Life Insurance Basics

Personal Uses of Life Insurance

-Survivor protection -Estate creation -Liquidity -Estate conservation -Life settlements

The most the Insurance Guaranty Association will pay for net cash surrender values is

100,000

All of the following statements concerning the use of life insurance as an Executive Bonus

Any type of insurance policy may be used. The employer pays a bonus to a selected employee to fund the policy. It is considered a nonqualified employee benefit.

An agent uses an insurer's illustration. He obtains proper approval and does not change the illustration in any way. The illustration involves projected amounts, and the agent stipulates that the amount would not be guaranteed. Which of the following is true?

The agent must stipulate that the illustration is not part of the contract.

allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death.

Viatical settlements

separate contracts in which the insured sells the death benefit to a third party at a discounted rate.

Viatical settlements

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent

he key source underwriters usefor information about the applicant.

application

a presentation or depiction that includes nonguaranteed elements of a life insurance policy over a period of years.

illustration

An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)

inspection report

Viatical producers represent _________ .

the providers.

potential earnings of the insured (considering salary, years to retirement, inflation)

human life value approach

During replacement of life insurance, a replacing insurer must do which of the following?

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

When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by

A paramedic or examining physician at the insurer's expense.

All of the following entities regulate variable life policies EXCEPT

Guaranty Association

Which of the following is used to compare the cost of one life insurance policy against another in order to guide prospective purchasers to policies that are competitively priced?

cost comparison methods

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant

with the policy

refers to any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan.

Deferred compensation funding

All of the following regulate variable life policies

Federal govt, SEC, Insurance dept

The Medical Information Bureau (MIB) was created to protect

Insurance companies from adverse selection by high risk persons.

gross premium =

Net Premium + Expenses

A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will

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

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE?

The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy.

three ratings classifications for life insurance

standard, substandard, and preferred

Which of the following is the best reason to purchase life insurance rather than annuities?

to create an estate

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue.

net premium =

Mortality - Interest

Which of the following is correct concerning the taxation of premiums in a key-person life insurance policy?

Premiums are not tax deductible as a business expense.

An insurer wants to obtain information from investigators regarding an applicant for insurance. What must the insurer do in order to legally acquire this information?

Present the insured with a Disclosure Authorization Notice

Which of the following would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau

medical information of the application includes:

medical background, present health, any medical visits, medical status of relatives, cause of death of deceased relatives

which part of an insurance application would contain info regarding the cause of death of the applicant's deceased relatives?

medical information

illustration includes

name of insurer agent address name/age/gender of proposed insured Rating classification Policy name Initial death benefit Dividend option

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?

the producer

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

the producer

owner sells an existing life policy to a third party.

life settlement

provides specific information on the policy being issued.

policy summary

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

The policy is owned by the company.

An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?

date of medical exam

nonprofit legal entities created to protect policyowners, insured, and beneficiaries against insolvent insurers within certain limitations.

Life and Health Guaranty Associations

Who is the owner and who is the beneficiary on a Key Person Life Insurance policy?

employer is the owner and beneficiary

If an insurance company makes a statement that its policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered

unfair trade practice

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

Issue the policy anyway and pay the face value to the beneficiary.

Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?

Medical Information

An insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?

application

provides generic information on various types of policies.

buyer's guide

predicted needs of the surviving family (considering debt, income, Social Security blackout, expenses)

needs approach

In classifying a risk, the Home Office underwriting department will look at ____.

the applicant's past medical history, present physical condition, occupation, habits and morals.

Viatical brokers represent ________ .

the insureds.

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?

variable