IL Life Insurance Exam

Return on Premium (ROP) life insurance

increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of premiums paid

Who can make a fully deductible contribution to a traditional IRA?

individual not covered by an employer sponsored plan who has earned income

Target premium

is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.

third party owner

legal term used to identify an individual or entity that is not an insured under the contract, but that has a legally enforceable right under it

Variable whole life insurance is based on

level fixed premium investment-based product

If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used

lump sum

Waiver of Premium Rider

most insurers impose a waiting period of 6 months from the time of disability until the first premium is waived

Nonforfiture options

cash surrender, reduced paid up, extended term

A tax-sheltered annuity is a special tax favored retirement plan available to

certain groups of employees

What includes a person's credit, character, reputation, and habits?

consumer report

Non taxed return of unused premiums

dividend

IL Life&Health Guaranty Association purpose is...

help protect policy owners and beneficiaries against financial loss caused by the insolvency of an insurance company

Examples of Insurable Interest

"Blood"- own life, spouse, child/parent "Business"- business partners in one another, employer in employee, creditor in debtor

maximum fine for violation of cease and desist order

$1,000

Maximum penalty for habitual, willful noncompliance with the Fair Credit Reporting Act?

$2,500

IL Life & Health Guaranty Assoc. is obligated to pay claims if they are under...

$300,000

Replacement Regulation doesnt apply when face amount is less than

$5,000

noncontributory plan

- employer pays 100% of premiums -100% employee participation - help reduce adverse selection against the employer

Insurance Director duties

- examines authorized insurers -enforces insurance code -issues certificates of authority

controlled business

- insurance policies regulated by the state dept. of insurance - lines of authority for which the producer is licensed - transactions that are subject to examination by director

Requirements of a qualified plan

- permanent, written, and legally binding -communicated to all employees -must be for the exclusive benefits of the employees and the their beneficiaries

Policy loan

-A policy loan may be repaid after the policy is surrendered. -Money borrowed from the cash value is not taxable -Policy loans can be repaid at death -An insurer can charge interest on outstanding policy loans. -Policy loans can be repaid at any time, including surrender and death. An insurer can charge interest on outstanding policy loans.

SIMPLE plan

-available to small businesses with no more than 100 employees, -each receiving a $5,000 annual compensation -employer then makes a matching contribution up to an amount equal 3% of employee's annual wages

elements of a qualified plan

-contributions currently tax deductible -cant discriminate -earnings grow tax deferred -all distributions are taxed

settlement option

-exercised when an immediate annuity is purchased with the face amount at death... -OR with the cash value at surrender

Business uses of life insurance

-funding business continuation agreements - compensating executives -protecting firm against financial loss in key person death/disability

executive bonus

-policy is not owned by the company - any type of insurance may be used - it is a nonqualified employee benefit - employer pays a bonus to a selected employee to fund the policy

4 elements of a contract

1. Agreement (offer and acceptance) 2. Consideration 3. Competent Parties 4. Legal Purpose

To sell variable life insurance policies, an agent must receive all of the following

1. life insurance license 2. securities license 3. FINRA registration

with regard to nonfinancial business practices, you have __ days to request a hearing after receiving the examination report

10 days

Life insurance proceeds accrue annually at what percent following the date of death?

10%

A producer failed to complete the required continuing education credit hours for this compliance period, and allowed his license to lapse. Within what time period after the deadline may the license be reinstated without having to pass the written exam

12 months

The Director may refuse to issue a license if a licensee's aggregate amount of premiums on controlled business exceeded the aggregate amount of premiums on all other insurance business during...

2 calendar years immediately preceding the extension date of the license

how soon must the insurer pay the death benefit after receiving proof of death

2 months

Minimum number of study hours required of a candidate for a casualty producer's license

20 hours

how many hours of CE before license renewal

24- with 3 being classroom ethics instruction

if license is denied or revoked the waiting period to reapply is

3 years

A business address change by a viatical settlement provider must be reported to the director in how many days

30

how long does an employee have to exercise his conversion option

31 days- until then, he is covered by the group policy

what number of credits is required to be "fully insured" for social security

40 quarters of coverage

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days

how long must the insured be part of a group policy to have conversion privilege

5 years

replacement regulation is required if the policy is longer than...

5 years

minimum number of credit units required for Social Security benefits

6 credits

Max percentage of face amount on life insurance policy that can be paid in accelerated benefits

75%

contributory and non contributory percentages

75% participation 100% participation

Incontestability Clause

if the insurer wishes to contest any statements in the application, they must do so within the first 2 years

Life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

Accumulation at Interest Option

A dividend option under which the policy owner allows the company to retain the dividends. The interest is credited at a rate specified by the participating policy. Insured can withdraw accumulations at any time, BUT said accumulations are taxed regardless of retaining/withdrawal

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. Also called "business continuation agreement"

Insurable Interest and Consent

A life insurance policy has legal purpose if what two characteristics of an insurance contract exist

Reduced Paid-Up Insurance Option

A non-forfeiture option under which the insured uses the cash value of his present policy to purchase a single-premium Whole Life policy at a reduced face amount. The policy accumulates cash value until maturity or death.

