Chapter 2 - Life Basics

Participating

Issued by mutual insurers; dividends considered return of excess premium

Non-Participating

Issued by stock insurers and do not pay policy dividends

Term

Lowest premium outlay, temporary coverage for short term need , no cash value, and the benefit can be level, increasing, or decreasing

Permanent

Premium higher than term when other factors equal, protection continues to age 100 or until surrendered, and provides cash accumulation.

Which of these modes would result in the insured paying the least amount per year for life insurance?

Semi-annual payroll deduction Quarterly Annual Monthly automatic bank draft

True: In California, life insurance applications generally ask for the following types of information: personal, ownership, product, beneficiary, premium, and existing coverage, if any.

true

An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, except:

A Collecting the premium B Obtaining a Statement of Good Health C Perform a medical exam D Explain the benefits, ratings, riders, and exclusions

Which one of the following will pay the highest premium for a life insurance policy all other factors being equal?

A Female age 70 B Male age 70 C Female age 65 D Male age 65

An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following?

A Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct B Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake C Contact either her agent or the insurance company and make sure they have the correct information D Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application

When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as:

A Human life value B The DIME method of insurance planning C The NAIC Mode D Needs analysis

Life insurance applications generally ask for all of the following types of information, except:

A Ownership B Level of education C Personal D Beneficiary

All of the following are examples of a third-party ownership, EXCEPT:

J is named as the owner and beneficiary of G's policy T applies for and owns his 2-year-old son's policy, but names his wife as beneficiary J applies for his life insurance policy and names his trust as the owner and beneficiary S applies for a policy on herself and names her husband as the beneficiary

mortality cost formula

Mortality Cost - Interest (investment return) = Net Premium (pure rate) Net Premium (pure rate) + Loading (insurer expenses) = Gross Premium

TRUE: In life insurance, insurable interest must exist or be proven at the time of the application, not at time of loss.

TRUE

Which of the following signatures would not be considered valid on an application for insurance?

the licensed producer a minor a guardian applicant the policyowner

STOLI Transaction occurs (stranger originated life insurance)

when a person with no insurable interest in the life of another indices that person to purchase a life insurance policy with the sole intent of becoming the beneficiary and profiting upon the death of the insured.

Which of the following is used by an insurer to collect information from the applicant/insured for underwriting purposes?

A A rider B An application C A receipt D An amendment

The cost of any required medical exams in the underwriting process is paid by the:

A Insurer B Producer C Insured D Applicant

Individual

Coverage on one named insured, may be of any classification or type, and the policyowner receives a policy and maintains control

Net Premium

Mortality - Interest =Net Premium

At the time of a life insurance policy delivery, a producer must provide which of the following?

following? A A copy of the insurance company's most recent annual report B A copy of the fact finding data collected on the initial sales appointment C A copy of the illustration that matches the policy for which it was approved D A copy of the Buyers Guide to Health Insurance, if interest was expressed in buying health insurance

applicant

the party making application for coverage (not necessarily the insured)

Premium are based on:

- Expected mortality -Interest -Expenses

conditional receipt

$premium is the offer and the policy is the acceptance -insurer will sent the policy to the agent for delivery, but coverage is in effect.

Substandard

(higher rate) is a higher than average risk based on the underwriting standards. issued rated policies.

Preferred

(lower rate) is a lower than average risk based on extremely good health.

standard

(normal rate) is the average risk on the mortality table standards. same health, occupation, as reflected in mortality table.

True: When calculating premium rates, life insurers assume that all:

-premiums paid in advance -premiums invested and earn interest

A PRODUCER SHOULD

....explain the policy to be sure the policyowner/insured understands the benefits, including any ratings, endorsements, and riders.

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 declining the application based upon the results of the medical exam, what is the insurer's responsibility?

A Refund the premiums paid in excess of any medical exam costs incurred by the insurer B Pay a death claim less the premiums paid and costs for the medical exam C Refund any and all premiums paid with the application D Pay the claim in full since the death occurred prior to denial of the application

The date on which insurance coverage is no longer in effect is referred to as the _________ date.

A Renewal B Conversion C Policy D Expiration

Attending Physician Statement

APS

All of the following statements are true regarding HIV testing, except:

All of the following statements are true regarding HIV testing, except: A The insured must pay for the cost of the testing B Test results must remain confidential C All tests require informed consent by the applicant D A current and prior HIV positive test result may be the basis of declined life insurance

True: Medical exams are done at the insurer's expense.

True

Variable

Uses separate account for cash value accumulation; may help protect against inflation; and an Insurance license and FINRA registration required in order to sell

application

a document that provides information for underwriting purposes

field underwriting completing the application

a formal request for coverage a producer's responsibilities required signatures

inspection report

a general report includes finances, morals, work, hobbies, habits

beneficiary

a person named in the policy to receive benefits if the insured dies during the contract

attained age

a person's current age at any given moment

third party ownership

a policy owned by someone other than the insured

Temporary insurance agreement

a receipt that provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined.

