Life Insurance, Life Insurance, Life Insurance Exam Prep, life insurance, LIFE INSURANCE, life insurance, life insurance, Life Insurance Key Concepts, Life Insurance, Life insurance, Chapter 1. Health and Life Insurance
Jan, a single, working mother, dies at age 40. Dave, her only son, would receive a one-time lump-sum benefit of $255 $500 $1,000 $2,555
$255 (The maximum lump-sum death benefit to a deceased worker's surviving spouse or children is $255.)
Ron has a life insurance policy with a face value of $100,000 and a cost of living rider. If the consumer price index has gone up 4%, how much may Ron increase the face value of the policy? $400 $800 $2,000 $4,000
$4,000
Under a partnership cross-purchase plan, when there are 4 partners, how many policies are needed? 4 12 16 20
12 (With a partnership cross-purchase plan, each partner owns, is the beneficiary of, and pays the premiums for life insurance on the other partner or partners in an amount equal to his or her share of the purchase price.)
How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability? 3 months 6 months 12 months 18 months
12 months
duties of insurer
-make sure all replacements are in compliance with atate regulations -notify each insurer whose insurance is being replaced and upon request, furnishing a copy of any proposal -maintain copies of proposals and receipts
An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments? 1 month 6 months 12 months 24 months
1 month
How many months can a life insurance policy normally be backdated from the date of application? 3 6 9 12
6
With three partners in a business, how many life insurance policies would be required to insure a cross-purchase buy-sell plan? 3 6 9 12
6 (Each partner owns, pays for, and is the beneficiary of an insurance policy on each of the other two partners in a cross-purchase buy-sell agreement.)
If Martha would like to receive Social Security retirement benefits prior to age 65, at what age can she do this? 60 62 She cannot receive benefits prior to age 65 Whenever she has accumulated the required work credits
62
Proof of insurability is not required
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. What will she need to provide for proof of insurability?
Apparent Agent Authority
Apparent authority deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship. Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.
Before accepting the initial premium
Assuming that a policy does not contain an unconditional refund provision of at least 10 days, when must a Buyer's Guide and policy summary be provided?
Duplicate medicare supplements
Benefits provided by a medicare supplement policy must NOT _______.
Suspicious Activity Reports (SARs) Rules
Any company that is subject to the AML program is also subject to SAR rules state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing and or other illegal activities. Deposits, withdrawals, transfers or any other business deals involving $5000 or more are required to be reported if the financial company or insurer knows, suspects or has reason to suspect that the transaction
All of the following employees would normally be excluded from a group term life plan EXCEPT A full-time employee who has been on the job 2 years Employee who works part time each week Employee who works less than 3 months a year Employee with less than 3 months of employment
A full-time employee who has been on the job 2 years
Buyer's Guide
A generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process.
Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application? A waiver of premium A replacement form A good health statement An exclusion
A good health statement
Life Annuity
A life annuity contract which is issued by a life insurance company protect an individual against the financial risk of outliving a normal life expectancy according to the mortality actuarial tables and running out of money in old age
The reinsurer
A life insurance company has transferred some of its risk to another insurer, the insurer assuming the risk is called the what?
Association of Labor Groups
A type of group that has a constitution and bylaws and has been organized for purposes other than obtaining insurance is what?
What is the nonforfeiture value of an annuity before annuitization? All premiums paid All premiums paid plus interest All premiums paid minus any withdrawals and surrender charges All premiums paid, plus interest, minus any withdrawals and surrender charges
All premiums paid, plus interest, minus any withdrawals and surrender charges
Rebating
An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of?
FINRA
An agent selling variable annuities must be registered with..
Reduction of premium
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's' premium, thus reducing it to $900. What option does this describe?
Consideration
An insured pays an annual premium to his insurer. In return, the insurer promised to pay benefits in accordance with the terms of the contract. This is called..
$200,000
An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?
If the primary beneficiary predecreases the insured
An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
Mutual Policy (Example)
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check fin from the insurer. From what type of insurer did the insured purchase the policy?
Pay the death benefit; due to the incontestability clause it prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact
An insured purchases a policy in 2008 and died in 2013. The insurance company discovers at that time that the insured concealed info during the application process. What can they do?
Cash option
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Premium, death benefit, and policy period
Features of the Indexed whole life policy that are fixed..
Medical information and consumer reports
For policies with higher amounts of coverage or if the application raised additional questions concerning the prospective insured' health, the underwriter may require a medical examination of the insured.
Basic Medical Expense Plans
Health: Unlike major medical expense insurance, ___________ provides benefits up front without having to satisfy a deductible and classifies their coverage's according to general categories of medical care: hospital expense, surgical expense, and physicians' (nonsurgical) expense
Percent-of-Earnings approach
Health: Used to establish disability benefits, which method determines the benefit using a percentage of the insured's pre-disability earnings and takes into account other sources of disability income?
Flat- Amount Method
Health: Used to establish disability benefits, which method specifies a flat income benefit amount that will be paid if the insured becomes totally disabled?
Health Savings Accounts (HSAs)
Health: What are designed to help individuals save for qualified health expenses that they, their spouse, or their dependents incur?
Health Savings Account
Health: What is considered to be a tax-favored vehicle for accumulating funds to cover medical expenses?
Long Term Care
Health: What refers to a broad range of medical, personal, and environmental services designed to assist individuals who have lost their ability to remain completely independent in the community?
EMPLOYER
Health: When a group disability income insurance plan is paid for entirely by the EMPLOYER and benefits are paid directly to individual EMPLOYEES who qualify, the premiums are deductible by the __________. The benefits, in turn, are taxable to the recipient
Health Maintenances Organizations (HMO's)
Health: Which health insurance provider is distinguished by the fact that they not only finance health care services for their subscribers on a prepayment basis, but they also organize and deliver the health services as well? Has to be 25 or more employees for a group plan.
Nurses' Expense Benefits
Health: Which plan usually pays only for private duty nursing care arranged according to a doctor's order while the insured is a hospital patient?
Notice of Claim Provision
Health: Which provision describes the policyowner's obligation to the insurer to provide notification of loss within 20 days after the occurrence or a commencement of the loss, or as soon thereafter as is reasonably possible?
Medical Expense Insurance
Health: Which type of insurance provides financial protection against the cost of medical care for accidents and illness and coverage may be provided for hospital care, physician services, surgical expenses, diagnostic and laboratory services, drugs, nursing, and other medically necessary procedures ?
Comprehensive Major Medical
Health: _______ combines the features of basic expense coverage and major medical coverage, sold as one policy and cover practically all medical expenses, hospital, physicians, surgical, nursing, drugs, laboratory tests, etc.
Medicare
Health: _______ purpose is to provide hospital and medical expense insurance protection to those 65 and older. It also provides protection to any individual who suffers from chronic kidney disease or to those who are receiving Social Security disability benefits.
Medicaid
Health: _______ purpose is to provide matching federal funds to states for their medical public assistance plans to help needy persons, regardless of age. Benefits are generally payable to low income individuals who are blind, disabled, or under 21 years of age.
Hospital Expense
Health: _________ covers hospital room and board, miscellaneous expenses (such as lab and x-ray charges), medicines, use of operating room, and supplies. These expenses are covered when an insured is confined in a hospital.
Major Medical Expense Plans
Health: _____________ plans offer broad coverage under one policy which includes comprehensive coverage for hospital expenses (room and board and miscellaneous expenses, nursing services, physicians' services, etc.) and catastrophic medical expense protection. Benefits for prolonged injury or illness
It is approved by the IRS
If I retirement plan or annuity is "qualified," this means...
Suicide is excluded for a specific period of years and covered thereafter
In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit therefore..
Certificate of Authority
In order for an insurer to legally transact insurance, it must obtain what?
Investigations
In order to enforce the insurance code the commissioner has the power to conduct which of the following?
5 years
In order to qualify for conversion from a group life policy to an individual policy of the same coverage, a person must have been insured under the group plan for how many years?
Be licensed as an insurance producer
In order to receive a commission, a person is required to...
PREMIUM PAYMENT MODE
In regards to insurance premiums, mode refers to the frequency the policyowner pays the premium. However the premium may be paid annually, semi-anually, quarterly, or monthly.
Commercial Insurers
In the business of selling insurance to make a profit are what kind of insurers?
Per Stripes
In the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiaries heirs (meaning by the bloodline).
Inspection Report
Inspection report on the applicant from an independent investigating firm or credit agency, which covers financial and moral information. They are general reports of the applicant finances, character, work, hobbies, and habits.
Have lower premiums
Insureds who have been classified as preferred risk will...
