Insurance Exam

defined by location of incorporation and whether or not they are authorized to write business in a state

domicile of insurer

federal law that protects health information

HIPPA

allows individual to make tax deductible contributions until age 70 1/2. withdrawals may begin at age 59 1/2

IRA

What does IRA stand for

Individual Retirement Account

to be eligible, must be a small employer or self employed. only the employer contributes to this plan

SEP

to be eligible, must be a small employer (no more than 100 employees) and the employer matches the employee contribution in this plan

SIMPLE

form of whole life insurance. premiums will be paid up way before age 100. premium is higher and cash value builds up faster

limited pay whole life

also known as the pay in period

accumulation period

what are the two components of a universal life policy

annually renewable term insurance and cash account

receives benefits or payments from an annuity (a natural person)

annuitant

time when annuity benefit payouts begin

annuitization date

amount paid among death of insured in a life insurance policy

death benefit

income payments begin AFTER 1 year from date of purchase. can be funded with a single lump sum or through periodic payments. the longer this annuity, the more flexible for payments of premium

deferred annuity

money paid regularly by a company to its shareholders out of its profits

dividend

The policy and a copy of the application, along with any riders and amendments, is called the

entire contract

used when the partnership buys policies on partners

entity purchase agreement

when an employee terminates membership in a insured group and goes to an individual policy, the face amount/death benefit is _____ to the group face amount, but premium will be based on attained age.

equal

risks policy will NOT cover

exclusion

agencies must follow this to ensure records are confidential, accurate, relevant, and properly used. protects consumers against circulation of inaccurate personal or financial information.

fair credit reporting act

established procedures that consumer reporting agencies must follow in order to ensure that records are confidential, accurate, relevant and properly used

fair credit reporting act

a other insured rider. incorporates spouse term rider and childrens term rider into a single rider

family term rider

they are operating in a state other than incorporated in

foreign

allows policyowner 10 days from receipt to look over policy if dissatisfied, return for a full refund of premium. This starts when policy is received.

free look period

time after premium due date that policyowner has to pay premium before policy lapses (usually 30-31 days)

grace period

person covered by insurance

insured

death benefit and premium never change

level term insurance

calculation based on average number of months insured is projected to live due to medical history and mortality factors

life expectancy

a settlement option. guarantees an income for 2 or more recipients for as long as they live. there is NO guarantee all life insurance proceeds will be paid out if all beneficiaries die shortly after

life income joint and survivor option

this rider provides payment of policy death benefit if insured is diagnosed with a terminal illness that will result in death within 2 years. many insurance companies do not charge for this rider since it is an advance payment of death benefit.

living needs rider

this rider is part of the accelerated living benefits. in order to take care of insureds health care expenses.

long term care rider

an information database that stores health histories of individuals who have applied for insurance in the past

medical information bureau

amount needed to keep the policy in force for the current year. paying this will make the policy perform as an annually renewable term product

minimum premium

untrue statements. can void the contract

misrepresentation

what are the two death benefit options to a policyowner of a universal life policy?

option A and option B

individuals who meet certain requirements and qualify for lower premiums than standard. applicants have superior physical condition, lifestyle, and habits.

preferred risk

manner or frequency that policyowner pays policy premium. (annual, semi-annual, monthly, etc.) increases administrative costs with an increase in frequency billing.

premium mode

renew coverage at expiration date without evidence of insurability, and premium is based on insureds age. This makes a term life policy _______

renewable

terminating existing policy or letting it lapse and obtaining a new one

replacement

statements believed to be true to best of knowledge

representation

have a fully insured status and age 66. paid to retired individual and eligible dependents. the monthly benefit is equal to primary insurance amount (PIA)

retirement benefit

Methods used to pay the death benefits to a beneficiary upon the insured's death are called

settlement options

what does SEP Plan stand for

simplified employee pension

form of whole life insurance. has a level death benefit to insureds age 100 for a one time, lump sum payment. policy is paid up after one premium and generates immediate cash.

single premium whole life

Contracts that are owned by someone other than the insured are known as

third party ownership

risk selection and classification process. insurance company determines if applicant is insurable and if so what premium to charge

underwriting

has a level premium, death benefit, cash value, and living benefits

whole life insurance

lifetime protection and includes a savings element (cash value). The policy premium cash value is scheduled to equal the face amount of the policy at age 100.

