments to the policyholder are postponed to a later date, often used as a retirement savings tool

second to die // survivorship

pays out the death benefit when the 2nd insured dies. used for estate planning & covering estate tax costs

consideration

policy holder pays premiums to insurer in exchange for coverage & benefits

increasing term

policy in which the death benefit grows over time, typically to keep pace with inflation or changing financial needs, while the premium remains level

credit policy

policy that covers the outstanding balance of a borrower's loans, such as mortgages or personal loans, in the event of their death

Accidental Death and Dismemberment

policy that pays a benefit in the event of the insured's accidental death or the loss of specific body parts due to an accident for individuals with high-risk professions

level term

policy that provides a consistent death benefit and premium payment amount throughout the specified term

limited term

policy that provides coverage for a specific, shorter duration, and does not accumulate cash value

annually renewable term

policy that provides coverage for one year at a time, with the option to renew the policy annually, often with increasing premiums as the insured person gets older. it is level term insurance

ordinary life // whole life // (vinella)

policy that provides lifelong coverage with level premiums and an accumulating cash value component

decreasing term

policy where the death benefit decreases over time, often used to match a declining financial obligation, such as a mortgage

paid up option

policyholder's choice to stop paying further premiums and use the accumulated cash value within the policy to maintain the coverage in force without additional payments

reciprocal

policyholders exchange policies to collectively insure each other, sharing in the risks and benefits

warranty

promise or statement made by the policyholder or insured person about a fact or condition, and it is considered a fundamental part of the insurance contract

fixed annuity

provides a guaranteed, predetermined interest rate and periodic payments, offering stability and principal protection but typically with lower potential returns compared to other annuity types

family income

provides beneficiaries with regular income payments instead of a lump sum, replacing breadwinner's salary

misrepresentation

providing false or inaccurate information by the policyholder when disclosing details about themselves, their health, or their lifestyle, which can impact the terms or validity of the insurance contract

fixed amount

refers to a set, predetermined sum of money that the policy will pay out upon the occurrence of a specific event, such as death or disability

coercion

refers to the use of pressure, threats, or unethical tactics to force an individual into purchasing or changing their life insurance policy against their will

non forfeiture values

represent the options available to the policyholder if they choose to discontinue their policy, allowing them to retain some value, such as the cash value or convert it into paid-up insurance

variable life insurance & variable annuities

require a securities license allow policyholders to invest their premiums in a variety of investment options, such as stocks or mutual funds, and the cash value and death benefit can fluctuate based on the performance of those investments

insuring clause

section of the policy that outlines the insurance company's commitment to pay a death benefit to the beneficiary upon the insured person's death

fixed period

settlement option that provides the beneficiary with equal periodic payments for a predetermined number of years

keogh plan // HR - 10

tax-advantaged RETIREMENT PLAN designed for self-employed individuals and unincorporated businesses, allowing them to save for retirement while enjoying potential tax benefits

interest earned on policy dividends is

taxable

indemnity

the policy pays out a sum of money to beneficiaries when the insured person passes away to help replace their financial loss

limited pay

the policyholder pays premiums for a fixed number of years, and then the coverage remains in force without the need for further payments

joint and 2/3 survivor (annuity)

the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive

gross premium

total amount of money paid by the policyholder for their insurance coverage before any deductions or expenses

equity indexed annuity

type of fixed annuity that offers a return linked to the performance of a stock market index, providing the potential for higher returns than traditional fixed annuities while still offering some level of principal protection

interest sensitive

type of policy where the cash value and death benefit can vary based on prevailing interest rates, providing the potential for higher returns but also some degree of risk

key-person

valuable & essential individual within a business or organization, and the policy is taken out by the company to provide financial protection in the event of that person's death, helping to cover potential financial losses and transition expenses

settlement options

various methods by which the policy's death benefit can be paid to the beneficiaries, offering choices such as lump sum payments, periodic installments, or annuities