Which of the following signatures is not required on an individual insurance application? Producer Applicant Insured Insurer
Insurer
The premium
Is the money paid by the policyowner to the insurance company in exchange for the policy. The premium must be sufficient to pay sales commissions and other marketing costs, pay administrative costs, and provide a loss reserve from which claims are paid
Mortality loss reserve
Is the money set aside by the insurance company to pay life insurance claims
The insured
Is the person at whose death the insurance company pays benefits to the beneficiary
The policyowner
Is the person or organization that applies for the policy and pays the premiums. The policyowner is also sometimes called the policyholder
The beneficiary
Is the person or organization to whom benefits are payable at the insured's death
Underwriting
Is the risk selection and classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for insurance
The Application
Is the starting point and basic source of information used by the company in the risk selection process,
Cost basis
Is the total contributions made to a plan -On a cash value life insurance policy, cost basis is the total premiums that have been paid
Pooling of risks
Is when a large group of people contribute money to a fund out of which their losses can be paid. The larger the group, the better it works financially
A lapse
Is when a policy is terminated due to non-payment of premiums
Temporary surcharge
Is when a temporary rate is charged and at some point the customer will go back to the standard rate
Tax free
Is when there is no tax on benefits
convertible to permanent insurance upon a child reaching insurance upon a child reaching the maximum age without evidence of insurability.
Children's rider are term insurance covering all of the children in the family, including newly born children, and are...
Newly born children, and are convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.
Children's rider are term insurance covering all of the children in the family, including:
Which of the following types of employee welfare plans is specifically exempt from regulation under ERISA? Church plans Blue Cross-Blue Shield plans Hospital benefit plans Accidental plans
Church plans
Premiums are not tax-deductible as a business expense
Concerning the taxation of premiums in a key- person life insurance policy is:
The benefit is received tax free
Corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
Which of these is affected by the frequency of an insurance policy's premium payments? Settlement options Cash value Death benefit Cost
Cost
What happens to the coverage under a children's term rider when that child reaches a certain specified age? Coverage decreases automatically Coverage increases automatically Coverage remains as long as proof of insurability is provided Coverage is eliminated
Coverage is eliminated
Which of the following statements about key person insurance is CORRECT? The key employee's family is the beneficiary of the policy. The death proceeds are taxable. The business may take a tax deduction for premiums paid. It can be considered a business asset.
It can be considered a business asset. (Complete control of the policy rests with the business, which means key person insurance can be considered a company owned asset not earmarked for any specific purpose.)
Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)? Loan against the cash value Policy withdrawal Policy dividend Death benefit
Death benefit
Death Benefits
Death benefits are paid out in a variety of ways. These methods are known as settlement options. The policyowner may select a settlement option at the time of the application and may change the option at anytime during the life of the insured. Once selected, the settlement option cannot be changed by the beneficiary.
Not subject to income taxation by the Federal Government
Death benefits payable to a beneficiary under a life insurance policy are generally
Not subject to income taxation by the federal government
Death benefits payable to a beneficiary under a life insurance policy are generally
What is the tax advantage of key-person life insurance? Premiums are tax deductible Death proceeds are nontaxable Proceeds are deferred Cash value increase is taxed at a low rate
Death proceeds are nontaxable
Which of the following is NOT true regarding a Certificate of Authority
It is issued to group insurance participants. Before insurers may transact business in a specific state, they must apply for a license or certificate or Authority from the state department of insurance and meet any financial requirements set down by the state.
In what part of an insurance policy are policy benefits found? Declarations Entire contract Waivers Conditions
Declarations
Julie has a $100,000 30-year mortgage on her new home. What type of life insurance could she purchase that is designed to pay off the loan balance if she dies within the 30-year period? Adjustable life insurance Decreasing term insurance Increasing term insurance Modified life insurance
Decreasing term insurance
Rob has a benefit at work which enables him to defer his current receipt of income and have it paid at a later date, when he will probably be in a lower tax bracket. Which benefit fits this description? Key person IRA Period certain annuity Deferred compensation option Income deferral option
Deferred compensation option
All of these are typically sources of underwriting information for life or health insurance EXCEPT * Consumer reports * Medical Information Bureau (MIB) reports * Disclosure authorization response * Attending physician's statement (APS)
Disclosure authorization response
SIMPLE plans require this:
Employees must receive a minimum of $5,000 in annual compensation, no other qualified plan can be used, no more than 100 employees.
They do not earn lower interest rates than fixes annuities
Equity Indexed Annuities invest on an aggressive basis in order to yield higher returns. Like a fixed annuity, EIA's have guaranteed minimum interest rates, also less risky than variable annuities, the insurance company also keeps a percentage of the returns.
Peter has a policy where 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index. What kind of policy is this? Modified Endowment Contract Current assumptive whole life Credit life insurance Equity index whole life
Equity index whole life
Express Agent Authority
Express authority is the explicit authority granted to the agent by the insurer as written in the agency contract.
Preferred Provider Organization (PPO's)
Health: A _______________ is a collection of health care providers such as physicians, hospitals, and clinics who offer their services to certain groups at prearranged discount prices.
Social Security Disability Income
Health: A five-month waiting period is required before an individual will qualify for benefits, during which time he/she must remain disabled, impairment must last at least 12 months and individual must be so mentally or physically disabled that he cannot perform any substantial gainful work is what type of income?
Partial Disability
Health: A residual amount benefit is based on the proportion of income actually lost due to the __________, taking into account the fact that the insured is able to work and earn some income.
Proof of Loss
Health: After a loss occurs, or after the company becomes liable for periodic payments (e.g., disability income benefits), the claimant has 90 days in which to submit which provision?
Income
Health: Amounts received under an LTC contract are excluded from ______ because they are considered amounts received for personal injuries and sickness.
10 days with weekly 31 days for other policies
Health: Depending on the state, the minimum grace periods typically specified are seven days for policies with weekly premium payments, _____days for policies with premiums payable on a monthly basis, and ____ days for other policies,
Not taxable
Health: Disability benefit payments that are attributed to EMPLOYEE contributions are what?
Taxable
Health: Disability benefit payments that are attributed to EMPLOYER contributions are what?
A disabling illness or accident
Health: Disability income insurance is designed to provide an individual with a stated amount of periodic income in the event of what?
Health Saving Accounts (HSA's)
Health: Earnings in what grow tax-free and count account beneficiaries can make tax-free withdrawals to cover current and future qualified health care cost.
Premium Contributions
Health: Employers are entitled to take a tax deduction for what to make a group health plan?
Out of pocket medical expense
Health: HSAs are tax deductible. An individual who is covered by a high- deductible health plan can make a tax-deductible contribution to an HSA and use it to pay for what?
20
Health: How many employees are required to continue group medical expense coverage for terminated workers for up to 18 months following termination?
10
Health: If the cancellation is for nonpayment of premium, the insurer must give ____ days' written notice to the insured, unless the premiums are due monthly or more frequently
Contributory
Health: If the employees share a portion of the premium, it is called what?
Noncontributory
Health: If the employer pays the entire premium, the plan is called what?
6 months to 2 years
Health: Individual short-term policies provide benefits for _____months to ______ years.
15
Health: It is the company's responsibility to supply a claim form to an insured within _____days after receiving notice of claim.
Intermediate Nursing Care
Health: LTC: _______ is provided by registered nurses, licensed practical nurses, and nurse's aides under the supervision of a physician and is provided in nursing homes for stable medical conditions that require daily, but not 24-hour, supervision.
Skilled Nursing Care
Health: LTC: _________is continuous, around-the-clock care provided by licensed medical professionals under the direct supervision of a physician and is usually administered in nursing homes.
Accidental Means
Health: Policies that base their benefit payments on the __________ require that both the cause and the results of an accident must be unintentional.
Unexpected and accidental
Health: Policies that use the accidental means provision require that the cause of the injury must have been _______ and _______.
Accidental Results
Health: Policies that use the more liberal ___________ definition stipulate that only the injury resulting from an accident must be unintentional
Hospital Indemnity Policies
Health: Provide a specific amount on a daily, weekly or monthly basis while the insured is confined to a hospital and based only on the number of days confined in a hospital.
Principle Sum
Health: Represents the MAXIMUM AMOUNT the policy will pay.
Special Risk Policies
Health: Risk: This policy covers unusual hazards normally not covered under ordinary accident and health insurance. Ex. Actress insured her leg for $1 million or pilot insures his life when operating a particular experimental helicopter.
Blue Cross and Blue Shield
Health: Service providers that provide the majority of their benefits on a service basis which means that the insurer pays the provider directly for the medical treatment given to the subscriber. They also pay a set fee each month for medical services covered under this plan.
Custodial Care
Health: TLC: ______ provides assistance in meeting daily living requirements, such as bathing, dressing, getting out of bed, toileting, and so on.
Recipient
Health: Taxation: Premiums paid for personal disability income insurance are not deductible by the insured but the disability benefits are tax-free to the __________.
Insuring Clause
Health: The _______ is the part of the health insurance policy that states the kind of benefits provided and the circumstances under which they will be paid.
Misstatement of Age
Health: The __________ provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when application for the policy was made
Monthly
Health: The benefits paid under a disability income policy are in the form of ________ income payments.
6
Health: The exclusion for preexisting conditions is now limited to conditions for which medical advice or treatment was recommended or received with the _______-month period ending on the enrollment date.