whole life insurance

determines whether the total amount of premiums paid into a life insurance policy, within the first 7 years is more than what was required to have the policy considered paid up in 7 years, when this happens it turns into a MEC (permanently)

7 pay test

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

A

An employee quits her job where she has a balance of $10,000 in her qualified plan. The balance was paid out directly to the employee in order for her to move the funds to a new account. If she decides to rollover her plan to a Traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax-free rollover? A. $10,000, no tax consequence B. $8,000, no tax consequence C. $8,000, tax on growth only D $10,000, tax on growth only

A

In which of the following instances would the premium be tax deductible? A. Premiums paid by an employer on a $30,000 group term life insurance plan for employees B. Premiums paid by an individual on their own life insurance C. Premiums paid by a mother on her son's policy D. Premiums paid by an employer on the life of a key person

A

What document describes an insured's medical history, including diagnoses and treatments? A. Attending Physician's Statement B. Physician's Review C. Individual Medical Summary D. Comprehensive Medical History

A

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy? A. Nothing, since the insured was killed as a result of war B. The full death benefit C. The policy's cash value D. A refund of premiums

B

All of the following employees may use a 403(b) plan for their retirement EXCEPT: A. VP of a charitable organization B. CEO of a private corporation C. School bus driver D. Part time classroom aide

B

An insured receives an annual life insurance dividend check. What term best describes this arrangement? A. Accumulation at interest B. Cash option C. Reduction of premium D. Annual dividend provision

B

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy? A. the death benefit will be larger B. the death benefit will be smaller C. the death benefit will be forfeited D. the death benefit will be the same as the original face amount

B

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? A. Ordinary Life Policy B. Limited Pay Whole Life C. Level Term D. Term to specified age

C

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT: A. employer pays bonus to a selected employee to fund the policy B. it is considered a nonqualified employee benefit C. policy is owned by company D. Any type of insurance policy may be used

C

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called: A. Supplemental add on B. Cost of living C. Guaranteed insurability D. Waiver of cost of insurance

C

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? A. $0 B. $50,000 (50% of the policy value) C. $100,000 D. $300,000 (triple amount of policy value

C

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid out to their children when they reach a certain age. Which settlement option should the policyowner choose? A. Joint and survivor B Fixed amount option C. Interest only option D. Life income with period certain

C

All of the following benefits are available under Social Security EXCEPT: A. Old age and retirement benefits B. Disability benefits C. Death benefits D. Welfare benefits

D

An agent is ready to deliver a policy to an applicant but has not yet received payment. Upon delivery, the agent collects the applicant's premium check, answers any questions the applicant may have, and then leaves. What did he forget to do? A. Offer her a secondary policy B. Ask applicant to sign a statement that acknowledges that policy had been delivered C. Collect a late payment fee D. Ask her to sign a statement of good health

D

An employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his: A. Experience Rating B. Group Rate C. Insurer's Scheduled Rate D. Attained Age

D

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called: A. One year term purchase B. Accumulation at interest C. Reduction of premiums D. Paid up additions

D

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A. Company is owner, but executive pays the premium B. Board of directors is the owner and they pay the premium C. Company is the owner and they pay the premium D. Executive is owner and they pay the premium

D

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? A. Fixed period B. Life income period certain C. Extended term D. Fixed amount

D

An employee quits his job on May 15 and doesn't convert his Group Life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. Which of the following statements best describes what will happen? A. Insurer will pay a reduced death benefit to beneficiary B. Insurer will pay death benefit minus one month's premium C. Insurer will pay nothing because employee has terminated his group insurance and has not started individual one D. Insurer will pay full death benefit from group policy to beneficiary

D (employee usually has a period of 31 days after terminating from group)

what does HIPPA stand for

Health Insurance Portability and Accountability Act

contributions must be made in cash (cash, check, money order) in order to be tax deductible for a ____ plan

IRA

an information database that stores health histories of individuals who have applied for insurance in the past

