Life Insurance Basics (14%)
What information is gathered in parts 1 & 2 of the application?
-Part 1 provides GENERAL INFORMATION of the proposed insured (name, age, address, birth date, gender, income, marital status & occupation) -Part 2 provides medical information of the proposed insured (medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives)
What does insurance solicitation mean?
An attempt to persuade a person to buy an insurance policy and it can be done verbally or in writing
all of the following are business uses of life insurance EXCEPT
Funding against general company financial loss
What does the suitability agreement provide for the proposed insured?
It ensures that the insured is NOT recommended a sale, purchase, or exchange of an insurance policy unless the provider has reasonable belief that the transaction is in the BEST INTEREST of the insured
What is the purpose of a conditional receipt?
It is intended to provide coverage on a date prior to the policy issue
Cash Accumulation
Life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed.
Which of the following will be included in a policy summary?
Premium amounts and surrender values
What is the purpose of the agent's report?
The agent's (producer's) report is used by the agent to discuss his or her personal observations concerning the proposed insured.
death benefit
The amount payable upon the death of the person whose life is insured.
Who is responsible for all written and distributed insurance advertisements?
The insurer is responsible- regardless of who wrote, created, presented, or distributed them
What happens if an insurance policy has been issued without insurable interest present?
The insurer must pay the policy benefit whether or not an insurable interest exist
What is the purpose of key person insurance?
To minimize the risk of financial loss caused by the death of a key employee
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
it DECREASES
Survivor Protection
life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death
lump sum
payment of the entire benefit in one sum
illustrations
presentation or deception of nonguaranteed elements of a life insurance policy
How does a substandard risk policy differ from a standard risk?
A substandard risk policy is issued with HIGHER premiums since the insured is a high risk, and a standard risk policy is issued with AVERAGE premiums since the insured is a average risk.
When would an insured be required to sign a statement of good health?
If the premium was not paid at the time of the application then the provider must accept premium and a signed statement of good health when they deliver the policy to the insured
How can an insurance company use the information it obtains from the MIB?
The MIB can be used only as an aid in helping insurers know what areas of impairment they need to investigate further.
What is the needs approach to determining amounts of life insurance based upon?
The needs approach is based on the predicted needs of a family after the premature death of the insured. (Factors included are income, the amount of debt (including mortgage), investments, and other ongoing expenses)
Who is required to sign an application for life insurance?
The proposed insured (usually the applicant) AND the agent
what is underwriting?
Underwriting is the risk selection and classification process (the careful analysis of many factors to determine the acceptability of applicants for insurance)
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid
life insurance
a coverage upon a person's life, and granting, purchasing or disposing of annuities
minor
a person under legal age
beneficiary
a person who receives the benefits of an insurance policy
estate
a person's net worth
What is a policy summary?
a written statement describing the features and elements of the policy being issued (The policy summary MUST BE PROVIDED WHEN THE POLICY IS DELIVERED)
Solvency
ability to meet all financial obligations (ex: an insurance company maintains enough assets to pay)
When should insurable interest exist between the policy owner and the insured?
at the time of the APPLICATION
What information does a Buyer's Guide provide?
basic/generic information about life insurance policies and comparison of policy cost (Insurers must provide a Buyer's Guide to ALL proposed insured's PRIOR to accepting their initial premium)
liquidation
selling assets in order to raise capital
Insurable Interest
something of value that, if lost, would cause you financial harm
cash value
the amount of money a whole life policyholder would receive if the policy were surrendered before death or maturity
What are the personal uses of life insurance?
1) Survivor protection 2) estate creation and conservation 3) cash accumulation 4) liquidity
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
Any form of life insurance
Estate Creation and Conservation
As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary
Attempting to determine how much insurance an individual would require based upon their financial objectives is known as...
NEEDS APPROACH
Are beneficiaries required to pay insurable interest?
NOOO because they are not the one being insured
Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?
Needs is predicted using the # of years until the insured's retirement (This statement is NOT TRUE)
What is survivor protection?
The death of the primary-wage earner will stop the flow of income to the family, so this use of life insurance will insure the survivors to be able to maintain their lifestyle in the event of the insured's death
What is the human life value approach?
The human life value approach gives the insured an estimate of what would be LOST TO THE FAMILY in the event of the premature death of the insured. (It calculates the insured's life values by looking at their wages, inflation, # of yrs to retirement, and the time value of money)
When should insurable interest exist between the policy owner and the insured?
when insuring... 1) policy owners own life; 2) The life of a family member (a spouse or a close blood relative); or 3) The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such as a debtor to a creditor)
What does liquidity provide to a policy owner?
Liquidity provides the feature of the policy's cash values can be borrowed against at any time and used for immediate needs
When would insurance proceeds paid in lump-sum be needed?
1) Cost associated with death (medical expenses & funderal expenses of the insured, and day-to-day expenses of the survivor family maintenance) 2) Debt Cancellation (paying off debts of the insured) 3) Emergency Reserve Funds (paying for unexpected expenses following the death of the insured such as lodging and travel expenses) 4) Education Funds (paying for children's education expenses so they can remain in school or for spouse who may need additional education to re-enter the job market following the insured's death) 5) Retirement fund (used as a source of retirement income) 6) Bequests (leaving funds to the insured's church, school, or a charity)
Which of the following statements concerning buy-sell agreements is true?
Buy-sell agreements are normally funded with a life insurance policy