Flexible Premium

A policy feature that allows the policyholder to vary premium payments in the amount and/or timing. So long as there is enough value in the policy to fund the death benefit

Payor Benefit

A rider found in juvenile policies which waives the premiums if the person paying them (often the parent) is disabled for more than 6 months or dies while the child is still a minor. Premiums are waived until certain age determined by the company

403(b) plan

A tax-deferred retirement plan for teachers, hospital workers, ministers, and some other public employees

Fair Credit Reporting Act

Act that protects consumers against the circulation of inaccurate or obsolete personal/financial information. Ensures that consumer reporting agencies are fair and equitable in their reporting of consumers.

Conditional Contract

Agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.

Automatic Premium Loan

Allows the insurer to borrow from the cash value to pay unpaid premium after grace period expires. It makes sure that the policy does not lapse

Viatical Settlement

An arrangement that allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when and where they are most needed, before death.

Executive Bonus Plan

An employee benefit plan in which an employer gives an employee a bonus in the amount of the premium payments on a life insurance policy.

Universal Life policy is best described as...

Annually renewable term policy with a cash value account

An annuity is written with whose life expectancy taken into account

Annuitant

Modified Endowment Contract (MEC)

Any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract. It loses the benefits of a standard life contract

Insurable Interest

Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially.

Someone pays the initial premium, gets conditional receipt, and then dies...

Beneficiary receives full death benefit as long as the deceased is determined insurable.

Buyer's Guide and Policy Summary

Provides generic info about the policies. Allows for comparison of costs for different policies. Policy Summary provides information about the issued policy as well as the insurer's info.

Which nonforfeiture option provides coverage for the longest period of time?

Reduced Paid-up

which type of retirement account does not require the owner to start taking distributions at age 72?

Roth IRA

Adjustable Life Policy

Can change premium payments or period of coverage as your needs change, need to prove insurability for increases

Conversion Privilege

Clause in a group insurance policy that allows the insured to continue the same coverage under individual policy.

Common Disaster Clause

Clause protects the contingent beneficiaries' rights by stipulating a certain number of days the primary beneficiary must outlive the insured after a common accident causing near-simultaneous death in order for the primary beneficiary to receive the policy proceeds.

Annuity

Contract used to accumulate funds that are distributed at a specified time in the future as periodic payments

What two annuities guarantee a minimum interest rate

Equity Index/Fixed

Which policy component decreases in decreasing term insurance

Face Amount

A nonresident producer in Illinois just relocated to Indiana and became a resident producer in that state. What must the producer do to satisfy one of Illinois' requirements for nonresident producers?

File a change of address within 30 days

Interest rates of an equity indexed annuity are tied to

S&P 500

Contract: Consideration

Something of measurable value must be exchanged by the parties involved: premiums paid in return for the promise of paying losses

Personal Uses of Life Insurance

Survivor protection, estate creation and conservation, cash accumulation and liquidity

Simplified Employee Pension (SEP)

Tax-deferred account to which the self-employed and employees of very small businesses can contribute.

Life Solicitation Rule

Insurer is required to explain cost of similar plans and their basic features

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to policy issue. Dependent on date of application/date of medical exam- whichever is last. As long as it is determined the insured is insurable at the rate applied for.

Exclusions clause

Items stipulated in the contract for which the insurer will not provide coverage

Married couple life insurance policy that pays the death benefit at the first death

Joint Life Policy

Variable whole life insurance is based on...

Level fixed premium

Interest Only Settlement Option

Life insurance settlement option in which the insurer retains the policy proceeds and pays out interest on proceeds to the beneficiary at regular intervals

Key Person Insurance

Life insurance that protects a firm against losses due to the death of a key employee

Life Paid-up at Age 65 is an example of of what policy?

Limited-pay life policy

Buyer's Guide in the free look period

Must be delivered with the policy or prior to accepting initial premium.

If a nonresident licensed producer moves to the state of IL, do they need to take the IL life insurance exam?

NO

Extended Term Insurance

Nonforfeiture option where cash value is used to make a single premium payment on a Term Insurance Policy of the same face amount as the original policy. New term lasts as long as a period as the amount of cash value will purchase. Original policy can be reinstated.

Which Universal Insurance has a level death benefit and increasing cash value

Option A

Accumulation period

Period in which the payments going in to the annuity grow tax deferred and earn interest

What entities regulate variable life policies

The SEC, The Insurance Department, and the Federal government.

Universal Life option B

The death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.

Insuring Clause

The heart of an insurance policy. It contains the company's promise to the policyowner to pay.

If an applicant is found to be a substandard risk...

The insurance company will charge higher premiums

The Reduction of Premium Dividend Option

The insurer uses the dividend to reduce the next year's premium

Entire Contract

The policy, together with the attached application. Limits use of evidence other than Entire Contract when testing validity. Mandatory provision in life insurance.

