BASIC PRINCIPLES

at what age is an insured for life insurance considered statistically "Dead"

100

what is the minimum age requirement for a minor in AL to purchase a life insurance policy

15

if an insured commits suicide, a life insurance policys face amount will be paid only after the policy has been in force for at least how many months or years?

2 years

alabamas continuing education law states that an insurance producer must report how many classroom hours every two years?

24

in Alabama the commissioner of insurance may hold a hearing upon written demand by an aggrieved person within how many days after receipt of demand?

30 days

minimum grace period for a life insurance policy sold in AL is

30 days

In AL, an insurer who violates state laws for the payment of insurance commissions may be fined up to? a.actual amount of the commissions paid b.twice the amount of the commissioners paid c.three times the amount of the commissions paid d.four times the amount of the commissions paid

3x the amount of the commissions paid

Q is severely injured in an automobile accident and becomes totally disabled. How many months must Q be disabled before being able to apply for Social Security disability benefits?

5 months

Which of these is NOT a reason for a business to buy key person life insurance?

A pension deficiency if the key employee dies

Utmost Good Faith

A principle of insurance which states that the insurance company must be able to rely on the honesty and cooperation of the insured, and the insured must rely on the company to fulfill its obligations in good faith.

ABC Company takes out a Key Employee policy on its CEO. The CEO leaves ABC Company and begins working for XYZ Company five years later. If this person were to die and the policy is still in force and unchanged, where would the death proceeds be directed? A.CEOS estate b.ceos family c.abc company d.xyz company

ABC COMPANY

Nonforfeiture Values

After a policyowner cancels his/her permanent policy, the cash value accumulation must be made available to the policyowner

1999 Financial Services Modernization Act

Allowed banks, insurance companies, and securities firms to enter each others' business areas; allowed creation of financial services holding company.

Automatic Premium Loan Rider

Allows the insurance company to deduct overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy.

Cost of Living Rider

Allows the policy face amount to be adjusted to account for inflation based on the consumer price index.

P is a forty year old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy?

An immediate annuity

Offer and Acceptance

An offer is made when the applicant submits an application and money for insurance to the insurance company. The offer is accepted after it has been approved by the insurance company's underwriter and issues a policy. If no money is given, the applicant is making an invitation.

Which type of contract liquidates an estate through recurrent payments?

Annuity

Which type of life insurance policy combines insurance protection with an accumulation of cash value? a.interim b.permanent c.bilateral d.temporary

B. (permanent insurance=whole life)

Alabama's annuity disclosure regulation: A. establishes maximum disclosure standards to annuitants B. requires the delivery of a buyer's guide and a disclosure document to an annuity applicant C. applies only to individual annuities D. is designed to protect insurers under alabama's annuity disclosure regulation, the disclosures must be mailed to the applicant within ____ business days if the application is taken over the telephone

B. requires the delivery of a buyer's guide and a disclosure document to an annuity applicant

variable products

Because of the transfer of investments risk from the insurer to the policyowner, variable insurance products are considered securities contracts as well as insurance contracts. A producer is required to register with the national association of securities dealers to sell variable products

The period of time during which spouse does not qualify for social security survivor or retirement benefits is called? a.blackout period b.elimination period c.waiting period d.restricted period

Blackout period

Which of these is not a source of funding for social security benefits? a.self employed individuals b.employees c.federal government d.employers

C

In a qualified retirement plan, the yearly contributions to an employee's account? a.are not tax-deductible b.are restricted to minimum levels set by the IRS c.are restricted to maximum levels set by the IRS d.must be matched dollar-for-dollar by the employer

C. are restricted to maximum levels set by the IRS

the commissioner of insurance may not do which of the following?

Change insurance laws

In regards to insurance applications which of the following statements is true?

Changes on the application must be consented in writing

A Cross Purchase Buy-Sell Agreement is in place for ABC Company's four founding partners. What would this agreement require if the agreement is funded with individual life insurance?

Each partner must own a policy on the other partners

2010 Patient Protection and Affordable Care Act (PPACA)

Often shortened to the affordable care act (aca). Represents one of the most

Which tax would an IRA participant be subjected to on distributions received prior to age 59 1/2.