60 days
Health: The insured cannot take legal action against the company in a claim dispute until after _____ days from the time the insured submits proof of loss.
Lower Premiums
Health: The longer the elimination period will result to lower what for comparable disability benefits?
Renewability
Health: The more favorable the ________ provision is to the insured policyholder, the higher the premium.
Optionally Renewable Policies
Health: The renewability provision in an _________ policy gives the insurer the option to terminate the policy on a date specified in the contract.
Guaranteed Renewable
Health: The renewal provision in a _____________ policy specifies that the policy must be renewed (as long as premiums are paid) until the insured reaches a specified age, such as 60 or 65.
Elimination Period
Health: The time immediately following the start of a disability when benefits are not payable is known as what period?
Benefit Period
Health: This can be described as the MAXIMUM length of time that disability income benefits will be paid to the disabled insured.
Supplementary Major Medical
Health: This policy is used to supplement the coverage payable under a basic medical expense policy. After the basic policy pays, the ______________ will provide coverage for expenses that were not covered by the basic policy, and expenses that exceed the maximum.
Change Of Occupation Provision
Health: This provision also allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation.
Presumptive Disability
Health: This provision specifies certain conditions that automatically qualify the insured for the full benefit because the severity of the conditions presumes the insured is totally disabled even if he is able to work. This can include blindness, deafness, loss of speech, and loss of two or more limbs. What is it?
Own Occupation
Health: This term of total disability requires the insure to be unable to perform the insured's _________ as a result of an accident or sickness. It is more expensive and difficult to qualify for.
Any Occupation
Health: This term of total disability requires the insured to be unable to perform __________ for which he is reasonably suited by reason of education, training, or experience in order to qualify for disability income benefits.
45
Health: Though prohibited in a number of states, the provision for cancellation gives the company the right to cancel the policy at any time with ____ days' written notice to the insured.
10
Health: To protect the company against adverse selection, losses resulting from sickness are covered only if the sickness occurs at least ____ days after the reinstatement date.
True
Health: True or False: An individual cannot be denied coverage even if he/she has become insurable.
When an employer pays the entire premium of a group plan, the plan is called Rebating Waiver of premium Contributory Noncontributory
Noncontributory (In a noncontributory plan, an employer pays the entire premium and the employee is not expected to contribute.)
To what is a group life plan in which the employer pays the entire cost commonly referred? Contributory plan Noncontributory plan Group permanent plan Group paid-up plan
Noncontributory plan
How much tax is withheld from funds that are transferred directly from one IRA to another IRA? 10% 15% 50% None
None
As a field underwriter, a producer is responsible for all of the following tasks..
Obtain appropriate signatures on the application for insurance, help prevent adverse selection, and solicit business that will fall within the insurer's underwriting guidelines.
Unilateral Contract
One sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.
Immediate Annuity
One that is purchased with a single lump sum payment and provides income payments that start within one year from the date of purchase is what?
Unilateral Contract
One-sided: only one party makes an enforceable promise
Major difference between stock company and a mutual company..
Ownership is the difference between these two companies. Mutual-policyholders; Stock-stockholders
Collateral
Ownership of a life insurance policy may be temporarily transferred with a(n) ______ assignment.
Which one of the following statements about participating life insurance is true? Policyowners may be entitled to receive dividends Policyowners are assessed monthly for losses The insured must be the policyowner The insurer must be a stock company
Policyowners may be entitled to receive dividends
What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death? Dual Life insurance Joint Life insurance Last Survivor Life insurance Shared Life insurance
Last Survivor Life insurance
Which of the following is an example of a limited-pay life policy?
Life Paid-up at age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
Which type of annuity stops all payments upon the death of the annuitant? Life annuity Period certain annuity Cash refund annuity Joint and survivor annuity
Life annuity
Which type of annuity guarantees a stated number of income payments, whether or not the annuitant is still alive to receive them? Life annuity certain Secure life annuity Irrevocable survivor annuity Guaranteed life annuity
Life annuity certain
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary? Fixed period Interest only Installment refund Life income
Life income
Which of these is NOT considered to be a common life insurance nonforfeiture option? Cash surrender Extended term insurance Reduced paid-up insurance Life income annuity
Life income annuity
Income for 2 or more recipients until they die
Life income joint and survivor settlement option guarantees
Test topic
Life insurance benefits are usually set up to be paid by the insurance company directly to a beneficiary without going through the legal and court process called probate. The beneficiary receives the benefits quicker and without legal expenses
Valued vs. Idmenity
Life insurance contracts are valued contracts, which means it will pay a stated amount. Health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.) You cannot profit from an indemnity contract.
2
Life insurance cost indexes are our only useful when comparing a minimum of how many similar policies?
Generally not taxed as income
Life insurance death proceeds are..
group term life
Life insurance is normally offered as a guaranteed annual renewable term policy. The policy is issued for one year and may be renewed annually without evidence of insurability at the discretion of the policyowner.
Which of these describes the result of a modified endowment contract that failed to meet the seven-pay test? Policy loans are disallowed The premium payments will be tax deductible Pre-death distributions are typically taxable Withdrawals will be prohibited
Pre-death distributions are typically taxable
Under a Modified Endowment Contract, what are the likely tax consequences? Interest on policy loans is tax deductible Premium payments are tax deductible Pre-death distributions will become taxable Cash value cannot be surrendered early
Pre-death distributions will become taxable
A person who is a nonsmoker, of average weight, and in excellent health would most likely be in which risk classification? Standard Substandard Acceptable Preferred
Preferred
Which of the following will be included in a policy summary
Premium amounts and surrender values
An employee has sponsored a qualified retirement plan for its employees where the employer will contribute money whenever a profit is realized. What is this called?
Profit sharing plan A profit sharing plan is one where the employer will contribute monies into an employee's retirement plan when the company shows a profit. The others are all qualitfied plans, but company profit isn't an issue with them (401K, tax-sheltered annuity, HR 10 plan)
Which type of retirement plan sets aside a portion of the firm's net income for distributions to employees who qualify under the plan? Defined benefit plan Noncontributory retirement plan Profit-sharing plan Pension trust plan
Profit-sharing plan
What is the role of insurance? Provide a solution for economic uncertainty and loss Guarantee lifelong happiness Provide counseling and support services Guarantee short term happiness
Provide a solution for economic uncertainty and loss
What is considered to be the primary reason for buying life insurance? Provide death benefits Provide money for retirement Provide living benefits Provide money for college
Provide death benefits
How are survivorship life insurance policies helpful in estate planning? Provide funds to help fund retirement Provide funds to help pay taxes Provide funds for funeral expenses Provide tax deductions for premium payments
Provide funds to help pay taxes
Fixed Annuity
Provides a guaranteed rate of return
Whole Life Insurance
Provides both living and death benefits. Provides permanent life insurance protection for the insured's entire life. It also provides living benefits such as cash value and policy loans.
An agent misrepresents policy benefits to convince a policy owner to replace policies
Rebating is an unfair trade practices and is regulated by law all of the following would be considered to be rebating except
Qualified distributions from a Roth IRA are Fully taxable in the year received Taxable only on amounts over the aggregate Subject to a 10% penalty tax Received income tax free
Received income tax free
Insurable Interest
Requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. NOTE: Insurable interest only needs to exist at the time of the application (the inception of the contract).
Must allow the policyowner to return the policy for a full refund
Regarding the free-look provision, the insurance company
Must allow the policyowner to return the policy for a full refund.
Regarding the free-look provision, the insurance company..
Single Premium Whole Life
Requires the entire premium to be paid in one limp sum at the policy's inception.
In addition to the state, the organization that regulates variable life and variable annuities is the Federal Trade Commission (FTC) National Association of Insurance Commissioners (NAIC) Securities and Exchange Commission (SEC) Federal Communications Commission (FCC)
Securities and Exchange Commission (SEC)
Best detail of underwriting process for life insurance
Selection, classification, and rating of risks
The Federal Fair Credit Reporting Act
Regulates consumer reports
A man decided to purchase a $100,000 Annually Renewable Term Life policy to provide additional protection until his children finished college. It is required that his policy
Required a premium increase each year
The Incontestability Clause
Required by Law-provides that after the policy has been in effect for two year, the insurance company cannot contest a policy due to any misstatement or concealment in the application
Nonforfeiture values
Required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.
They must differentiate between guaranteed and projected amounts, they may only be used as approved, and the must identify non guaranteed values
Requirements for life insurance illustrations:
Tax deferred plans
Tax on the interest and/or earnings is postponed as it compounds and accumulates until it is withdrawn
Social Security is funded by a payroll tax imposed on a limit of an employee's income. What is this limitation called? Taxable wage base Maximum wage limit Average monthly wage (AMW) Average indexed monthly earnings (AIME)
Taxable wage base (This payroll, or FICA tax, is applied to employees' incomes up to a certain limit, called the taxable wage base.)
Dividends are not taxable
Taxation on dividends in participating policies?