Collateral Assignment

The policyowner temporarily assigns a life insurance policy to a creditor as collateral for a loan

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive

Competent parties

Those who are of legal age, mentally competent, and not under the influence

what is the main purpose of regulation of=n life insurance policy illustrations?

To help customers make educated decisions when buying life insurance

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

To help the insured understand all elements of the contract

One-sided promise

Unilateral

What type of policy allows the policyowner to pay more or less or even skip a premium payment

Universal Life

Which policy has an IRS required 'corridor' between cash value and death benefit

Universal Life Option A

What type of annuity requires an agent to have a securities license?

Variable annuity

Accelerated Benefits are paid when...

When insureds endure financial hardship due to sever illness. Nontaxable, portion of the death benefit.

What is the earliest the policy can go into effect?

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

producer has ______________________days to ask director for a hearing upon license nonrenewal, suspension, or revocation

Within 30 days of the date the notice was mailed

Aleatory Contract

a contract where the values exchanged may not be equal

Guaranteed Insurability

a rider included at the time of the application (or can be added later) that allows amount of insurance to increase without proving insurability

decreasing term policy

a term insurance policy that maintains a level premium throughout all periods of coverage while the face amount decreases

two types of assignments

absolute and collateral

warranty

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

Guranteeing policies b/c of the Guaranty Assoc. is

an unfair trade practice, although a true statement

Paid-Up Additions

applying policy dividends to increase the death benefit

Qualified Plan

approved by the IRS, gives employer and employee benefits in deductibility in contributions and tax deferral of growth

Term Riders

attached to a whole life policy, allows for additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members. may be used to meet the needs of the policyowner

Nonforfiture values

benefits in a life insurance policy that the policy owner cannot lose even if the policy is surrendered or lapses.

The hearing with the director of insurance must occur ____________ days after the mailing of the notice of hearing

between 20 and 30 days

Irrevocable beneficiaries

can only be changed with written consent of that beneficiary

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

cash surrender

Life income with period certain

occurs where installments are payable as long as the primary beneficiary lives, but should this beneficiary die before a predetermined number of years, the insurer will continue the installment to a second beneficiary until the end of the certain period.

what is the official name for the social security program

old age survivors disability insurance

What determines the cash value of a variable life policy

performance of the policy portfolio

Annuitization period

period where accumulated money is converted into a stream of income

policy loans provision

policy loan can be paid after a full 3 years of premium payments

What kind of individual license must be held to solicit and sell insurance

producer's license (for life insurance)

Other Insured Rider

provides coverage for one or more family members other than the insured. usually term insurance with option to convert to whole

Straight Life Annuity

provides recipient with payment option they cant outlive. Once they die, the payments stop

an agent offering things such as free tickets to a sporting event in exchange for the client's purchase of an insurance policy, this agent is guilty of

rebating

A group insurance policy was solicited by a limited insurance representative, what has to be true under the disclosure regulation?

representative's name and signature must appear on the master policy

Replacement Regulation

requires certain steps be followed when replacing policies to make sure the owners have all the info they need to make the best decision for them. Minimizes misrepresentation and incomplete disclosure

nonqualified retirement plan

retirement plans that do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need to be approved by IRS.

best describes the underwriting process

selection, classification, and ratings of risks

Military Service Clause

specifically limits/excludes insurer's liability for losses caused by war or active military service. IF the policy doesn't have such exclusion, then the beneficiary receives full death benefit

biggest difference between qualified and nonqualified retirement plans

taxation on accumulation

who assumes the risk in a variable annuity

the annuitant

Liquidity

the availability of cash to the insured through cash values

If the annuitant dies during the accumulation period, who receives the annuity benefits

the beneficiary

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

the executive owns the policy, the executive pays the premium. Employer pays premium by reimbursing executive. Tax deductible for employer, taxable income for executive

What happens at the end of a XX-year level term policy

the insured can renew the policy for the same length of years at a higher premium

If the beneficiary dies before the policyowner, where do the proceeds go?

the insured's estate

Fixed Period Settlement Option

the insurer agrees to pay the proceeds in equal installments over a specified period of time

Every application must indicate the

the licensee which solicited the applicant's business

Premium Mode

the manner or frequency that the policyowner pays the policy premium

in a life settlement contract, the life settlement broker represents

the owner

Under an extended term nonforfeiture option, the policy cash value is converted to

the same face amount as in the whole life policy

purpose of the seven pay test

to determine if a policy is a Modified Endowment Contract

A claims adjuster advises the insured that if the claim goes to arbitration, the insured would probably receive less than what is currently being offered. This is an example of an...

unfair trade practice

When do survivorship life policies pay the death benefit

upon the last death

Family Term Rider

when attached a permanent life insurance policy, provides an amount of insurance on every family member.

Notice Regarding Replacement

when replacing a policy with a different insurer that is under different ownership than the current company

applicant fills out policy, does not want to pay initial premium, no conditional receipt issued... when does coverage begin?

when the agent delivers the policy, collects the initial premium, and applicant completes an acceptable Statement of Good health