Ordinary income tax and a 10% tax penalty for early withdrawal

Consideration clause

Policyownder must pay a premium in exchange for the insurer's promise to pay benefits. Policyownder's consideration consists of completing the application and paying the initial premium.

Payor Provision Rider

Provides waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled.

insurance companies will insure only which risk?

Pure risk -risk must be due to chance and cannot be catastrophic and randomly selected

1959 Intervention by the SEC

The Supreme Court decided that annuity and variable life insurers are to be regulated under the authority of both the Securities and Exchange Commission (SEC) and the states.

1945 McCarran and Ferguson Act

This law made it clear that the states' continued regulation of insurance was in the publics best interest. This law led each state to revise its insurance laws to conform the federal laws. Today insurance industry is cosidered to be state-regulated. Any person who violates this act will face fines of $10k or one year in jail

Albert surrenders his whole life policy ten years after it was purchased. What can he expect?

To pay taxes on the cash value in excess of premium

1868-Paul v. Virginia

US supreme court decided, involved one state's attempt to regulate an insurance company domiciled in another state. The supreme court sided against the insurance company, ruling that the sale and insurance is not interstate commerce, thus upholding states' right to regulate insurance

consideration

Value that each interested party gives to each-other. The insured provides payment of premium while the insurer provides by promising to pay the insurance benefits.

what is a certificate of insurance

a certificate issued to each individual covered by the group life insurance

exclusions

a feature of a life insurance policy that the policy will not cover certain risks.

peggy surrenders a permanent life policy with a cash value of $15k and an oustanding policy loan of $5k. If she chooses the reduced paid-up option, what will be the result?

a paid up permanent policy purchased with $10k

Public Adjuster

a person hired by an insured to represent the insured in handling a claim

Speculative Risk

a situation in which either loss or gain is possible. -not covered by insurance companies

Absolute Assignment v. Collateral Assignment

absolute: when the assignee receives full control of the policy and rights to the policy benefits from the current policy owner collateral: partial and temporary transfer of rights to another person or entity. Usually intended for securing a loan with a creditor.

A qualified profit-sharing plan is designed to

allow employees to participate in the profits of the company

misstatement of sex or age

allows the insurer to adjust the policy benefits if the insureds age or sex is misstated on the policy application

Automatic Premium Loan Provision

allows the insurer to automatically use the policy cash value to pay an overdue premium. There is not cost for this provision.

Turning over all rights in his policy over to an assignee is called

an absolute assignment

alabama life and disability insurance guaranty association able to pay claims for insolvent insurers

assessments against other admitted insurers in alabama

with key life insurance... a:the key employee is the owner of the policy b.company is the owner of the policy

b

The option to convert term life insurance to a permanent form of coverage can normally be executed: a.with proof of insurance only b.without proof of insurance c.with no change in premium d.using the insured's attained age only

b.

Which of the following life insurance policies will build up cash value the fastest? a.increasing term b.single premium c.15-pay life d.20 pay life

b.

career agency system

branches of major stock and mutual insurance companies that are contracted to represent an insurer in a specific area. focuses on building sales staff

mortgage protection is typically covered with? a.increasing term b.mortgage life c.decreasing term d.adjustable whole life

c

which dividend option allows a policyowner to use his/her dividents to buy life insurance on a single premium basis? a.premium reduction option b.single premium option c.paid-up additions option d.cash options

c

which of the following is considered the automatic non-forfeiture option that most insurers will use? a.reduced paid up b.1 year term c.extended term d.lump sum cash

c

which of these factors do not play a role in the underwriting of a life insurance policy? a.avocations b.credit status c.marital status d.occupation

c

Which statement regarding a Key Employee Life policy is NOT true? a.company pays the premium and names the beneficairy b.key employee must sign the application c.key employee names the benficiary d. company is the owner of the policy

c.

Tim has a universal life policy. The cash value growth in his policy is? a.guarenteed b.never guarenteed c.interest sensitive d.held in a separate account

c. interest sensitive

which type of assignment transfers a portion of the policyowners right to another party in order to secure a debt to that party?

collateral assignment

special use policies

combination or "packaging" of different policy types, designed to serve a variety of needs.