Medical Information Bureau

if an employee terminates membership in insured group, employee has right to convert to individual policy without proving insurability

conversion privilege

involves transferring all rights of ownership to another. this is permanent! new policyowner does not need to have insurable interest to be insured

absolute assignment

allow early payment of a portion of death benefit (usually percentage of face amount or dollar amount) if insured has; terminal illness, medical condition that requires extraordinary medical intervention (organ transplant), confinement, etc. This payout will not result in lower premium, but premium may be waived

accelerated living benefit rider

affect death benefit amount. this rider pays face amount for accidental death and pays a percentage of that amount for accidental dismemberment.

accidental death and dismemberment rider

agents personal observations concerning proposed insured.

agent report

receives annuity assets (amount paid into annuity or cash value, whichever is higher) if annuitant dies during accumulation period

beneficiary

any activity relating to solicitation and sale of a life settlement contract to a third party who has no insurable interest in insured

business life settlement

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

buy sell agreement

provides buyers generic information about life insurance policies

buyers guide

a nonforfeiture option. if this value is greater than premiums paid, excess is taxable as ordinary income. once this is done, policy cannot be reinstated.

cash surrender value

a other insured rider. this rider allows children of insured (natural, adopted, stepchildren) to be added to coverage for a limited period of time for specified amount. used with term insurance and expires when minor reaches a certain age (usually 18 or 21)

childrens term rider

involves transfer of partial rights to another. this is temporary. once debt or loan is repaid, assigned rights are returned to the policyowner.

collateral assignment

assumed that the primary beneficiary died first. proceeds go to contingent beneficiary or estate. this is if ONLY it is in insured's life policy. even if beneficiary died 4 days later and insured died immediately.

common disaster clause/uniform simultaneous death law

both parties must provide this in order for a contract to be valid.

consideration

death benefit decreases and premium stays the same

decreasing term insurance

return of excess premium

dividend

they are in the state they are incorporated in

domestic

evidence of insurability is usually not required (unless applicant is enrolling for coverage outside normal enrollment period)

group life insurance

affect death benefit amount. this rider allows insured to purchase additional coverage at specified date/event (3 years, marriage, birth of child) without evidence of insurability for additional premium. This rider expires at age 40

guaranteed insurability rider

presentation/depiction that includes nonguaranteed elements of a policy of individual/group life insurance over a period of years

illustration

purchased with single, lump sum payment and provides income payments that start WITHIN 1 year from date of purchase.

immediate annuity

single policy to insure two or more lives. can be term or permanent. premium is based on joint age. death benefit is paid upon first death only

joint life

to be covered under this plan, a person must be self employed or own 10% of the business. when retirement comes around, distribution of funds must occur no earlier than 59 1/2.

keogh

the key employee is the insured. business is the applicant, policyowner, premium payer, and beneficiary

key person insurance

a disability rider. primarily used with juvenile policies, otherwise it functions like a waiver of premium rider. if payor (parent/guardian) becomes disabled for at least 6 months or dies, insurer will waive premiums until minor reaches a certain age (usually 21).

payor benefit rider

found only in policies that contain cash value

policy loan

policyowner is entitled to borrow an amount equal to available cash value. insurance companies may defer this request for up to 6 months, unless reason for it is to pay a policy premium

policy loan

MUST be provided when policy is delivered

policy summary

describes features and elements of a policy

policy summary

only the ___ has ownership rights

policyowner

contributions are not tax deductible and excess contributions are subject to a 6% tax penalty in a ___ plan

roth IRA

affects death benefit amount. This rider allows for an additional amount of temporary insurance for insured without need to issue another policy. provides increase protection at a lower cost.

term rider

only ONE of the parties to the contract is legally bound to do anything

unilateral contract

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, riders, and exclusions C. Collect any premium due D. Explain the rating procedures if the policy is rated differently than applied for

A

All other factors being equal, the least expensive first year premium is found in A. Annually Renewable Term B. Increasing Term C. Decreasing Term D. Level Term

A

An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 Index. She would likely purchase a(n) A. Equity Indexed Annuity B. Variable Annuity C. Flexible Annuity D. Immediate Annuity

A

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT: A. signed waiver of premium B. statement of good health C. payment of premium D. delivery receipt

