EXAM FC pre-licensing CHAP 2, IDAHO

When Y applies for insurance and paid the initial premium on Aug. 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 standard. Y was killed in an automobile accident Aug 22. before the policy was issued. In this case insurance agents will

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

Business Uses of Life Insurance

Key person - third-party ownership - business is the owner; employee is the insured Buy-sell funding - not really insurance, but a business continuation agreement Executive bonuses - employer gives the employee a wage increase in the amount of insurance premium; employee is the policyowner

Which of the following would be the best option that would help the surviving spouse of the insured put her child through daycare after the insured death

Life Insurance proceeds

Mortality tables are used by insurance companies to predict what?

Life expectancy and the death rates for specific groups of individuals

What type of insurance creates an immediate estate?

Life insurance

What is included in Part 2 of a life insurance application?

Medical information about the prospective insured

All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?

Monthly

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

National Origin The company will discriminite in favor of good risks and not poor risks; however it cannot discriminate unfairly

What type of life insurance offers an applicant a cash value element?

Permanent insurance (usually, whole life)

What term describes the fee a person pays an insurance company to receive coverage?

Premium

What is the term that describes the frequency and the amount of the premium payment?

Premium mode

What are illustrations in a life insurance policy?

Presentations of nonguaranteed elements of the policy

Personal Use

Survivor protection - planning for survivor needs Cash accumulation - permanent policies have living benefits Estate creation - life insurance creates an immediate estate Estate conservation - using life insurance proceeds to cover estate taxes

What is the purpose of the agent's report during the application process?

The agent's report discusses the agent's personal observations about the proposed insured that may help in the underwriting process.

A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?

The benefit is received tax free.

an applicant signs an application for 25,00 life insurance policy, pays the initial premium and rceieves a conditional receipt. If the applicant dies the following day, which of the following is true?

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

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.

Who is the beneficiary on a key-person life insurance policy?

The employer

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter's main concern?

The existence of insurable interest between the applicant and the insured

Who is responsible for the contents of insurance advertisements?

The insurance company

When planning for survivor protection in life insurance, what needs to be considered?

The insured's current assets, liabilities and survivor's needs

In calculating the amount of life insurance needed, what is the needs approach based on?

The predicted needs of a family after the premature death of the insured

Which of the following is NOT and example of a buisness use of Life insurance

Workers Comp. this is a benefit payable when a worker is injured by a work-related injury.

Minor

a person under legal age

Estate —

a person's net worth

Solvency

ability to meet financial obligations (e.g., an insurance company maintains enough assets to pay claims)

When must insurable interest exist for a life insurance policy

at the time of the application

Life insurance

coverage on human lives

Cash value

equity amount accumulated in permanent life insurance

all advertisments are the responsibility of the

insurer

Which of the following best describes the MIB (Medical info bureau)

its a nonprofit organization that maintains underwriting info on applicants for life and health insurance

Company Underwriting

multiple sources of information (application, consumer reports, MIB) selection criteria- cannot discriminate unfairly Risk classification - 3 types of risks: standard, substandard, and preferred

Lump-sum

payment of the entire benefit in one sum

Illustrations

presentation or depiction of nonguaranteed elements of a life insurance policy

Liquidation

selling assets in order to raise capital

Adverse selection

tendency of individuals with higher probability of loss to purchase insurance more often than those who present a lower risk

Death benefit

the amount paid upon the death of the insured in a life insurance policy

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

the policy is owned by a company

Premium Determination

3 key factors for life insurance: mortality, interest and expense Premium payment mode - the higher the frequency, the higher the premium

Solicitation and Sales Presentations

Advertisements - must be truthful and not misleading Illustrations - presentation of nonguaranteed elements Buyer's guide - generic information about life policies; must be provided at the time of application Policy summary - description of features and benefits of the policy being issued; must be provided when the policy is delivered

Who must be a member of insurance guaranty associations?

All insurers authorized to write insurance within a state

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. Any form of Life insurance may be used to fund a buy-sell agreement.

Field Underwriting (by agent)

Application - completed and signed Agent's report - agent's observations about the applicant that can assist in underwriting Premiums with application and conditional receipts

When must insurable interest exist in a life insurance policy?

At the time of application

When must the policy summary for a life insurance policy be delivered to the policyowner?

At the time of policy delivery

What does liquidity mean in a life insurance policy?

Availability of cash value

What is the time period called during which the surviving spouse of the insured does not recieve Social Security income benifites?

Blackout period

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

Blackout period No benifites are paid at this time

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

Debtor in the life of the creditor

Policy Issue and Delivery

Effective date of coverage - policy is delivered and the premium is paid If the premium not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of policy delivery

Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?

Estate conservation

How does the premium mode affect the total premium paid for insurance for the year?

Higher frequency of premium payments will result in higher overall premium

Which of the following is used to compare the cost of one life insurance needed takes into account the insureds wages, years until retirement and inflation

Human Life Approach

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

Human Life Value Approach Human life value approach is determained by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation ETC

Amount of Insurance

Human life value approach - potential earnings of the insured (considering salary, years to retirement, inflation) Needs approach - predicted needs of the surviving family (considering debt, income, Social Security blackout, expenses)

What are the three main instances when insurable interest exists in life insurance?

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner

What type of report provides information about the applicant's hobbies, habits and financial status?

Investigative consumer report