A Key Employee policy is taken out by Company X on its vice president. Ten years later, this employee leaves Company X and begins working for Company Y. If this individual were to die and the policy is still in force and unchanged, where would the death proceeds be directed?

company x

Insurance Contract

contract law defines a contract as a legally binding agreement between two or more parties, where a promise of benefits is exchanged for a consideration.

if its employees share in the cost of insurance, what type of group life insurance plan would a corporation have?

contributory

an employee of 20 years recently retired at age 59 1/2. this employee's group life contract can be:

converted to an individual permanent policy at an individual rate

which type of term policy allows the policyowner to switch to permanent insurance

convertible term

Waiver of Premium Rider

covers primary insured. -does not provide income -is not a loan -allows the policyowner to waive premium payments during a disability and keeps the policy in force

1994 united states code (USC) sections 1033 and 1034

criminal offense for an individual who has been convicted of a felony involving dishonesty or breach of trust to willfully engage or participate in the business of insurance without first obtaining a "letter of written consent to engage in the business of insurance" from the regulation insurance dept of the individuals state of residence

a life insurance policy owned by a third party: a.must be a whole life policy b.must contain a conversion privillage c.required to contain a revocable beneficiary d.used largely in estate-planning as well as business situations

d

replacement regulation in AL does not apply to? a.decreasing term life insurance b.adjustable life insurance c.universal life insurance d.credit life insurance

d

with renewable term insurance, a.premium decreases at renewal b.face amount increases at renewal c.proof of insurability is needed for renewal d.premium increases at renewal

d

an accidental death rider is usually paid if the insured?

dies within 90 days of the accident

T purchased a $100,000 single premium, Straight life annuity 5 years ago. He has received monthly payments since the inception of the annuity. If T dies, the insurance company

does not have to make further payments (this annuity, the insurer does not have to make further payments after annuitant dies)

In AL, an insurance company incorporated and licensed to do business in this state is called?

domestic company

stockholders

elects to governing body of a mutual insurance company

Under a trustee group life policy, who would be eligible for a certificate of coverage?

employee

Office of Insurance Regulation

ensure that insurance companies licensed to do business in a state are financially viable, operate within the laws and regulations of the insurance industry and offer insurance policy products at fair and adequate rates which do not unfairly discriminate against the buying public

An insurance company licensed to do business in Alabama, but incorporated in another state is called ?

foreign company

risk retention group

grouped owned insurance company thats informed to assume and spread the liability risks of its members

Legal Purpose

insurable contract with insurable interest, provided consent it has legal purpose

Law of Large Numbers

insurance companies' predictions of the likelihood that a peril will occur; used to calculate premiums

reinsurance

insurance company that cedes a portion of an insureds coverage to another insurer is said to be engaged

an insurance producer represents the:

insurance company30

non participating policies

insurance polices issued by companies which are owned by stockholders and do not pay policy dividends

domestic company

insurer incorporated and licensed to do business in their/this state

Survivorship Life Policy

insures the lives of two people and pays the death benefit upon the death of the second insured person

an architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?

key person life policy

with term life insurance, which of the following types of premium remains the same for the entire policy period

level premium

competent parties

must be legal age, mentally capable of understanding the terms, and not under the influence of drugs or alcohol.

fraternal benefit society

nonprofit incorporated society that doesnt have capital stock and incorporates for the sole benefit of its members

policy dividends for life insurance are: a.not legal b.taxable c.not guaranteed d.guarenteed

not guaranteed

unilateral

one-sided where only the insurer is legally bonded. the insured does not make a promise to pay premiums, however if premiums are not paid the insurer has the right to cancel the contract.

mutual companies-participating

organized and incorporated under state laws, but they have no stockholders. Owners are the policy holders. Referred to as participating companies because the policy owners participate in dividends.

Grace Period Provision

period of time policyowners are allowed to pay an overdue premium during which the policy remains in force, usually 30 days.