Which of the following policies does NOT build cash value? Term Straight Life Endowment Variable Life
Term
Annual Renewable term
Term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.
Renewable term
Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.
Decreasing Term insurance
Term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection.
Increasing term
Term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.
Dividend
Term used to name the no taxes return of unused premiums?
Waiver or premium
Th rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called?
The annual dividend is retained by the company, the interest is credited at a rate specified by the policy, the policyholder has the right to withdraw the accumulations at any time.
The accumulation at interest option
All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT Qualified college expenses First time home purchase Death of the participant Stock purchase
Stock purchase (Withdrawing funds from a qualified plan for the purpose of purchasing stocks or other securities would trigger a 10% tax penalty.)
Which of these will have the highest monthly payout upon annuitization? Life with period certain Joint and survivor life Straight life Joint life
Straight life
Insurable interest
Stranger-originated life insurance (STOLI) policies are in direct opposition to the principle of...
Disability Buy-Sell
Which contract permits the remaining partners to buy-out the interest of a disabled business partner?
Have attained fully insured status
Which of the following is an eligibility requirement for all Social Security disability income benefits?
Telling a client that his first premium will be waived if you purchased insurance policy today
Which of the following is an example of a producer being involved in an unfair trade practices of rebating?
Nonparticipating policy
Which policy will not pay dividends?
Insuring clause
Which provision of a life insurance policy states that the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
Replacement rule
Which road apply for the agent knows an applicant is going to cash in an old policy and use the funds to purchase new insurance?
Interest Only
Which settlement option involves having the proceeds remain with the insurer and earning paid on a monthly basis to the beneficiary?
An individual who has a contract or agreement we could ensure to solicit or negotiate insurance policies on behalf of that insurer
Which statement best defines an insurance producer?
The employer is the policyowner and each employee receives a certificate of coverage
Which statement is TRUE regarding a group accident & health policy issued to an employer?
Level or flexible
Which two terms are associated directly with the premium?
Life Annuity Certain
Which type of annuity guarantees a stated number of income payments, whether or not the annuitant is still alive to receive them?
Hospital Indemnity
Which type of coverage pays an amount per day for hospitalization directly to the insured regardless of the insured's other health insurance?
Morale
Which type of hazard is careless and reckless?
Moral
Which type of hazard is dishonesty, drugs, alcohol abuse, etc.?
Physical
Which type of hazard is poor health, overweight, blind, etc?
Term Life Insurance
Which type of insurance provides the greatest amount of coverage for the lowest premiums?
Whole Life
Which type of life insurance has level premiums based on the age of the individual when originally purchased?
Decreasing term life
Which type of life insurance is often used to provide coverage for a home mortgage?
Universal Life
Which type of life insurance policy allows the policyowner to pay more or less than the planned premium?
Single premium
Which type of life insurance policy generates immediate cash value?
Whole Life Insurance
Which type of life insurance policy remains in effect to age 100 as long as the premium is paid?
Medicare Supplement Plan F
Which type of plan would be most appropriate for an individual on medicare and concerned that medicare will NOT pay for charges exceeding the approved amount?
Reimbursement
Which type of policy pays benefits to a policyholder covered under a Hospital Expense policy?
Business Overhead Expense
Which type of policy would pay an employee's salary if the employer was injured in a bicycle accident and out of work for six weeks?
Guaranteed Insurability Rider
Which type of rider is designed to permit young individuals to be able to purchase additional insurance as they grow older, regardless of insurability.
The policyowner is entitled to policy loans.
Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured's age 100, and living benefits, which include policy loans.
60 days
Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences?
3 days
Within how many days of requesting an an investigative consumer report must an (insurer) notify the consumer in writing that the report will be obtained?
3 days
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?
Concealment
Witholding of information or facts by the applicant - (smoker, diabetes)
revocable beneficiary
a beneficiary named by the policyowner that can be changed by the policyowner at his/her discretion
irrevocable beneficiary
a beneficiary named by the policyowner that cannot be changed the policyowner at his/her discretion. changing this beneficiary requires the permission of the beneficiary
handling a claim
a claim and its payment are the end result of the insurance process means the insured has died and the beneficiary stands ready to collect from the insurer what is due. unlike property or casualty insurance, life insurance claims are rarely negotiated, either paid or denied. when proof of death of insured arrives at the insurers claims department, records are checked to make sure the policy was in force at the time of death and that the right beneficiary is being paid
Tax-deductible contributions
The advantage of qualified plans to employers is
The Agent's Report
The agent's report allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process.
Entire Contract
The insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every life insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract.
As of the application date (because FULL premium was taken during application)
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?
Deferred Annuity
The income payments begin sometime after the first year and can be funded through lump sum or periodic payments is what?
Accepting an offer
The insurance company conditionally accepts the offer by issuing a conditional receipt
The state
The regulation of the insurance industry primarily rest with
Fiduciary responsibility
The requirement that an agent not co-mingle insurance monies with their own fund is known as?
USA Patriot Act
This is a federal law. Its purpose is to protect the United States against terrorists and to prevent money-laundry of funds that were obtained illegally or which may be intended for illegal purposes such as terrorism
Underwriter
This is an insurance company employee who reviews applications and additional information and decides whether the applicant is acceptable and what the correct premium rate should be. In underwriting the policy
Straight Whole Life Insurance
This is basic whole life insurance with a level face amount and fixed premiums payable over the insured's entire life. Premium payments made until death of insured or age 100 (maturity of policy).
Ten Day Free Look Provision
This is required by law. It must give the policyowner AT LEAST 10 DAYS from the DATE OF RECEIVING THE POLICY to read the policy over and return it to the insurance company for a full premium refund WITHOUT GIVING REASON
Franchise life insurance (group)
This is used where participants are employees of a common employer (i.e., the employer may operate several companies) or are members of a common association or society. The employer/association/society is a sponsor of the plan and may or may not contribute to the premium payments. Unlike the employer's group plan, each individual will be issued an individual policy which will remain in force as long as premiums are paid and the employee/member maintains their relationship with the sponsor. These are used by small groups who individually do not meet the state's minimum numbers required by law.
Limited Pay Whole Life
This is whole life insurance where the insured is covered for his entire life, but premiums are paid for a limited time. As the premium payment period shortens, cash values increase faster and the fixed premiums are higher. For example, under a life paid-up at 65 policy, premiums are only paid until the insured is 65 years old. With a 20-pay life policy, the insured only pays for 20 years. These policies are in effect until the insured's death or they reach age 100.
Financial Services Modernization Act
This law repealed the Glass-Steagall Act; this allows Banks, Retail Brokerages and Insurance companies to enter each other's line of business.
Medical reports
This must be completed by the agent and the applicant with questions about applicant's health history as well as the applicant's parents' health history
Reduced paid-up
This nonforfeiture option provides coverage for the longest period of time:
Accidental Death Rider
This pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.
HR-10 (Keogh Plan)
Two attorneys at law and operate their practice as a partnership. They want to start a program through their practice that will provide retirement benefits for themselves and three employees. They would likely choose...
36 months
Under COBRA, if an employee dies, the dependents may continue their group health coverage for up to
Gradually increases each year by the amount that the cash value increases.
Under Option B the death benefit includes the annual increase in cash value so that the death benefit...
Conditional receipt
Usually makes coverage available on date of application if found to be insurable by company underwriting rules some make coverage effective on the date of the application or the date of a required med exam
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called Increasing Term Life Modified Whole Life Variable Whole Life Adjustable Whole Life
Variable Whole Life
Level fixed
Variable life insurance is based on what kind of premium?
State and federal government, the insurance department, and the SEC.
Variable life insurance is regulated by..:
participating company
aka a mutual company. returns unused premium in the form of a policy dividend tot he policy owners
current assumption whole life policies
aka interest sensitive whole life flexible premium payments tied into current interest rare fluctuations (increase and decrease) during period of high interest rates premiums will be reduced and vice versa annual basis cash value is either guaranteed rate or current rate whichever is high
The premium payment mode that results in the least overall cost would be monthly quarterly semi-annual annual
annual
buy-sell agreement
business use of life insurance where partners in a business buy life insurance on each other. They agree that when one of them dies the survivors have the right to purchase the deceased partner's share of the business. The death benefit from the insurance is used to finance the purchase.
career agency system
commercial insurers establish offices and recruit more hires, trains them
mutual companies
commercial insurers that are owned by their policyholders
A partnership buy sell agreement where each partner purchases insurance on the life of each other is called a
cross purchase plan each partner is owner, payor and beneficiary
A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a cross purchase plan split-dollar plan key person plan deferred buy-sell plan
cross purchase plan (Under a cross purchase plan, the partners individually agree to purchase the interest of a deceased partner. Each partner is the owner, payor, and beneficiary of the life insurance on the lives of the other partners.)
Level premium permanent insurance accumulates a reserve that will eventually equal the face amount of the policy pay a dividend to the policyowner require the policyowner to make periodic withdrawals become larger than the face amount
equal the face amount of the policy
Fair Credit Reporting Act
established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information.
Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called estate funding capital withholding capital gains estate conservation
estate conservation
A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT fare-paying passenger pilot of personal airplane suicide war
fare-paying passenger
fair credit reporting act
federal law that protects consumers in regard to their credit history. establishes guidelines for how companies can access consumers' credit reports and what types of disclosures and notifications are required.
A tax-free Section 1035 Exchange of a life insurance policy to a different policy is permitted if it occurs in the same state as the original transaction within a 12 month period from insurer to insurer and no cash is received by the policyowner from agent to agent as long as the agents are licensed in the same line
from insurer to insurer and no cash is received by the policyowner
Rudy is eligible for full death, retirement, and disability benefits under Social Security. His worker status is completely insured currently insured fully insured partially insured
fully insured
An insured's status under Social Security can be described as partially insured actively insured fully insured completely insured
fully insured (There are two types of insured statuses that qualify individuals for Social Security benefits: fully insured and currently insured. Most Social Security benefits are paid to fully insured individuals.)
The Armstrong Investigation Act
gave the authority to the states to regulate insurance.
A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n) guaranteed term rider guaranteed insurability rider accelerated benefit rider cost of living rider
guaranteed insurability rider
Level premium term life insurance policies build cash value in a separate account automatically convert to permanent insurance at a predetermined date automatically renew at predetermined dates have premiums that are averaged over the policy period
have premiums that are averaged over the policy period
immediate annuity
life annuity contract where the first pay-out is made within 12 months after it is purchased. can only be purchased with a single premium/lump-sum payment.
The premium for a Modified whole life policy is higher than the typical whole life policy during the first few years and then lower than typical for the remainder lower than the typical whole life policy during the first few years and then higher than typical for the remainder normally graded over a period of 20 years level for the first 5 years then decreases for the remainder of the policy
lower than the typical whole life policy during the first few years and then higher than typical for the remainder
continuous premium whole life insurance
most common whole life slowest cash value growth/lowest annual premium rate aka straight life stretch premium payments over entire life (til 100)
Which option is being utilized when insurer acculumates dividents at interest and then uses the accumulated dividends plus interest, and the policy cash value to pay up the policy early
paid up option this is different from paid up additions, in which the insured can use dividends to buy additional policies that increase the face amount of the original policy
which of the following riders would not cause a death benefit to increase?
payor benefit rider
An insurance applicant with a below-average likelihood of loss is typically considered to be a preferred risk subpar risk declined risk standard risk
preferred risk
Policy summary also include
premium cash value, dividend, surrender value, and death benefit figures for specific policy years.
disadvantages of whole life insurance
premium payment period may last longer than the insureds incomeproducing years does not offer as much protection as term insurace
pure endowment
provided for payment of policy face amount only if the insured lived to the maturity date if insured died before benefits date, all benefits were forfeited rarely sold
the employer
receives a master plan, and the employees receive certificate of insurance, NOT individual policies
filing method
recording method; request to name beneficiary must be filed in writing and is made effective by the insurance company recording the change in its records
When a life insurance policy stipulates that the beneficiary will receive payment sin specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments
spendthrift provision When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are void.
Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause? protection clause creditor clause spendthrift trust clause beneficiary trust clause
spendthrift trust clause
Which of the following would be considered a nonqualified retirement plan?
split dollar amount Examples of nonqualified plans are individual annuities and deferred compensation plans for highly paid executives, split dollar insurance Section 162 executive bonus plans.
accelerated benefits
standard in most group life policies people who are terminally or chronically ill have tax-free access to policy benefits disclosures provided by insurer show summary of coverafe
spendthrift clause
state legislation that protects the rights of policyowners and beneficiaries from creditors. death benefits cannot be attached by creditors of the policyowner
representations
statements made by an applicant or an insured that are true to the best of his or her knowledge and belief
warranty
statements made that are guaranteed to be absolutely true. statements made by the insurer must be warranties
law of large numbers
states that larger numbers of similar risks grouped together become more accurately predicatable
entire contract clause
states that the policy and a copy of application constitutes the entire contract doesnt include premium payment
The McCarran Ferguson Act
states that while the federal government has authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level.
A nonparticipating company is sometimes called a(n) alien insurer mutual insurer reinsurer stock insurer
stock insurer
dividends from a stock company are paid to
stockholders
term life insurance
temporary protection that lasts only for a specified period of time. if the insured dies during the specified timeframe, the policy pays the death benefit to the beneficiaries. Term policies provide the greatest amount of coverage for the lowest premiums. It is pure death protection
convertible term
term insurance that specifically permits "conversion" of the policy into permanent protection without proof of insurability
renewable term
term insurance where at the end of the specified term the policyowner has the right to continue the policy for another term without proof of insurability. premiums will be determined by the new attained age.
level term insurance
term insurance where the face value of policy remains the same form the date the policy is issued until the date the policy expires.
decreasing term
term life insurance in which the face amount of the policy decreases over time in schedule steps. most often used to cover a debt obligation (mortgage).
face value/face amount
term policies are defined by the way the face amount changes throughout policy term amount paid when insured dies listed on face page of policy characterized according to their renew-ability and convertability provisions
What types of life insurance are normally used for key employee indemnification? term, whole, and universal life insurance increasing term insurance joint, credit, and group life insurance adjustable, permanent, and limited-pay life insurance
term, whole, and universal life insurance
The State Guaranty Association guarantees that a policy will be issued that a claim will be paid if an insurer becomes insolvent that dividends will be paid the rate of return on a policy
that a claim will be paid if an insurer becomes insolvent
cash value
that part of an insurance policy that is the equity amount legally available to the policyowner. the cash value accumulates throughout the duration of the policy also known as living benefit or policy savings.
peril
the cause of a loss (fire)
Converting a group plan to permanent life insurance involves submitting proof of insurability paying a lower premium converting to term life insurance the conversion being applied within 1 month of termination
the conversion being applied within 1 month of termination
accumulate at interest
the dividend option where the policyowner leaves the dividends with the insurer to invest and earn interest
replacement
the exchange of one policy for another, regulations must be followed
The life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy
the full death benefit
insuring clause
the heart of an insurance policy. it contains the company's promise to the policyowner and describes the coverage provided and the policy limits
Robert and his employer agree on the purchase of a split-dollar life insurance policy and the usual split-dollar approach to premium payments. Each year, the employer will contribute to the premium an amount equal to one-half the premium the annual dividend the increase in the policy's cash value two-thirds of the premium
the increase in the policy's cash value (In a typical split-dollar plan, the employer and the employee share the premium cost. Though there are variations, generally the employer's contribution is equal to the increase in the policy's cash value.)
features of group insurance
the individual does not have to provide evidence of insurability- group underwriting is involved • are not issued as individual policies- master contracts are issued instead • low cost due to lower administrative, operational, and selling expenses associated with group plans • flow of insureds: entering and exiting under the policy as they join and leave the group Note: Since the individual does not own or control the policy, they are issued a certificate of insurance to prove they have coverage. The actual policy, which is called the master policy, is issued to the employer. • Employees are called - certificate holders • Employers are called- contract holders
Health Insurance
the insurance company agrees to pay a percentage of the insured's medical bills in exchange for consideration (premiums).
Life Insurance
the insurance company agrees to pay a predetermined amount - the face amount, in exchange for consideration (premium).
insurer/principal
the insurance company; underwrites the policy and assumes the risk
An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if the insured outlived the beneficiary the beneficiary outlived the insured no beneficiary was ever named the insured and beneficiary died at the same time
the insured outlived the beneficiary
If the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary the beneficiary outlived the insured both the insured and beneficiary died at the same time the estate was listed as beneficiary
the insured outlived the beneficiary
A father owns a life insurance policy on his 15 year old daughter. The policy contains the optional Payor Benefit Rider. If father becomes disabled, what will happen to preimuyms?
the insured's premiums will be waived until she is 21.
Once a life policy insurance has been issued
the insurer must pay the policy benefit, whether or not and insurable interest exists
Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires, he has the option of resuming the original policy and paying the same premium the coverage can be extended with a lump sum payment all remaining cash values are paid to the policyowner the protection ends
the protection ends
A whole life insurance policy accumulates cash value that becomes the policy loan value which the insured may borrow against the death benefit the source of funding for administration fees a source of funding a term rider to the policy
the policy loan value which the insured may borrow against
Insurable interest
the policy owner must face the possibility of losing money or something of value in the event of loss.