A

An insured purchased a 10-year level term life policy that is guaranteed renewable and convertible. What happens at the end of the 10-year term? A. The insured may renew the policy for another 10 years at the same premium rate B. The insured may renew the policy for another 10 years, but at a higher premium rate C. The insured must provide evidence of insurability to renew the policy D. The insured may only convert the policy to another term policy

B

A participating insurance policy may do which of the following? A. Provide group coverage B. Pay dividends to the stockholder C. Require 80% participation D. Pay dividends to the policyowner

D

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. 5 days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date? A. the date of policy delivery B. the date of issue C. the date of application D. the date of medical exam

D

insuring of risks that are more prone to losses than average risk

adverse selection

allows agent to communicate with underwriter and provide information about applicant

agent report

need a definite offer by one party and other party MUST accept offer in its exact terms

agreement

exchange of unequal amounts or values.

aleatory contract

they are incorporated outside of the US

alien

death benefit stays the same and policy may be guaranteed to be renewable each year without proof of insurability. premium increases annually according to attained age, as probability of death increases.

annually renewable term

person applying for insurance submits this to insurer for approval for a policy to be issued

application

parties to a contract. they MUST be capable of emerging into a contract in the eyes of the law

competent party

certain conditions must be met by company and policyowner for contract to be executed and before each party fulfills obligations

conditional contract

used only when applicant submits a prepaid application. the coverage will be effective either on date of application or date of medical exam (whichever occurs last). will not apply if policy is declined, rated or issued with riders excluding specific coverages

conditional receipt

binding force in any contract, something of value that each party gives to the other

consideration

ACCL Agreement - offer and acceptance Consideration Competent parties Legal purpose these are the elements of a:

contract

MUST exist between policyowner and insured at time of application

insurable interest

to purchase insurance, the policyowner must face possibility of losing money or something of value in event of a loss

insurable interest

(principal) company who issues the policy

insurer

can NOT be made unless consumer is advised in writing about the report within 3 days of the date the report was requested

investigative consumer report

any employer is eligible and employer matches employee contribution in this plan

401(k)

to be eligible, must be a nonprofit organization or employee of a public school system. employer and employee both contribute in this plan

403(b) TSA

if master contract of an insured group is terminated, each individual who has been on the plan for at least __ years, will be allowed to convert to individual permanent insurance of the same coverage

5

The automatic premium loan provision is activated at the end of the A. Grace Period B. Free Look Period C. Elimination Period D. Policy Period

A

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income? A. Interest only B. Both principal and interest C. Neither principal nor interest D. Principal only

A

Which of the following insurance arrangements will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner? A. Third party ownership B. An irrevocable beneficiary C. A buy sell agreement D. Family term rider

A

Which of the following is an eligibility requirement for all Social Security Disability Income benefits? A. Have attained fully insured status B. Be disabled for at least 1 year C. Have permanent kidney failure D. Be at least age 50

A

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? A. Anytime, because the agent did not deliver the policy promptly B. February 28th, or 10 days after the time the policy was delivered C. The time varies from one policy to another D. It was already too late when J received the policy because the 10 day free look period had expired

B

Which nonforfeiture option provides coverage for the longest period of time? A. Accumulated at interest B. Reduced paid up C. Extended term D. Paid up option

B

Which of the following statements about the reinstatement provision is true? A. It guarantees the reinstatement of a policy that has been surrendered for cash B. It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated C. It permits reinstatement within 10 years after a policy has lapsed D. It provides for reinstatement of a policy regardless of the insured's health

B

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

B

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called A. Fixed amount B. Joint life C. Joint and survivor D. Fixed period

C

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy as well as a refund of all the premiums paid. Which rider is attached to the policy? A. Decreasing term B. Premature death C. Return of premium D Cost of living

C

Which is true about a spouse term rider? A. the rider is decreasing term insurance B. coverage is allowed up to age 75 C. The rider is usually level term insurance D. Coverage is allowed for unlimited time

C

Which of the following entities can legally bind coverage? A. Federal Insurance Board B. Agent C. Insurer D. Insured

C

Which of the following terms is used to name the nontaxed return of unused premiums? A. Interest B. Surrender C. Dividend D. Premium Return