Reinstatement Provision

permits the owner to reinstate a lapsed policy. Specifies that if an insured fails to pay a renewal premium within the time granted but the insurer subsequently accepts the premium, coverage may be restored.

actuarial department

person who calculates policy rates, reserves, and dividends and makes other applicable statistical studies and reports focusing on morbidity and mortality tables

adjuster

person who engages in investigative work to obtain information for adjusting, settling, or denying insurance claims.

participating companies

policies issued by companies which allow their policyowners to participate in the favorable experience of the company through a payment of dividends

Policy Loan Provision

policies that have cash value also have policy loan and withdrawal provision. -Not taxable -any loans with interest due at time of death will be deducted from the insured's policy proceeds -these loans cannot exceed the guarenteed cash value or the policy is no longer in forcei

When an employee is terminated, which statement about a group term life conversion is true?

policy proceeds will be paid if the employee dies during the conversion period

Free Look Provision

policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund for all premiums paid

What describes a level term policy?

premium and the protection remain constant for the term of the policy

Private commercial insurance companies

private company offering many lines of insurance

stock companies-nonparticipating

private organization, organized, and incorporated under state laws for the purpose of making a profit for its shareholder. Don't allow policyholders to participate in the company's profit.

1970 Fair Credit Reporting Act

provides individuals privacy protection and fair and accurate credit reporting

an insurance producer who offers a potential client something of value as an incentive to purchase insurance is engaging in

rebating

managerial system

recruit, train, and supervise agents through managers or general agents. They primarily build staff

Apparent Authority

relationship between the insurer, agent, and customer. it is the appearance of authority based on the agent insurer relationship. The insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal. (ex. since you have all the insurance application forms and business cards its apparent to the customer that you are able to help them apply for insurance

xyz insurance company issued a new life policy to an insured that replaced an existing policy. xyz insurance company is considered to be the?

replacing insurer

independent agency system

represent any number of insurance companies through contractual agreements

Insurable Interest

required that an individual have a valid concern for the continuation of the life or well-being of the person insured. Only needs to exist at the time of the application (the inception of the contract)

Equity indexed life

requires fixed premiums, has a guarenteed death benefit, grows at a rate reflected by a selected fund index, and has a minimum cash value guarentee

fair credit reporting act

requires insurers to disclose when an applicants consumer or credit history is being investigated

claims department

responsible for processing, investigating, and paying claims for losses incurred by insureds.

underwriting department

responsible for reviewing applications, conducting investigations to gain additional info about applicant, assigning risk classifications, and approving or declining an application

Pure Risk

risk that can only result i a loss, there is no opportunity for financial gain -only type of risk that is insurable

Patrol evidence rule

rule that prevents parties in a contract from changing the meaning of a written contract by introducing oral or written evidence made prior to the information of the contract, but are not part of the contract

1958 Intervention by the FTC (federal trade commission)

sought to control the health insurance industry advertising and sales literature

which entity is responsible for the majority of regulations imposed on insurance industry?

state government

representation

statements made by the applicant believed to be true (ht, wt) are not part of the contract and need to be true only to the extent that they are material and related to the risk

warranty

statements made by the applicant guaranteed to be true (name, dob) becomes part of the contract and if found to be untrue, can be ground for revoking the contract

The premiums paid by an employer for his employee's group life insurance are usually considered to be

tax-deductible to the employer

John has recently died and it was discovered that he was actually ten years older than what was listed on his life insurance policy. What will the insurer pay his beneficiary?

the amount of insurance that his premiums would have purchased at his correct age

the monthly benefit of an annuity certain is determined by

the annuitants payout period selection

Incontestable Clause

the clause in a life insurance contract that prohibits the insurer from questioning the validity of the contact after a certain period of time has elapsed

an insurance company may cancel a life insurance policy under which of the following conditions?

the outstanding policy loan exceeds the cash value of the policy

Suicide Provision

the policy will be avoided, and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance.

Aviation Exclusion

this exclusion limits or coverage when the insured is riding in only certain kinds of air travel

2003 do not call implementation act

this registry allows consumers to include their their ph# on the list to which telemarketers cannot make solicitation calls.

aleatory

this type of contract is an unequal exchange. ex. Tory paid one months premium of $50, when she died one month later, her beneficiary received the whole $50,000 face value of Tory's policy.

why is an applicants signature required on a life insurance application?

to attest that the statements on the application are accurate to the best of the applicants knowledge

reason for backdating a policy is

to obtain a premium rate based on an earlier age

implied authority

unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement (ex. since you are authorized to solicit applications and collect premiums, its implied that you are authorized to set appointments)

at what point does a whole life policy pay the face amount?

