Life Insurance

Know This

A risk is a chance that a loss will occur; a hazard increases the probability of loss; a peril is the cause of loss

When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?

Adverse Selection

According to the Law of Agency, a principal is represented by whom?

Agent or producer

What type of insurer is formed under the laws of another country?

Alien

Which of the following would qualify as a competent party in an insurance contract?

Applicant has a prior felony conviction

When must insurable interest exist in a life insurance policy?

At the time of application

Which of the following is NOT a party to an application for life insurance?

Beneficiary

all of the following information about a customer must be used in determining annuity suitability EXCEPT

Beneficiary's age

In terms of social security, what is the name for the time period after the youngest child of a family turns 16 and before the surviving spouse may start receiving retirement benefits?

Blackout Period

A state issued document empowering an insurance company to become an admitted insurer is called what?

Certificate of Authority

In order to transact insurance within a given state, an alien insurer must first obtain what?

Certificate of authority

Which component increases in the increasing term insurance?

Death Benefit

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

Debtor in the life of the creditor

If a change happens for insurance, the agent may do all of the following EXCEPT

Erase the incorrect answer and record the correct answer

Aleatory Contract

Exchange of unequal amounts or values

Statistically Predictable

Insurers must be able to estimate the average frequency and severity of future losses and set appropriate rates.

Not Catastrophic

Insurers need to be reasonably certain their losses will not exceed specific limits

Peril

Perils are causes of loss insured against in an insurance policy

If an insurer needs to obtain information about the applicant from investigators, what is the insurer required to do?

Provide the applicant a disclosure authorization notice

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

The cash value available to the policyowner

Concealment

The legal term for the intentional withholding of information of a material fact that is crucial in making a decision.

If an insurer issues a policy based on the application that had unanswered questions, which of the following will be TRUE?

The policy will be interpreted as if the insurer waived its right to have an answer on the application

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss

Which of the following employees insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?

Those who have been insured under the plan for at least 5 years

Warranty

absolutely true statement upon which the validity of the insurance policy depends

Hazard

Conditions or situations that increase the probability of an insured loss occurring.

When an insured makes truthful statements on the application for insurance and pays the required premuim, it is known as which of the following?

Consideration

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge

Which of the following would be the beneficiary in credit life insurance

Creditor

Which of the following is TRUE about credit life insurance

Creditor is the policyowner

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

In the agent/Insurer relationship, who is considered the principal?

Insurer

Know This

Insurer's consideration is the promise to pay for losses: Insured's consideration is the payment of premium and statements on the application.

Who makes up the Medical Information Bureau

Insurers

Speculative Risk

Involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.

As a field underwriter, a producer is responsible for all of the following tasks EXCEPT

Issue the policy that is requested

Which of the following is correct regarding credit life insurance?

It insures the life of a debtor

Which Universal Life option has a gradually increasing cash value and a level death benefit?

Option A

Know This

Representations are statements believed to be true. Insured's statements on the application are representations.

Conditional Contract

Requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations.

Which of the following is INCORRECT concerning a noncontributory group plan?

The employees receive individual policies

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

To create an estate

Insurance

Transfer of risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals. The cost of an insured's loss is transferred over to the insurer and spread among other insureds.

Risk

Uncertainty or chance of a loss occurring. Two types of risk are pure and speculative, only one of which is insurable.

Elements of a Contract

1) Agreement 2) Consideration 3) Competent Parties 4) Legal Purpose

Methods of Risk Management

1) Avoidance 2) Retention 3) Sharing 4) Reduction 5) Transfer

Insurable Risks Involve:

1) Due to Chance 2) Definite and Measurable 3) Statistically Predictable 4) Not Catastrophic 5) Randomly Selected and Large Loss Exposure

What are the three types of agent authority

1) Express 2) Implied 3) Apparent

What two elements are necessary for a life insurance contract to have a legal purpose?

1) Insurable Interest 2) Consent

What percentage of a company's employees must take part in a noncontributory group life plan?

100%

All of the following would be considered dependents under a group life policy EXCEPT

An employees elderly mother

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is correct?

100% participation of members is required in noncontributory plans

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 Days

A Family's income need is greatest during which of the following periods?

Family Income Dependency Period

Which of the following types of insurance covers the whole family in a single contract?

Family Policy

Insurance is used to transfer what to the insurance company?

Financial responsibility for loss

Which of the following is true regarding the consent of the proposed insured for insurance contracts in Kentucky

Only individual policies must be consented by the insured.

Unilateral Contract

Only one of the parties to the contract is legally bound to do anything.

Indemnity

Provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract

Sharing

A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group.

What type of insurer is a voluntarily formed organization that provides insurance benefits for members of an affiliated lodge or religious organization with a representative form of government?

Fraternal Insurer

Which of the following terms best describe the coverage provided by term policies, as compared to any other form of protection?

Greatest

All of the following are considered to be income periods EXCEPT

Income Dependency Period

Know This

Indemnity means insureds cannot recover more than their loss.

Mortality Tables

Indicate the number of individuals within a specified group starting at a certain age, who are expected to be alive at a succeeding age.

Which of the following is correct regarding the credit life insurance

It insures the life of a debtor

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 TRUE regarding the annuity period?

It may last for the lifetime of the annuitant

What law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers

Which of the following is the basis for a claim against an insurance policy?

Loss

Transfer

Loss is borne by another party

Loss

Loss is defined as the reduction, decrease, or disappearance of value of the persons property insured in a policy.

Due To Chance

Loss that is outside insured's control

When an applicant purchased a life insurance policy, the agent dated the application 4 months prior. When asked by the applicant, the agent said he was allowed to backdate policies up to 6 months if it would

Lower the insured's premium

Which of the following information about the applicant is NOT included in the general information section of the application for insurance?

Medical Background

Life insurance premium rates are based upon the anticipated number of individuals within a given group who will die within a specified period of time, as indicated on

Mortality Tables

Randomly Selected and Large Loss Exposure

Must be a sufficiently large pool of the insured that represents a random selection of risks in terms of age, gender, occupation, health and economic status, and geographic location

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Morale Hazard - Someone who has an indifferent attitude towards an insurance company.

Which Risk Is Insurable?

Only Pure Risks

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

Retention

Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.

Which of the following has the right to convert the existing term coverage to permanent insurance?

Policyowner

In Variable whole life policies, where are the policy premiums allocated?

Separate Account

When is the earliest a policy may go into effect?

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

reduction

Would include actions such as installing smoke detectors in our homes.

Which of the following individuals must have insurable interest in the insured?

Policyowner

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must

Respond to the consumer's complaint

Pure Risk

Situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.

Definite and Measurable

Specific as to the cause, time, place and amount

Wagering on a sporting event is known as what type of risk?

Speculative

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant is killed in an automobile accident the next day,

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

What determines the penalty for surrendering a market value adjusted annuity prematurely?

The current interest rate at the time of surrender

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?

The date of medical exam

Estoppel

A legal process that can be used to prevent a party to a contract from re-asserting a right or privilege after that right or privilege has been waived.

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 individuals life?

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

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report

Must be informed of the source of the report

Avoidance

eliminating exposure to a loss

Contract of Adhesion

prepared by one of the parties (insurer) and accepted or rejected by the other party (insured)

Insurable Interest

the policyowner facing the possibility of losing something of value in the event of loss. MUST EXIST AT TIME OF APPLICATION. Policy owner must have insurable interest in the life of the insured.