If an insured dies during the grace period with no premiums paid the policy would be payable, minus the premium amount the policy would be payable only after the beneficiary makes past due premium payment all past premiums will be refunded with interest the claim would be denied
the policy would be payable, minus the premium amount
mutual company dividend are paid to who
the policyholders (also called participating insurers)
speculative risk
the possibility of experiencing either a loss or a gain. gambling is an example
whole life build cash value
the premium paid by the policyowner also does not change during the life of the policy or during the premium payment period
If the annuitant dies before the annuity start date, the benefits will be given tax-free only to a stated beneficiary nothing is given to the beneficiary the premiums paid will be given to the beneficiary the premiums paid plus interest earned will be given to the beneficiary
the premiums paid plus interest earned will be given to the beneficiary
underwriting
the process by which an insurer evaluates, classifies and ultimately either accepts or rejects risks
Solicitation
the process of issuing a life insurance policy begins with
variable annuity
the product is invested in a separate account and has no guaranteed rate of growth. the annuity promises to pay a fixed number of annuity units to the annuitant for the rest of his/her life. the value of the annuity units varies depending on the performance of the investments of the separate account.
replacement
the purchase of one life insurance policy to replace another because of the cassh values that can build up in a policy and favorable loan interest rates in older policies, replacement can be disadvantageous to consumers however replacement can be good for a consumer if the current policy doesnt fit their needs
advantages of whole life
used to satisfy permanent needs like cost of death, dying, and final burial expenses allows policyowner to know exactly what the cost of insurance will be and offer a form of forced savings builds living benefit through the guaranteed cash value which enables the policy owner to use some of this cash for emergencies , retirement income, and over living needs
inspection receipt
used when insured wants to examine the policy carefully before actually purchasing it policy owner does not pay full first premium at the time app is completed he signs an inspection receipt for policy, examines the policy, THAN pay first full premium
An adjustable life policyowner can change what?
the coverage period
aleatory
unequal exchange of value. one party may obtain a far greater value than the other under the contract
additional insureds
used to purchase term insurance on child or family child term rider; term insurance on life of a child family term rider; combines spouse and childrens rider for temporary coverage of family
A securities license is required for a life insurance producer to sell modified life insurance Modified Endowment Contracts (MEC) variable life insurance universal life insurance
variable life insurance
survivorship life policy
variation of joint life pays insured amount upon death of the last surviving insured can be sold as term life
A policyowner can receive an immediate payment before the insured dies by using a(n) viatical settlement contract buy-sell arrangement adhesion agreement spendthrift plan
viatical settlement contract
STOLIs
violate the principle of insurable interest
disability income rider
waives premium payments while totally disabled and pays amount each month (income) while disability continues lasts for length of disability waiting period is required by most companies to ensure that the disability is permanent and total
Foreign insurer
Licensed, however, not in the state the indivisible resides.
how a personal delivery can enhance agent-client relationship
- can conduct a policy review of both new and old coverages -explain coverages and policy provisions and answer any questions -identify the effective date of coverage -explain the possible need for any additional coverage or amounts of insurance -ask client for referrals
Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated 1970 - Fair Credit Reporting Act 1959 - Intervention by (SEC) The Securities and Exchange Commission 1999 - Financial Services Modernization Act 1945 - The McCarran-Ferguson Act
1970 - Fair Credit Reporting Act (Fair Credit Reporting Act requires the fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made. If the report is used to deny coverage or charge higher rates, the insurer must provide the applicant the name of the credit reporting agency conducting the investigation.)
What is the maximum penalty for habitual noncompliance with the Fair Credit Reporting Act?
2500 An individual, who willfully violates this ACt enough to constitute a general pattern or business practice, will be subject to a penalty up to 2500
Within __ days of requesting an investigative consumer report an insurer must notify the consumer in writing that the report will be obtained?
3 days
Convertible Term Insurance
Convertible without proof of insurability up to the full term death benefit.
Becomes terminally ill
The accelerated benefits provision for an early payment of the death benefit when the insured..
........ insurable interest must exist in a life insurance policy
"At the time of the application" is when interest must exist.
An example of naming a beneficiary by class would be "To the children born of my union with Ned Jackson: David Jackson, Jennifer Jackson, and Scott Jackson" "To the child born of my union with Ned Jackson: Scott Jackson" "To the children born of my union with Ned Jackson" "To Ned Jackson"
"To the children born of my union with Ned Jackson"
Rob purchased a standard whole life policy with a $500,000 death benefit when he was age 30. His insurance agent told him the policy would be paid up if he reached age 100. The present cash value of the policy equals $250,000. Rob recently died at age 60. The death benefit would be $250,000 $750,000 $375,000 $500,000
$500,000
continue group health benefits
(COBRA) gives workers (and their families) whose employment has been terminated the right to
Immediate
(Example) A man purchased a $90,000 annuity with a single premium, and began receiving payments 2 months after that. What type of annuity is it?
Issue the policy anyway and pay the face value to the beneficiary.
(Example) When Y applied for insurance and paid the initial premium on August 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 as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will...
Limited pay while life
(Example) your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?
Life insurance illustration must do the following
*distinguish between guaranteed and projected amounts* clearly state that an illustration is not a part of the contract; *Identify those values that are not guaranteed as such.
Premature death
- Is dying before the normal age according to the mortality actuarial tables - It is also defined as dying with unsatisfied responsibilities
Unsatisfied Major obligations
-Cars -Student Loans -Mortgage -Final expenses
Incomplete Financial Goals
-Childrens Education -Family Financial Security -Husband and wifes financial independence in old age
The National Do Not Call List
-Consumers that do not want to be called by telemarketers can place themselves on the National Do Not Call List which is maintained by the Federal Trade Commission FTC -Insurance producers that sell by telemarketing must remove names every 31 DAYS
Final expenses
-Funeral expenses -Burial expenses -Last illness or injury expenses -Taxes -Unpaid bills -Legal expenses -Family readjustment expenses -Estate taxes
Errors and Changes on the Application
-If there is an error on an application (including the medical report) the underwriter may require that it be corrected -Changes must be approved by and initialed by the applicant *It is important to know that the producer cannot change anything on the application
Medical Information Bureau (MIB) Report
-It is a clearinghouse for medical information for insurance companies that belong to it -Many, but not all, insurance companies participate in it
USA Patriot Act
-It requires financial institutions including insurance companies to clearly identify owners of financial institution accounts -It also requires financial institutions including insurance companies and their agents to report suspicious activities to the U.S Department of Treasury
Four permature death risks
-Loss of income -Unsatisfied major obligations -incomplete financial goals
Inspection Report
-To verify that the producer completed the application accurately and completely is the first purpose of an inspection report -To determine if the applicant has any moral or character risks is sometimes the second purpose of an inspection report
disadvantages of term insurance
-overtime renewable term ins becomes more and more expensive (starts at low premium but can get high. for ex low premium at 35 becomes expensive at 55 or 60 -since its only for a specific term an insured can be left with out protection when they need it most (old age) pure death protection, so no living benefits like guaranteed cash values even if term policy is renewable it usually isnt renewable beyond certain age like 65 or 70
summary of producer responsibilities
-represent and market the insurers products in an ethical and professional manner -be aware of insurance laws that pertain to the marketing of insurance products such as state required standards for advertising and sales literature -primary source of underwriting information which includes completing all applications for insruance, collect premiums, and submit premiums to thee company -responsible for providing the applicant with privacy notices and info such as the notice of insurance information practices and receipts for the initial premium collected -to help protect the insurer from adverse risks. if applicant is determined to be a substandard risk, the producer is responisible for delivering the substandard policy and explaining its limits and/or extra premium to the applicant
Life insurance premiums are calculated based on the following three primary factors:
1. Mortality Factor 2. Interest Factor 3. Expense Factor
A valid insurable interest may exist between the policy owner when the policy is insuring any of the following:
1. Policy owner's own life; 2. The life of a family member (a spouse or a close blood relative); or 3. The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such as debtor to a creditor)
A licensed insurance producer must notify the Commissioner of a change of address within
10 days
A licensed producer has
10 days to notify commissioner of change of address, change of phone, etc.
A person must work how many hours for the Keogh plan to be effective?
1000 hours a year
Under Social Security, in order to be considered fully insured, the worker must have worked how many years and received how many quarters? 40 years and 10 full quarters 10 years and 40 full quarters (Workers are fully insured if they have accumulated the required number of credits based on their age. For most people, the required number of credits is 40 (representing approximately 10 years of work).) 20 years or less and 40 full quarters 40 years or less than 10 quarters
10 years and 40 full quarters (Workers are fully insured if they have accumulated the required number of credits based on their age. For most people, the required number of credits is 40 (representing approximately 10 years of work).)
The penalty tax incurred for premature distributions from an IRA is: 5% 10% 20% 50%
10%
To be eligible to establish a SIMPLE retirement plan, an employer can have a maximum of how many employees earning at least $5,000? 25 50 100 250
100
If group life insurance premiums are paid totally by the employer, the minimum percent of eligible employees required to be covered is 25% 50% 75% 100%
100%
nonforfeiture options
3 options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. 1. cash 2. reduced paid-up insurance 3. extended term insurance
Should the Commissioner request information from a certificate holder, licensee, or other person under the jurisdiction of the Commissioner...If no time specified, they must comply within
30 days State law provides that if a time is not specified, the person shall comply with the request within 30 days and shall provide all documents over to the Commissioner has requests
Under Social Security disability requirements, a worker is fully insured on a permanent basis after having worked in a covered occupation for: 10 quarters 20 quarters 30 quarters 40 quarters
40 quarters (To obtain fully insured status, a covered worker must accrue a total of 40 quarters of credit, which is about 10 years of work.)
