life insurance basics quiz 3

a policy available to business owners that provides payment for normal business expenses in the event that the owner is disabled is called?

business overhead expense. -is often purchased by small employers to pay the ongoing business expenses(such as payroll) in the event the owner of the business becomes disabled. premiums paid are tax deductible as a business expense, but proceeds paid are taxable as income.

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 -is determined by the loss of income that would result with the death of the inured, after making adjustments for expenses, inflation, etc

attempting to determine how much insurance an individual would require based upon their financial objectives is known as?

needs approach - determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.

if an agent fails to obtain an applicant's signature on the application, the agent must?

return the application to the applicant for a signature.

which of the following is an example of liquidity in a life insurance contract?

the cash value available to the policy owner -refers to availability of cash to the insured. some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

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

to create an estate. -the death benefit creates an immediate estate should the insured die

an agent and an applicant for a life insurance policy fill out and sign the application. however, the applicant does not wish to give the agent the initial premium, and no conditional receipt is issued. when will coverage begin?

when the agent delivers the policy, collects the initial premium, and the applicant completes an acceptable statement of good health.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. what characteristic of an insurance contract does this describe?

aleatory -aleatory contract, unequal amounts are exchanged between payments and benefits. in this instance,

which of the following is correct concerning the taxation of premiums in a key persons life insurance policy?

premiums are not tax deductible as a business expense. -business cannot take a tax deduction for the expense of the premium. if the key employee dies, the benefits paid to the business are usually received ta free.

a producer agent must do all of the following when delivering a new policy to the insured except?

except: disclose commissions earned from the sale of the policy. -explain the policy provisions, riders, and exclusions -collect any premium due -explain the rating procedures if the policy is rated differently than applied for.

stranger originated life insurance policies are in direct opposition to the principle of?

insurable interest -because the purchaser of stranger-originated life insurance policy doesn't know the insured or have any interest in the insured's longevity, STOLI policies violate the principle of insurable interest.

which of the following would not fail into the category of costs associated with death?

not;the expense of a vacation for surviving family members. -day to day expenses of maintaining the family -funeral expenses -final medical expenses of the insured

which of the following is not required on an illustration used in the sale of a life insurance policy?

not;the name of the primary and secondary beneficiaries -generic name of policy -name of insurer -underwriting or rating classification upon which the illustration is based