upon the insured's death or reaching the age of 100

general agency system

use of non-employee agents that represent just one insurance company and are often paid an allowance to cover office expense and staffing

Susan owns a life insurance policy that has accumulated $10k in cash value in which she can no longer pay its premium. If she elects to take the extended term option, which of these actions would she take?

uses the $10k to buy term insurance of the same face amount as her original policy

value vs indemnity

value-life insurance contracts, which means they will pay a stated amount indemnity- health insurance contracts are indemnity and will only reimburse the actual cost of the loss (pay medical bills). principle of this is to restore the insured to the same financial condition as that which existed prior to the loss. you cannot profit from an indemnity contract

Waiver

voluntarily giving up a known right ex. if an insurer chose to approve an application and issue a policy without requesting a medical exam they cannot later request a medical exam to for that policy in the future.

Waiver of Premium

waives the premiums when the policyowner becomes totally disabled

Nonforfeiture Options

when a policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining, he must use one of the following options.

all of these are correct concerning group life insurance except?

whole life insurance is the form of insurance typically used in group life insurance

concealment

withholding of information/facts by the applicant (smoker, diabetes)

Term Life insurance

-Life insurance that pays a death benefit if the policyholder dies within a specific time period but has no remaining value at the end of this time. -this life insurance is a temporary life insurance provided for a specific period of time. AKA pure life insurance.

nature of insurance

-to provide financial protection against losses that may be incurred due to a chance happening or event such as death, illness, or accident -protection is provided through an insurance policy which is a simple device for accumulating funds to meet these uncertain losses

Entire Contract Provision

.

3 types of agent authority

1. Express 2. Implied 3. Apparent

5 ways to handle risk

1.Avoidance-avoiding as many risk as possible 2.Reduction-attempts to lessen possibility/reduce risk 3.Sharing-group of individuals/businesses w/similar exposures share the losses that occur within that group 4.retention-aka self insurance, individual have the financial ability to fund losses by themselves when they occur. Transfer-most effective, transferred to another party.

4 essential elements of a contract

1.offer and acceptance 2.consideration: 3.legal purpose 4.competent parties:

a _____ company is one that i domiciled in another state and has not received a license to do business in AL.

Foreign nonadmitted

Two partners own equal shares in a business worth a total of $1,000,000. If they both commit to the purchase of a life insurance policy that will fund a Buy-Sell Agreement, which of the following is TRUE? -Each partner owns a $1,000,000 policy on their own life - Each partner owns a $1,000,000 policy on their partner's life - Each partner owns a $500,000 policy on their own life - Each partner owns a $500,000 policy on their partner's life

"Each partner owns a $500,000 policy on their partner's life".

which of the following is not guaranteed by a whole life policy? a.face amount b.cash values c.premiums d.policy dividends

D

which of the following provisions may not be adjusted in an adjustable life policy a.frequency of premium payments b.amount of payment amount c.policy face amount d.the insured

D

Conditional Contract

Insurance contracts are conditional because certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable.

whole life insurance

Insurance that provides death benefits for the entire life of the insured. Also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.

Dividend Options

Return of overcharged premiums and are therefore not taxable, usually pay on an annual basis. Options available for policyowners for settling this payment: cash option, reduced premiums options, accumulate interest, paid up additions, one year term

unauthorized entities

State regulation of insurance is in the public interest..

In which of the following ways does term life and whole life insurance differ?

Term insurance does not build cash value

1944 United States v. South-Eastern Underwriters Association (SEUA)

The decision of Paul v. Virginia was held for 75 years before the supreme court again addressed the issue of state vs federal regulation of the insurance industry. Supreme court ruled that the insurance industry is a form of interstate commerce. Insurance industry should be regulated by the federal goverment and subject to a series of federal laws, many of which coflicted with existing state laws. The decision did not affect states power to regulate insurance but it did nullify state laws that conflicted with federal legislation. Result: shift the balance of regulatory control to the federal gov

What does renewable term guarentee

The insureds insurability

Insuring Clause or insuring agreement

The insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss.

Estoppel

The legal process of preventing one party from reclaiming a right that was waived.

personal producing general agency system (PPGA)

They do not recruit, train or supervise career agents. They primarily sell insurance, although they may build a small sales force to assist them. Responsible for maintaining their own offices and administrative staff.