C

Insurance is the transfer of A. loss B. hazard C. peril D. risk

D

Which of the following riders would NOT cause the Death Benefit to increase? A. Guaranteed Insurability Rider B. Cost of Living Rider C. Accidental Death Rider D. Payor Benefit Rider

D

a ___ rollover must be completed within 60 days from time money is taken out of first plan. if distribution from first plan is paid directly to participants, 20% of distribution must be withheld by payor. (20% can be avoided by a direct rollover)

IRA

plan participants are allowed to contribute up to a specified dollar limit each year, or 100% of their salary if less than max allowable amount

IRA

affects the death benefit amount. this rider pays some multiple of face amount (principal). death must occur usually within 90 days of accident. benefit is 2x (double indemnity) face amount or 3x (triple indemnity) This policy often expires at age 65.

accidental death rider

period of time which owner makes payments (premiums) into an annuity. payments earn interest on a tax deferred basis

accumulation period

represent ownership interest in separate account. upon annuitization these become annuity units.

accumulation units

example of a whole life policy. policyowner gets term and permanent coverage. insured typically determines how much coverage is needed and affordable amount of premium.

adjustable life

policyowner has option from converting from term to whole life and vice versa, and insurer may adjust death benefit. and they are able to pay additional premiums in order to accumulate cash value.

adjustable life

contract that provides income for a specified period of years or for life. use mortality tables

annuity

also known as annuitization period, liquidation period, payout period

annuity period

the time which the sum that has been accumulated during accumulation period is converted into a stream of income payments to annuitant. could last a lifetime or specified period

annuity period

states that policyowner has right to transfer partial or complete ownership of the policy to another person without consent of insurer. BUT, owner must advise insurer in writing of this. Transfer of policy does NOT change insured or amount of coverage, only changes who has policy ownership rights.

assignment

is not required, but is commonly added to a contract with a cash value at no additional charge. it prevents unintentional lapse of a policy due to a nonpayment of the premium. policyowner MUST specifically elect this provision in writing to make it effective

automatic premium loan

a settlement option. payments of principal face amount after death are not taxable this way as income

cash

premiums for group insurance are shared between employer and employers insurer requires 75% of eligible employees to be included in the plan

contributory plan

used in partnerships when each partner buys a policy on the other

cross purchase agreement

tax free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another

direct transfer

have a fully insured status and total and permanent disability prior to retirement age. paid to disabled worker and spouse and eligible dependents. has a monthly disability benefit after a 5 month waiting period

disability benefit

employee (executive) owns policy and now has ALL CONTROL

executive bonus plan

a nonforfeiture option. insurer used policy cash value to convert term insurance for some face amount as former permanent policy

extended term

is considered the agent or producer

field underwriter

a settlement option. pays a fixed amount in installments until proceeds (principal and interest) are exhausted. beneficiary selects fixed money amount. even if beneficiary dies, proceeds continue.

fixed amount option

a settlement option. specified period of years is secured and equal installments are paid to beneficiary. payments continue for specified period even if beneficiary dies.

fixed period option

prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts/concealment of a material fact

incontestability

fixed annuities that invest on a relatively aggressive basis to aim for higher returns. has a guaranteed minimum interest rate. less risky, expected to earn a higher interest rate than a fixed annuity.

indexed annuity

cash value is dependent on performance of equity index such as S&P 500. face amount increases to keep up with inflation without requiring evidence of insurability. if POLICYOWNER assumes inflation risk, policy premium increases with the increasing amount of a face amount. if INSURER assumes inflation risk and premium remains level.

indexed life

what are the viators considered

insureds

sets forth basic agreement between insurer and insured. States insurer's promise to pay death benefit upon insureds death. Defines who the parties are, what premium to be paid, how long the coverage is and the amount of death benefit.

insuring clause

a settlement option. insurance company retains policy proceeds and pays interest on proceeds to beneficiary at regular intervals.

interest only option

also known as current assumption life

interest sensitive whole life

provides a guaranteed death benefit to age 100. insurer sets initial premium based on risk, interest, and expense. provides a minimum guaranteed rate of interest.