How long does the elimination period last for a Social Security Disability claimant? 12 months 5 months 0 months 6 months
5 months (Social Security Disability benefits are subject to rigid requirements. Disability benefits begin after the worker has satisfied a waiting period of 5 consecutive months, during which the worker must be disabled. The disability must be expected to last a minimum of 12 months.)
The IRS levies an excise tax on retired individuals over a certain age who do not take the required minimum distribution from a qualified retirement plan. What is the excise tax rate? 20% 30% 50% 60%
50% (Distributions must be made by April 1 following the year the participant turns age 70 1/2, or a 50% excise tax will be assessed on the amount that should have been withdrawn.)
An insured owns a 50,000 whole life policy. At age 47, the insured decides to cancel his poicy and exercise the extended term option for cash value, which is currently 200,000. What would be the face amount of the new term policy?
50,000 the face of the term policy would be the same as the face amount provided under the whole life policy
A Roth IRA owner must be at least what age in order to make tax-free withdrawals? 59 1/2 and owned account for a minimum of 10 years 59 1/2 and owned account for a minimum of 5 years 70 1/2 and owned account for a minimum of 10 years 70 1/2 and owned account for a minimum of 5 years
59 1/2 and owned account for a minimum of 5 years
Jessica, a widow, stopped receiving survivor Social Security benefits when her son turned 16. At what age will she be eligible to start receiving benefits again? 65 59 1/2 60 62
60
Within how many days must a Traditional IRA be rolled over to another IRA in order to avoid tax consequences? 30 45 60 90
60
Within how many days must a rollover be completed in order to avoid being taxed as current income? 30 60 90 120
60
After an insurance company examination, the Commissioner or the Examiner appointed by the Commissioner must file a written report of the examination within
60 days
After and insurance company examination, the Commissioner or the examiner appointed by the Commissioner must file a written report within
60 days The report relating to the examination must be filed no later than 60 days after the examination is complete
Which statement about traditional individual retirement accounts is true? Funds withdrawn from an IRA after age 60 are not subject to income tax Only workers covered by other pension plans are eligible for IRAs A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2 The minimum amount that can be deposited into an IRA each year is $2,000
A 10% penalty generally must be paid on funds withdrawn prior to age 59 1/2
Which is true about the income tax withholding requirements for eligible rollover funds received personally by a participant in a profit-sharing plan? A 10% mandatory withholding rate applies A 20% mandatory withholding rate applies A 50% mandatory withholding rate applies The participant may elect to have nothing withheld
A 20% mandatory withholding rate applies (A plan sponsor must withhold 20% of the distribution in federal taxes on a rollover. Once the rollover takes place to a new custodian, the remainder of the distribution is made.)
The insured's estate.
A 40 year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarried and dies at age 61, leaving 2 grown-up children. Assuming he never changed his beneficiary, the policy proceeds will go to...
The amount of the distribution is reduced by the amount of a 20% withholding tax
A 60 year old participate in a 401(k) plan takes a distribution in rolled it over to it I already within 60 days. What is true?
covers business expenses such as rent and utilities
A Business Overhead Expense policy
Which policy feature makes a universal life policy different from a whole life policy? A fixed cash value A flexible premium schedule A fixed death benefit The ability to take out a policy loan
A flexible premium schedule
An investor busy a life policy on an elderly person in order to sell it for a life settlement. This is an example of
A STOLI Policy Stranger Oriented Life Insurance policies are usually purchased by people who have no relationship with the insured with intention of selling them for life settlements
An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of
A Stoli policy (Stranger originated life insurance policies are usually purchased by people who have no relationship with the insured with the intention of selling them for life settlements.
Spendthrift
A ________ clause is a statement in a settlement agreement that indicates that the proceeds of the policy will be free from attachment or seizures by the beneficiary creditors.
Survivorship
A ________ life policy pays on the death of the last person.
Coercion
A banker is ready to close on a customer's loan. The bank is prepared to offer the loan but only if the customer purchases a life insurance policy from the bank in the amount of the loan. This is an example of...
20
A candidate for an accident and health producer's license must complete how many hours of prelicensing education?
20
A candidate for life insurance producer's license must complete how many hours of prelicensing education?
Prohibits a specific practice listed in the order
A cease and desist order issued against a producer does what?
20 days
A claimant normally must notify the insurance company of loss within how many days after the loss occurs?
Modified provision is NOT less favorable to the insured
A company may change the wording of a uniform policy only if the _______.
Reasonable Expectations
A concept which states that the insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide. Reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder.
Benefit is received tax free
A corporation is the owner and beneficiary of the key person life policy. If the corporation collect the policy benefit, then
The benefit is received tax free
A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then...
Modified Endowment Contract
A death benefit is not taxable under what?
A tax qualified plan
A defined contribution plan is considered a ______.
Separate Accounts
A domestic insurer issuing variable contracts must establish one or more..
The insured's premiums will be waived until she is 21.
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
If the father is disabled for more than 6 months
A father purchases a life insurance policy on his teenage daughter and adds the Payor benefit rider. What must be acceptable in order for the ride to be able to waive the payment of premium?
Annuities do not provide a (death benefit)
A fixed annuity is fixed in the sense that it provides a guaranteed minimum rate of interest and income payments that do not vary from one to the next. The company also guarantees the specified dollar amount for each payment and the length of the payout period.
Members part time employment status
A group health plan may exclude participation of a member due to....
Medical Underwriting
A guaranteed issue insurance policy has no what?
Costs of training a replacement.
A key person insurance policy can pay for what?
Costs of training a replacement
A key person insurance policy can pay for which of the following?
A Modified Endowment Contract (MEC) is best described as A life insurance contract which accumulates cash values higher than the IRS will allow An annuity contract which was converted from a life insurance contract A modified life contract which enjoys all the tax advantages of whole life insurance A life insurance contract where all withdrawals prior to age 65 are subject to a 10% penalty
A life insurance contract which accumulates cash values higher than the IRS will allow
2 years
A life insurance policy becomes incontestable after it has been in force for how long?
6 Months
A life insurance policy can typically be backdated _____ months from the date of the written insurance application.
Limited Pay
A life insurance policy that has premiums fully paid within a stated amount of time is _____.
Variable whole life policy
A life insurance policy which contains cash value that vary according to its investments performance of stock is called what?
Variable Whole Life
A life insurance policy which contains cash values that vary according to its investment performance of stocks is called _________.
living benefit
A living benefit is the option to use some of the future death benefit proceeds when they may be most needed, before their death, when the insured has a terminal illness.
Which of the following employers is required to follow ERISA regulations? A local government with 150 employees A church with 30 employees A local electrical supply company with 12 employees A Canadian company with 300 employees working in the United States
A local electrical supply company with 12 employees
Graded premiums
A low premium rate for an initial specified period. Premiums increase by specified amounts at specified intervals until they arrive at a long-term, permanent premium rate Graded premiums are also called modified premiums
Required a premium increase each renewal.
A man decided to purchase a $100,000 Annually Renewable Term Life Policy to provide additional protection until his children finished college. He discovered that his policy..
Mortality Factor
A measure of the number of deaths in a given population. Insurance companies use mortality tables to help predict the life expectancy and probability of death for a given group.
Needs Based Value Approach
A method of determining a person's financial value based on the amount of money needed for current and future expenses. For Example: final expenses, spouse's income, mortgage, college education, and retirement.
Human Life Value Approach
A method of determining the financial value of a person's life. It is based on computing the current value of a person's future earnings for a certain period of time.
How soon can the benefit payments begin with a deferred annuity? Anytime after date of purchase Anytime within 12 months after date of purchase A minimum of 6 months after date of purchase A minimum of 12 months after date of purchase
A minimum of 12 months after date of purchase
Adverse Selection
A non-contributory health insurance plan helps the insurer avoid ______.
All of these are valid options for an Adjustable Life Policy EXCEPT The policy's premium can be increased or decreased The policy's death benefit can be increased or decreased A nonforfeiture option can be used to increase the death benefit The policy's protection period can be modified
A nonforfeiture option can be used to increase the death benefit
Stock Insurer
A nonparticipating company is sometimes called what?
Dividends
A participating insurance policy will pay _________ to the owner based upon actual mortality cost, interest earned and costs.
Equity Index Universal Life lnsurance (EIUL): (non trad)
A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index, like the S&P 500. Indexed universal life insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option. Indexed policies give policyholders the security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns. Potential extra interest based on the investments of the company's general account.
An insurance producer
A person required to be licensed under the laws of the state to sell, solicit, or negotiate insurance is known as
Subscriber
A person under a Blue Cross Blue Shield plan is called a ______.
Viatical Settlement Option
A policy owner can receive a percentage payment of the death benefits prior to death by using what kind of contract?
