Life Insurance Basics

Insurers are required to maintain copies of their policy summaries for at least

3 years

An insurer neglected to provide a buyer's guide to a customer at the time of application. Which of the following will happen as a result?

A free-look period of 15 days will be granted.

When must insurable interest exist in a life insurance policy?

At the time of application,

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

The employer is the owner and beneficiary.

Why should the producer personally deliver the policy when the first premium has already been paid?

To help the insured understand all aspects of the contract

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?

Viatical settlement

During a replacement, how long must the existing insurer maintain all notifications sent by the replacing insurer?

5 years

Another name for a substandard risk classification is

Rated

Which of the following is NOT an example of a valid insurable interest?

Debtor in the life of the creditor

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium?

Executive is the owner, and the executive pays the premium.

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?

Human life value approach (HLVA)

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.

Based on Human Life Value Approach, which of the following is NOT used to calculate an individual's life value?

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

Which of the following types of risk will result in the highest premium?

Substandard risk

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

Survivor protection

Which of the following may NOT be included in an insurance company's advertisement?

That its policies are covered by a state Guaranty Association

Which of the following would least likely be considered a legitimate need that would be paid by insurance proceeds?

Vacation travel expenses

What is the name of the insured who enters into a viatical settlement?

Viator

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

A STPLI policy

Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?

A policy summary

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

An unfair trade practice.

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

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?

As of the application date

An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?

Attending Physician Statement

What is the time period called during which the surviving spouse of the insured does not receive Social Security income benefits.

Blackout period

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount?

Buy-sell agreement

All of the following are personal uses of life insurance EXCEPT

Buy-sell agreement.

Which of the following statements concerning buy-sell agreements is true?

Buy-sell agreements are normally funded with a life insurance policy.

What does "liquidity" refer to in a life insurance policy?

Cash values can be borrowed at any time.

A producer must do all of the following when delivering a new policy to the insured EXCEPT

Disclose commissions earned from the sale of the policy.

All of the following are business uses of life insurance EXCEPT

Funding against company's general financial loss.

Which of the following is NOT among the accounts that the Life and Disability Insurance Guaranty Fund maintains?

Group insurance accounts

When a replacement is involved, a replacing insurance company is responsible for all of the following EXCEPT

Provide a copy of the Important Notice Regarding Replacement of Life Insurance to the applicant.

Which of the following best details the underwriting process for life insurance?

Selection, classification, and rating of risks

All of the following are true of key person insurance EXCEPT

The plan is funded by permanent insurance only.

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.

What must happen when an individual policy or annuity has been personally delivered to the policyowner?

The policyowner must sign a delivery receipt.

Whose responsibility is it to make certain that an application for insurance is filled out completely and correctly?

The producer

Which is generally true regarding insureds who have been classified as preferred risks?

Their premiums are lower.

Are insurance company underwriters allowed to discriminate?

Yes, but not unfairly

An insurer has just asked an applicant to take an HIV test. How long does the applicant have to decide whether or not to sign a consent form?

10 days

Who makes up the Medical Information Bureau?

Insurers

All of the following are factors that an underwriter could use to select and classify risk EXCEPT

National origin

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?

Need is predicted using the number of years until the insured's retirement.

Which of the following best describes gross annual premium?

Net premium plus expenses

All of the following are characteristics of group life insurance EXCEPT

Premiums are determined by the age, sex and occupation of each individual certificate holder.

Upon policy delivery, the producer may be required to obtain any of the following EXCEPT

Signed waiver of premium.

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then

The benefit is received tax free.

For what reason may a life insurance producer backdate a life insurance policy?

To avoid an increase in premium rate for the insured

An insured has a life insurance policy with a face amount of $2,000. He pays a premium each week to the agent who sold the policy. What kind of policy does the insured have?

Industrial life

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that?

Inspection Report

The mode of premium payment

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

The Medical Information Bureau (MIB) was created to protect

Insurance companies from adverse selection by high risk persons.

Which of the following best describes the MIB?

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

In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium?

It will likely be higher because the applicant is a substandard risk.

A key person insurance policy can pay for which of the following?

Costs of training a replacement

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about

Whether an insurable interest exists between the individuals.

If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT

Erase the incorrect answer and record the correct answer.

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

Inspection report

An applicant who receives a preferred risk classification qualifies for

Lower premiums than a person who receives a standard risk.

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

Medical Information

Which of the following premium modes would result int he highest annual cost for an insurance policy?

Monthly

An insured purchased an individual life insurance policy with a face amount of $15,000. The insured pays a premium each month directly to the insurance company. What type of policy is that?

Ordinary life

An applicant wants to buy a policy that has a cash value element. Which type should she buy?

Permanent

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.

What is the purpose of a conditional receipt?

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

Which of the following is usually true of a participating life insurance policy?

It pays dividends to policyowners.

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to life. The insured knowns that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?

Viatical settlement