interest sensitive whole life

under eligibility requirements, any individual at least 21 has worked for a self employed person for 1 year or more and worked at least 1,000 hours 1 year (full time) MUST be included in a ___ plan

keogh

a settlement option. provide an income that you cannot outlive. amount is based on recipients life expectancy and amount of principal. if beneficiary dies shortly after they began receiving installments, balance of principal is forfeited to insurer.

life income option

a settlement option. best of both worlds! payments are guaranteed for a lifetime and have a specified period that is guaranteed. even if beneficiary dies shortly after, payments keep coming in.

life income with period certain option

any financial transaction in which owner of a life insurance policy sells policy to a third party for some form of compensation, usually cash

life settlement

a person who for compensation, solicits, negotiates, offers to negotiate a life settlement contract. they represent only the policyowner

life settlement broker

terms under which life settlement provider will pay compensation to policyowner, in return for assignment, transfer, sale, or release of any portion of death benefit, policy ownership, any beneficial interest, interest in a trust or any other entity that owns the policy

life settlement contract

person (other than owner) who enters into a life settlement contract with the owner

life settlement provider

employee pays all premiums. insurer requires 100% eligible employees to be included

noncontributory plan

guarantees that cannot be forfeited by policyowner. policyowner chooses one option; cash surrender value, reduced paid up insurance, or extended term.

nonforfeiture options

not subject to requirements regarding participation, discrimination and vesting. requires no government approval and are used as a means for an employer to discriminate in favor of a valuable employee with regard to employee benefits. this plan also accepts after tax contributions

nonqualified plan

contributions are not currently tax deductible. plan does not need IRS approval. can discriminate earnings grow tax deferred excess over cost basis is taxed

nonqualified plans

a dividend option. uses dividends that increase overall policy death benefit. policyowner can either use dividends as a single premium, or purchase term insurance equal to policys cash value.

one year term option

used in a universal life policy. death benefit is level and cash value gradually increases. which decreases the pure insurance with insurer in later years.

option A level death benefit

used in a universal life policy. death benefit includes annual increase in cash value so that death benefit and cash value increase together by the same amount. pure insurance remains level and expenses increase causing the cash value to be lower in later years.

option B increasing death benefit

also called a family rider. provides coverage for one or more family members other than insured. used with level term insurance, attached to a base policy covering insured.

other insured rider

the purchaser of an annuity contract. have ALL rights.

owner

states that only policyowners have ownership rights and they pay premium to insurance company, insurance company issues policy to policyowner and pays benefit to beneficiary, beneficiary receives benefit upon insureds death.

owners rights

if insured does not pick a dividend option, insurance company will pick this. dividends will be used to purchase a single premium policy. these will increase death benefit of original policy by whatever amount dividend will buy.

paid up addition

a dividend option. insurer will accumulate dividends at interest, then use this plus interest and policy cash value to pay policy up early.

paid up option

approved by IRS, gives both employees and employee benefits such as deductible contributions and tax deferred growth. permanent plan.

qualified plan

contributions are tax deductible. plan is approved by IRS. plan cannot discriminate earnings that grow are tax deferred all withdrawals are taxed

qualified plan

a nonforfeiture option. policy cash value is used by insurer as a single premium to purchase a complete paid up permanent policy that has a reduced face amount from former policy.

reduced paid up insurance

allows a lapsed policy to be put back in force. maximum time limit for this is usually 3 years after policy has lapsed. will NOT work for a policy that has been surrendered.

reinstatement

affects death benefit amount. this rider uses increasing term insurance. when added to a whole life policy, at death prior to a given age, original face amount is payable and an equal amount to all premiums previously paid to beneficiary. This rider expires at a specified age

return or premium rider

tax free distribution of cash from one account to another

rollover

individual retirement account funded with after tax contributions which can continue beyond the age 70 1/2. Grow tax free as long as account is open for at least 5 years

roth IRA

designed to provide protection for eligible workers and their dependents against financial loss due to old age, disability, or death.

social security

a other insured rider. this rider covers just spouse of insured. usually expires when spouse reaches age 65.