Who is required to sign a completed application?

any insurance company office the beneficiary The producer and applicant the producer's mmanager

medical examination

are conducted by physicians or nurses who provide results of an examination and information regarding the applicant's health.

field underwriting: The application

collect initial premium submit it with application may issue a conditional receipt - if client submits application and premium payment TOGETHER, policy is effective the date of application (or completion of medical exam)

refused/decline

is a refusal to issue coverage

Gross Premium

net premium + expenses=Gross Premium

Which of the following describes group life insurance?

A A single policy issued to an individual covering husband, wife and children B Multiple policies issued to an employer to cover a specific group of executives C A single policy issued to a business to cover the lives of employees D A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates

Which of the following receipts states that coverage will begin immediately for a specific length of time, regardless of whether the applicant is ultimately approved for coverage by the insurer?

A Acceptance approval receipt B Trial receipt C Temporary insurance agreement D Conditional receipt

A business owner buys a life policy on his own life. He/she may be all of the following, EXCEPT _________.

A Applicant B Beneficiary C Insured D Owner

Ultimately it is up to the _______ to determine if the proposed insured is an acceptable risk.

A Field underwriter B Insured's primary care physician C Home office actuary D Home office underwriter

All of the following are things a producer should do when meeting with the client after the policy has been issued, except:

A Go over the benefits and ratings B Review any endorsements and riders C Explain the policy to the applicant D Disclose the amount of commission earned on the sale

Which of the following is a false statement regarding insurable interest?

A In life insurance, insurable interest must be proven at the time loss or claim B The insurable interest on one's own life is generally regarded as unlimited C With the exception of a parent purchasing insurance on a minor child, no one may purchase insurance on the life of another person without that person's consent D Insurable interest can be defined as the possibility of economic loss due to sickness or death

What is it called if an agent or insurer recommends the replacement or conservation of an existing policy by use of a materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values?

A Marketing B Comparing C Competition D Twisting

All of the following are acceptable methods of policy delivery, except:

A Registered or certified mail with a signed receipt of delivery B Leaving it with a neighbor if they are not at home at their scheduled delivery appointment time C Personal delivery, with signed receipt of delivery D Delivered by reasonable means, as determined by the Commissioner, Director, or Superintendent of Insurance

A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the:

A Sales proposal B Policy summary C Conservation statement D Notice Regarding Replacement

In a STOLI transaction, what are the insureds basically doing?

A Selling their mortality to another for up-front cash B Borrowing the necessary funds from a third party in order to acquire the amount of insurance they need C Committing a misdemeanor punishable by monetary fine and forfeiture of the policy issued D Overinsuring themselves

An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct:

A Temporary term insurance is used to pay the death benefit B There is no coverage C Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied D Coverage is effective on the date of the application

Which of the following is not true about life insurance applications?

A The application is confidential communication between the agent and the insurer The application may contain all the information underwriting needs to approve the insured Applications for life insurance are typically divided into two parts: General Information and Health History The application more fully identifies the insured

All of the following are factors that are taken into consideration when using the Human Life Value approach in determining the proper amount of life insurance coverage, except:

A The insured's annual income B The insured's educational background C The insured's planned retirement age D An inflation assumption

A personal use of life insurance does which of the following?

A personal use of life insurance does which of the following? A Compensates a business for the death of a key person B Provides protection against living too long C Creates an insurable interest D Creates an immediate estate

Group

Master policy issued to plan sponsor and typically written as annual renewable term

Which of the following statements correctly describes the difference between gross premium and net premium?

Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance B Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses

Fixed

Specified amount of coverage, benefits and premium with no inflation protection

TRUE - The higher the age group, the higher the mortality rate which translates in to a higher premium and the Mortality Table shows that males have a higher mortality rate than females, therefore based on this statistic, males will pay a higher rate than females.

TRUE

TRUE OR FALSE: A conditional receipt will not be effective until the date of application or medical exam, whichever is later. Since the applicant died before the medical exam was performed there is no coverage.

TRUE

TRUE: It is a violation of the replacement rules for an agent or insurer to recommend the replacement or conservation of an existing policy by use of materially inaccurate presentation or comparison of an existing contract's premiums, benefits, dividends, and values, commonly referred to as 'twisting' and is a misdemeanor.

TRUE

TRUE: It is ultimately up to the insurer's home office underwriter to determine whether or not the insured is an acceptable risk or not and at what rate classification.

TRUE

Policy delivery will be accomplished by:

personal delivery, with signed receipt of delivery, registered or certified mail with a signed receipt of delivery, deliver by reasonable means, as determined by the Commissioner, Director, or Superintendent of Insurance, but never being left with a neighbor.

no initial premium

policy is the offer and upon delivery the premium is the acceptance. -insurer will send policy to agent for delivery. agent will collect -statement of good health -collect premium -free look period

Medical information bureau

provides background information to its insurance company members so they can determine who they will accept for insurance, or who they will reject.

Agen'ts report

statement submitted by agent confidential, not part of contract

issue (original) age

the age of the insured at the time of policy issue

expiration date

the date in which insurance coverage ends

effective date

the date which insurance coverage begins

Insured

the individual covered under the policy.

policyowner

the individual who has the ownership rights in a policy. The policyowner may also be the insured OR the beneficiary.

All of the following statements are true regarding HIV testing, except:

the insured must pay for the cost of the testing the test results must remain confidential all tests require informed consent by the applicant