Chapter 2 - Life Insurance Basics

Estate

a person's net worth.

Beneficiary

A person who receives the benefits of an insurance policy.

What is the primary source of information used for insurance underwriting? A. Medical records B. Private investigations C. Application D. Applicant interviews

C. Application

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy? A. The key employee is the owner and beneficiary B. The key employee is the owner and the employer is the beneficiary C. The employer is the owner and beneficiary D. The employer is the owner and the key employee is the beneficiary

C. The employer is the owner and beneficiary

Death Benefit

The amount paid upon the death of the insured in a life insurance policy.

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? A. As the application Date B. As the policy Delivery Date C. As of the first of the month after the policy issue D. As of the policy issue date

A. As the application date (If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application)

The responsibility of making certain that an application for insurance is filled out completely, correctly, and to the best of his or her knowledge is the responsibility of whom? A. The Producer B. The Beneficiary of the applicant C. The insurance company D. The applicant

A. The Producer

What is the time period called during which the surviving spouse of the insured does not receive social security income benefits? A. Waiver of premium B. Retention of capital C. Probationary Period D. Blackout Period

D. Blackout period

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

D. The cash value available to the policy owne

Minor

A person under legal age

A producer agent must do all of the following when delivering a new policy to the insured except.. A. Disclose commissions earned from the sale of the policy B. Explain the policy provisions C. Collect any premium due D. Explain the rating procedures if the policy is rated differently than applied for

A. Disclose commissions earned from the sale of the policy

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will A. Automatically pay the policy proceeds B. Pay the policy proceeds only if it would have issued the policy C. Pay the policy proceeds up to an established limit D. Not pay the policy proceeds under any circumstances

B. Pay the policy proceeds only if it would have issued the policy

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

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

life insurance

Coverage on human lives.

Attempting to determine how much insurance an individual would require based upon their financial needs and objectives is known as A. Human Life Value Approach B. Estate planning C. Viatical approach D. Needs approach

D. Needs approach

Which of the following would provide an underwriter with information concerning an applicant's health history? A. A medical Examination B. The agents report C. The inspection report D. The Medical Information Bureau

D. The Medical Information Bureau

Cash Value

Equity amount accumulated in permanent life insurance.

Underwriting

Is the risk selection and classification process. It involves careful analysis of many different factors to determine the acceptability of applicants for insurance.

Illustrations

Presentation or depiction of nongauranteed elements of a life insurance policy.

A producer is helping a married couple determine the financial needs of their children in the event one of both should die prematurely. This is a personal use of life insurance known as A. Survivorship Insurance B. Juvelnile Protection provision C. Survivor protection D. Life planning

C. Survivor Protection

All of the following are business uses of the life insurance EXCEPT A. Funding business continuation agreements B. Funding against company's general financial loss. C. Compensating Executives D. Funding against financial loss caused by the death of a key employee.

B. Funding against company's general financial loss.

What does liquidity refer to in a life insurance policy. A. The death benefit replaces the assets that would have accumulated if the insured had not died. B. The policyowner receives dividend checks each year C. The insured received payments each month in retirement D. Can values can be borrowed at any time.

D. Can values can be borrowed at any time.

Which of the following is NOT an example of insurable interest? A. Business partners in each other. B. Employer in employee C. Child in parent D. Debtor in creditor

D. Debtor in creditor

Which of the following types of insurance policies would perform the function of cash accumulation? A. Term Life B. Credit Life C. Increasing Term D. Whole Life

D. Whole Life

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then... A. The benefit is subject to the exclusionary rule B. IRS has no jurisdiction C. The benefit is received as taxable income D. The benefit is received tax free

D. The benefit is received tax free

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern? A. Whether an insurable interest exists between the individuals B. The gender of the applicant C. The type of policy requested D. Which individual will pay the premium

A. Whether an insurable interest exists between the individuals

Which of the following best describe the MIB? A. It is a rating organization for health insurance B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance C. it is a government agency that collects medical information on the insured from the insurance companies D. it is a member organization that protects insured against insolvent insurers

B. It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance

Which of the following would not fall into category of costs associated with death? A. Final medical expenses of the insured B. Day to day expenses of maintaining the family C. The expense of a vacation for surviving family members D. Funeral expenses

C. The expense of a vacation for surviving family members

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. Blackout period B. Nonpayment interval C. Benefit reduction D. Accumulation period

A. Blackout period

During replacement of life insurance, a replacing insurer must do which of the following. A. Send a copy of the Notice Regarding Replacement to the Department of Insurance B. Obtain a list of all life insurance policies that will be replaced C. Guarantee a replacement for each existing policy D. Designate a new producer for a replaced policy

B. Obtain a list of all life insurance policies that will be replaced

Which of the following individuals must have insurable interest in the insured? A. Producer B. Policyowner C. Beneficiary D. Underwriter

B. Policyowner

Replacement

any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity has been or will be any of the following: - Lapsed, forfeited, surrendered, or otherwise terminated - Reissued with any reduction in cash value - Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values - Amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid for - Used in financed purchase

The mode of premium payment A. Is the method used to compute the cash surrender value of the policy B. Does not affect the amount of premium paid C. Is defined as the frequency and the amount of the premium payment D. Is the factor that determines the amount of dividends in a policy

C. Is defined as the frequency and the amount of the premium payment

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

C. Workers Compensation

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds? A. Travel expenses for family to come to the funeral B. Debt Cancellation C. Day Care D. Vacation Travel Expenses

D. Vacation Travel Expenses

The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective? A. As of the first of the month after the policy issue B. As of the policy issue date C. As of the application date D. As of the policy delivery date

C. As of the application date

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then .. A. IRS has no jurisdiction B. The benefit is received as taxable income C. The benefit is received tax free D. The benefit is subject to the exclusionary rule

C. The benefit is received tax free

A key person insurance policy can pay for which of the following? A. Costs of training a replacement B. Loss of personal income C. Workers compensation D. Hospital bills of the key employee

A. Costs of training a replacement

Jason wants to advertise his life insurance practice. Which of the following must he include in his advertisements? A. His insurance certification B. The name of the commissioner of insurance C. The name of the city in which he has his principal office D. The name of all the cities in which he has offices.

C. The name of the city in which he has his principal office

Solvency

ability to meet financial obligations (e.g. an insurance company maintains enough assets to pay claims)

Lump-Sum

payment of the entire benefit in one sum.

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

liquidation

selling assets in order to raise capital

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