spouse term rider

owned by STOCKHOLDERS who provide capital necessary to establish and operate insurance company and share profits and losses

stock company

used by privately owned corporations when each stockholder buys a policy on each of the others

stock purchase agreement

used when corporation buys one policy on each shareholder

stock redemption agreement

also known as ordinary life or continuous premium whole life

straight life

form of whole life insurance. premium is paid from time policy is issued until insureds death at age 100 (whichever occurs first). this one has the lowest annual premium

straight life

to be paid, workers death must occur. paid to surviving spouse and dependent children. has a lump sum burial benefit if fully or currently insured. get monthly income payments if fully insured.

survivor benefit

insures two or more lives for a (usually lower) premium that is based on joint age. death benefit is paid upon last death.

survivorship life

recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep policy in force throughout its lifetime

target premium

temporary, provides the greatest amount of coverage for the lowest premium and provides pure death protection

term insurance

payments made by annuitant are invested into insurers separate account. this account is NOT part of insurance companys own investment portfolio and is NOT subject to restrictions to insurers general account

underlying investment

also called flexible premium adjustable life

universal life

an example of whole life insurance. policyowner can increase or decrease amount of premium paid and can skip a premium payment and will not lapse if there is sufficient cash value (if cash value is too small the policy will expire)

universal life

flexible premium that can be increased, decreased, or skipped. increasing or decreasing amount of insurance. allows for cash withdrawals or policy loans

variable universal life

level premium, investment based. has a guaranteed minimum death benefit. cash value is NOT guaranteed and fluctuates with premiums invested.

variable whole life

underlying assets must be held in a separate account within a

variable whole life

a separate contract that allows someone living with a life threatening condition to sell these existing life insurance policy and use proceeds when they are most needed, before their death

viatical settlement

person other than viator, that enters into a viatical settlement contract

viatical settlement provider

a contract without a legal purpose is considered

void

what happens to the policy if the warranty is breached?

void policy

a disability rider. pays all monthly deductions while insured is disabled, after a 6 month waiting period. (rider usually found in universal life and universal life policies)

waiver of monthly deduction rider

a disability rider. waives premium for a policy if insured becomes totally disabled, until able to go back to work. if insured is still disabled after waiting period, insurer will refund premium paid. This rider expires when insured reaches age 65

waiver of premium rider

absolutely true statement upon validity of insurance policy

warranty

If an agent wishes to sell variable life policies, what license must the agent obtain? A. Surplus Lines B. Personal Lines C. Securities D. Adjuster

C

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? A. mutual B. reciprocal C. nonprofit service organization D. stock

A

What is the major difference between a stock company and a mutual company? A. ownership B. amount of death benefit C. number of producers D. types of whole life policies

A

Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be: A. Discounted B. Adjusted to the insured's age at the time of renewal C. Determined by the health of the insured D. Based on the issue age of the insured

B

An individual purchased a $100,000 Joint Life policy on himself and his wife. 8 years later, he died in an automobile accident. How much will his wife receive from the policy? A. Nothing B. $50,000 C. $100,000 D. $200,000

C

When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will: A. Negotiate a reduced settlement with the beneficiary due to the unusual circumstances involved. B. Return the premium to Y's estate, since it has no obligation to pay the death claim C. Keep the premium and reject the risk on the basis that the applicant died before the policy could be issued. D. Issue the policy anyway and pay the face value to the beneficiary.

D

When would a 20 pay whole life policy endow? A. At the insured's age 65 B. After 20 payments C. In 20 years D. When the insured reaches age 100

D

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. concealment B. indemnity C. Representation D. Warranty

D

Which of the following would qualify as a competent party in an insurance contract? A. The applicant is intoxicated at the time of application B. The applicant is a 12 year old student C. The applicant is under the influence of a mind impairing medication at the time of application D. The applicant has a prior felony conviction

D

Why should the producer personally deliver the policy when the first premium has already been paid? A. to ensure the producer gets paid commission B. to find out how the family has been doing since the initial presentation C. to make sure the policy is not stolen or lost D. to help the insured understand all aspects of the contract

D

life insurance arrangement, a person with NO relationship to insured purchases a life policy on insureds life with intent of selling the policy to an investor and profiting financially when insured dies. financed and purchased solely with intent of selling for life settlement.

