Life Basics
1st 2nd 3rd party
In most life policies, the insurance company is considered the first party of the contract. The insured is considered the second party, and, in cases where the insured is not also the policy owner, we have introduced a third party, the policy owner. The beneficiary is not a party to the contract.
Life insurance helps estate planning objectives because it is:
Life insurance proceeds are never taxed and for the most part not subject to probate proceedings. It is a liquid asset to the beneficiary at the death of the insured.
To comply with disclosure requirements, agents must deliver what to all life insurance applicants?
The state requires an agent to provide a prospective life insurance purchaser with the buyer's guide. This guide must be given to the applicant at the time of the application unless the company offers an unconditional 10-day free look upon delivery of the life insurance policy. The new policy owner must also be given a policy summary no later than the date the policy is delivered.
A signed statement of continued good health must reflect no change in health status from the
The statement of continued good health is a statement the insurance company wants the insured to sign to verify he or she is in essentially the same physical condition as when the application was completed. The insurance coverage will not begin until the statement is signed and the premium has been collected by the agent. This is not necessary if the initial premium was collected with the application and a conditional receipt was issued.
Three business owners have entered into an agreement that, upon the death of one of the owners, the remaining owners will buy the deceased owner's share of the business from the deceased owner's heirs. This agreement is a(n)
The cross purchase buy/sell agreement
Premium rates for life insurance are computed using what three factors?
The rates for life insurance are computed as follows: mortality (risk) + expenses - interest = gross premium.
What is considered a preferred risk
This is the best of all insured classifications of risk and usually permits insurance to be purchased at lower rates.
what are the sources of underwriting in an insuring application
inspection reports application itself MIB
Fifteen-year-old Carter is an applicant for a universal life policy. Can he get a policy without his parents signature?
Carter, at 15, is able to purchase this policy without a parental signature.
The document that contains information to help prospective life insurance buyers make an informed choice is called a
The buyer's guide is a condensation of information that the state regards as necessary for a buyer to make an informed insurance purchase.
When is an agent required to give the life insurance applicant a Buyer's Guide?
The state requires the Buyer's Guide be given at the time of the application, unless the insurance company offers an unconditional 10-day free look period. Since the state requires the company to give an unconditional 10-day free look, most Buyer's Guides are delivered with the policy. Note: While "at the time of application" and "at the time of delivery" may be reasonable answers, neither is as complete or as accurate as at the time of application, unless the insurance company offers an unconditional 10-day free look. Your job on the exam is to choose the very best answer.
The Life and Health Guaranty Association does not provide protection for
any variable policies.
In a replacement situation all sales proposals used in the presentation must be
left with the proposed insured and submitted to the replacing company.
It is understood and presumed that individuals have an insurable interest in their
own lives, siblings usually don't have insurable interest unless there is a business relationship, and no insurable interest exists between adult children and their parents.
Coverage under a conditional receipt begins on
the later of the date of the application or the date all medical examination requirements are satisfied.
Insurable interest applies only at
the time of application.
When a life insurance policy replacement is to take place, the agent of the replacing insurer is required to have the applicant sign a
Conditional replacement form
The Medical Information Bureau (MIB) is an organization that
The Medical Information Bureau (MIB) is an organization that stores and makes key underwriting information on applicants for life or health insurance available to insurers. The major purpose is to help guard against concealment or fraud by new applicants. Member companies check with the MIB to uncover pertinent health facts discovered by another company on an applicant.
The definition of Stranger Oriented Life Insurance (Stoli)
is the purchase of a policy benefiting someone who at the time of the issuance lack insurable interest or transferring at any time the ownership of a policy through the assumption or forgiveness of a loan use the fund premiums.
Agents are NOT allowed to give clients information about the Life and Health Guaranty Association in what situation?
During the sales process.
What are the duties of the agent when a new life insurance policy is being written and the old policy surrendered?
-obtain a list of all existing insurance by insured, insurer, and policy number -give the buyer a copy of the replacement form and all sales materials used by the replacing agent -obtaining a signed notice regarding replacement from the insured
Social Security survivor benefits are available to a surviving spouse with no children under the age of 16 in the home, once the spouse reaches age
60.
A policy may NOT be rated in what way? A)as a percentage of the normal rate B)flat additional premium C)step up in age incorrect! D)a permanent reduction of the face amount at standard rates
A permanent reduction of the face amount at standard rates
A conditional receipt guarantees that the
This receipt is valid only if the policy can be issued as applied for and the first modal premium has been paid. The company will continue to process the application even though the proposed insured has already died.
A policy that shares in the company's excess funds or divisible surplus is called a
Participating policy
Social Security (OASDI) benefits Terms and ages
Social Security (OASDI) benefits to a healthy child cease when the child reaches age 18 (19 if still in high school or age 22 if disabled), but are not extended to a child in college over age 18.
The principal difference between an entity purchase and a cross purchase buy/sell agreement for two owners is the
The entity purchase buy/sell agreement would have the business entity or a trust as the policy owner, beneficiary, and premium payor of a policy on each of the business owners. A cross purchase buy/sell agreement will have each of the business owners purchase and be the policy owner, beneficiary, and premium payor of a policy on each other. An insurable interest must be proven at the time of the application. The premiums in either case are not deductible and the benefits are income tax free.
Sally, Harry's ex-wife, has been divorced from Harry for 15 years. Harry has been married three times since then. When Harry dies, Sally submits the paperwork for the policy she purchased on Harry immediately after their honeymoon. What action will the insurer take on this claim?
In this case, there was insurable interest at the time of the application BUT under the divorced spouse rule, at the time of the divorce, Sally is considered to have legally died and cannot receive the proceeds as a beneficiary. She should have resubmitted the beneficiary request after the divorce if she wanted to remain the beneficiary on the policy.
Most whole life insurance policies provide a fixed rate of return on the cash value at a fixed premium. Which of the following allows flexible premiums and flexibility in the face amount?
Universal life policies allow flexibility in the face amount and also allow a flexible premium schedule.
Social Security survivors' benefits are NOT paid to what relatives of a deceased worker?
The widow or widower of a deceased covered worker receives no benefits after the youngest child reaches age 16 until at least age 60. This is known as the blackout period.