STOLI

explains: How do you choose the amount and type of insurance to buy? How can I save money by comparing costs of similar policies?

buyers guide

insurers MUST provide a ______ to all prospective policy applicants prior to accepting initial premium

buyers guide

includes written or oral information regarding a consumers credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, etc.

consumer report

agreement between 2 or more parties enforceable by law

contract

prepared by insurer and can or cannot be insured. Take it or leave it! NO negotiations.

contract of adhesion

policyowner has right to convert policy to a permanent insurance policy without evidence of insurability and premium is based on insureds age, this makes a term policy ______

convertible

policy termination due to nonpayment of premium

lapse

would alter underwriting decision of insurance company if discovered. if intentional it is considered fraud.

material misrepresenation

owned by POLICYOWNERS and issue participating policies

mutual company

do NOT share in profits or losses. do NOT pay dividends to policy holders. BUT, taxable dividends are paid to stockholders

nonparticipating policy

what does IOLI stand for

Investigator originated life insurance

In terms of parties to a contract, which of the following does NOT describe a competent party? A. the person must be mentally competent to understand the contract B. the person must have at least completed secondary education C. the person must not be under the influence of drugs or alcohol D. the person must be of legal age

B

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? A. Term Life B. Limited Pay C. Universal Life D. Adjustable Life

C

In order for an insurer to legally transact insurance, it must obtain which of the following? A. director's decree B. certificate of insurance C. certificate of authority D. power of attorney

C

The insurer discovered that one of the applicants for life insurance missed a couple of questions on the application. What should the insurer do with the application? A. acknowledge the missed questions with a signature and continue the policy issue process B. proceed with issuing a policy C. return to the applicant for completion D. answer the missed questions for the applicant

C

When would a misrepresentation on the insurance application be considered fraud? A. when the application is incomplete B. any misrepresentation is considered fraud C. if it is intentional and material D. never: statements by the applicant are only representations

C

which of the following types of policies allows the policyowner to skip premium payments, provided that there is enough cash value in the policy to cover the premium amount? A. Variable Life B. Adjustable Life C. Universal Life D. Flexible Life

C

An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it? A. Variable Life B. Adjustable Life C. Graded Premium Life D. Limited Pay Life

D

If an annuitant dies before annuitization occurs, what will the beneficiary receive? A. Either the amount paid into the plan or the cash value of the plan, whichever is the lesser amount B. Amount paid into the plan C. Cash value of the plan D. Either the amount paid into the plan or the cash value of the plan, whichever is the greater amount

D

In an annuity, the accumulated money is converted into a stream of income during which time period? A. Payment Period B. Amortization Period C. Conversion Period D. Annuitization Period

D

The annuity owner dies while the annuity is still in the accumulation stage. Which of the following is TRUE? A. The owners estate will receive the money paid into the annuity B. The insurance company will retain the cash value and pay back the premiums to the owners estate C. The money will continue to grow tax deferred until the liquidation period, and then will be paid to the beneficiary D. The beneficiary will receive the greater of the money paid into the annuity or the cash value

D

The death protection component of Universal Life Insurance is always: A. Whole Life B. Adjustable Life C. Increasing Term D. Annually Renewable Term

D

a 3rd party who has NO insurable interest in insured and initiates a transaction designed to transfer policy ownership rights to someone with NO insurable interest in the insured and hopes to make a profit upon death of insured

IOLI

information is obtained through an investigation and interviews with associates, friends, or neighbors of consumers

investigative consumer report

what the underwriter orders on the applicant from independent investigating firm/credit agency, which covers financial and moral information

investigative consumer report

dividends are NOT taxable and NOT guaranteed in a _____ company

mutual

money paid to insurance company for insurance policy

premium

when agent collects premium, the agent must issue a:

premium receipt

if insured dies during term, policy pays death benefit to beneficiary. if policy is canceled or expires prior to insureds death, nothing is payable at the end of the term. NO cash value or other living benefits

pure death protection

is an increasing term insurance policy that pays an additional death benefit to beneficiary equal to amount of premiums paid.

return of premium life insurance

insurance protection without extra rating/special restrictions.

standard risk

what does STOLI stand for

stranger oriented life insurance

(high exposure) applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. could be issued with the premium rated up.

substandard risk

also called pure life insurance

term insurance