Viatical Settlement Contract
A policy owner can receive an immediate payment before the insured dies by using a(n) __________ contract.
Joint Life Policy
A policy that covers two or more people. The age of the insureds are "averaged" and a single premium is charged. It uses permanent insurance (as opposed to term) and pays a death benefit when one of the insureds dies. The survivors then have the option of purchasing an individual policy without evidence of insurability. The premium for a joint life policy is less than the premium for separate, multiple policies. Note: A variation of the joint life policy is the joint and survivor policy, or a "survivorship life policy" (it can also known as a "second to die" policy). This plan also covers two lives, but the benefit is paid upon the death of the last surviving insured. • Compared to the combined premium for separate life insurance policies on two individuals, the premium for a survivorship life policy is lower.
Modified Endowment Contracts (MEC) non trad
A policy that is overfunded, according to IRS tables, is classified as a Modified Endowment Contract. Policies that do not meet the 7-pay test are considered MEC's and will lose favorable tax treatment. The 7-pay test is a limitation on the total amount you can pay into your policy in the first seven years of its existence. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. For example, if yearly premium is $500, in a seven year period a total amount paid would equal $3,500. If you paid $3,501, it has now exceeded the 7-pay test and is no longer a life insurance contract. It will now be taxed as an investment. • If withdrawn prior to age 59 1⁄2, there is a 10% penalty. • Taxation only occurs when cash is distributed • Funds withdrawn from a MEC are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income). • Penalty taxes on premature distributions from a modified endowment contract (MEC) normally apply to policy loans
Reinstatement Provision
A policy that is restored to its original status and its values are brought up to date is what provision?
Level term
A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
Level term
A policy will pay the death benefit if the insured dies during the 30-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
Automatic premium loan
A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?
Consideration Clause
A policyowner must pay a premium in exchange for the insurer's promise to pay benefits. A policyowner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause.
Revocable Beneficiary
A policyowner who is also yeh insured wants to name her husband as the beneficiary of her life policy. She also wished to retain all of the rights of ownership. The policyowner should have her husband named as the..
"Illustration" in a life insurance policy refers to
A presentation of non-guaranteed elements of a policy
$250,000
A producer in tensional he violated insurance statues. Ultimately, the commissioner determined that there were a total of 25 separate violations. What is the total, monetary penalty this producer can expect to receive?
Survivor protection
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as
Survivor protection
A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as..
Errors and Omissions
A professional liability for which producers can be sued for mistakes of putting a policy into effect is called...
If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies? No death benefit is owed because of the misstatement of age The full original death benefit listed on the policy A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age The original death benefit listed on the policy minus any outstanding loans and interest
A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age
Make unlimited contributions
A qualified plan DOES NOT allow the employee to do what?
Which of the following is NOT considered advertising? A rating from a rating service company, such as A.M. Best An illustration A sales presentation Direct mailing from an agency
A rating from a rating service company, such as A.M. Best
Increasing
A return of Premium term life policy is written as what type of term coverage?
Other-insured rider
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the...
Variable Life Insurance
A securities license is required for a life insurance producer to sell what type of life insurance?
A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called A self-derived plan A multiple-employer plan A blanket plan A self-funded plan
A self-funded plan
Family Term
A spouse and child can be added to the primary insured's coverage as a what?
State insurance laws generally allow a number of groups to hold blanket life insurance policies. All of the following are examples of groups eligible for blanket life insurance EXCEPT A school covering students, teachers, or employees. Members of a sports team while they are participating on the team. Religious organization covering its members while on a church sponsored trip. A start up company to cover the health insurance needs of its employees
A start up company to cover the health insurance needs of its employees (Blanket life insurance policies cover eligible groups for blanket LIFE insurance , not health insurance.)
A level annual premium for the life of the insured
A straight life policy has what type of premium?
Certain groups of employees only
A tax-sheltered annuity is a special tax-favored retirement plan available to
To a producer replacing a licensed agent who is retiring, to the surviving spouse of a deceased producer, to a designee of a producer who enters active duty with the US armed service.
A temporary insurance license maybe issued without examination and all of the following:
Convertible term
A term life policy has a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability.
Aletory
A term that describes the fact that both parties of a contract may NOT receive the same value.
Limited Pay Life Insurance Policy
A whole life insurance policy where the premiums are paid-up after 20 years would be considered a __________.
AA
AA
AAA
AAA
Additional Premium Charge
AKA rating up the policy. The standard rate is the best. As risk risk increases you are rated above the standard rate.
living benefit options
Accelerated Benefit - Allows someone that a physician certifies as terminally ill to access the death benefit. The amount of benefit received will be tax free. • Viatical Settlement - Allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the death benefit. The new owner continues to make the premium payments and will eventually collect the entire death benefit. Note: the original policyowner is called the Viator and the new third-party owner is called the Viatical, or sometimes referred to as the Viatee.
Which of these is considered to be a Living Benefit option in a life insurance policy? Reinstatement Waiver of premium Accelerated death benefit Payor benefit
Accelerated death benefit
Which of the following is considered to be an alternative to a life settlement? Accelerated death benefit rider Waiver of premium rider Extended term option Decreasing term insurance
Accelerated death benefit rider
Accidental Death Coverage
Accidental Death benefits are paid in addition to other benefits, When purchased as a rider added to another life insurance policy, it is often referred to as "double indemnity" or "triple indemnity" Ends at age 65
Blanket Accident policy
Accidental Death coverage is provided to commercial airline passengers in which of the following types of policies?
A copy of the original application for insurance
According to the Entire Contract provision, a policy must contain...
Failure to pay off a loan, tax delinquencies, late payments
According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer:
accumulation vs. annuity period
Accumulation Period: The pay‐in period, where the contract owner makes the purchase payments. The accumulation period of an annuity normally may continue after the purchase payments cease. • Annuity Period: This is also called the liquidation period, annuitization period, or pay‐ out period. This is the time when the money that has accrued during the accumulation period is paid‐out in the form of payments to the annuitant.
Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue? Accumulation at Interest Option Cash Dividend Option Paid-Up Additions Option One-Year Term Dividend Option
Accumulation at Interest Option
Of the following dividend options, which of these is taxable? Reduction of premium One year term Paid-up additions Accumulation at interest
Accumulation at interest
Kathy's annuity is currently experiencing tax-deferred growth until she retires. Which phase is this annuity in? Payout period Accumulation period Deferred period Growth period
Accumulation period
A policyowner may change two policy features on what type of life insurance? Modified Whole Life Decreasing Term Life Adjustable Life Whole Life
Adjustable Life
What does the Group Life underwriting risk selection process help protect insurance companies from? Risk aversion Natural selection Adverse selection Risk management
Adverse selection
How does life insurance create an immediate estate? Cash value may be borrowed upon at any time Nonforfeiture options are immediately available The insured's estate receives the death benefit After first premium is paid, the face amount may be available to the beneficiary
After first premium is paid, the face amount may be available to the beneficiary
When does an immediate annuity begin making payments? After multiple premiums have been paid After the first premium has been paid After policy has been active for one year After the incontestable period
After the first premium has been paid
An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply? Marital status Age Address Income
Age
Most employers will establish benefit schedules according to all of the following EXCEPT Earnings Age Employment Positions Flat Benefit
Age (Most employers will establish benefit schedules based on an employee's earnings or position within the company. A flat benefit to each employee may also be an option. An employee's age is not taken into account.)
Competent Parties
All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.
Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties? * Aleatory * Adhesion * Unilateral * Conditional
Aleatory ( Insurance contracts are aleatory. Aleatory contracts are conditioned upon the occurrence of an event. The benefits provided by an insurance policy may or may not exceed the premiums paid.)
Insurer
All ads for health insurance should make clear the identity of the ______.
Differentiate between guaranteed and projected amounts, only be used as approved, must identify nonguaranteed values
All of the following are requirements for life insurance illustrations..
There is no limitation on the number of key employee plans in force at any one time, the employer is the owner, payor and beneficiary of the policy, the key employee is the insured
All of the following are true of a key person insurance..
They help to reduce adverse selection against the insurer, they require 100% employee participation, the employer pays 100% of the premiums
All of the following concerning a non-contributory group plan is true:
Tax status, financial experience, and annual income
All of the following info about a customer must be in determining annuity suitability..
The death benefit is $0 at the end of the policy term, the contract pays only in the even if death during the term and there is no cash value, the face amount steadily declines throughout the duration of the contract.
All of the following is in regards to a decreasing term policy...
The plan is a legal method of accumulating money for retirement needs, the plan can discriminate as to who may participate, the plan is not approved for favorable tax treatment by the IRS.
All of the following statements concerning an employer sponsored non-qualified retirement plan are true as follows:
IRS approval requirements, taxation of withdrawals, taxation of contributions
All of the following would be different between qualified and nonqualified retirement plans:
Taxation of withdrawals, taxation of contributions, IRS approval requirements
All of the following would be different between qualified and nonqualified retirement plans:
Lower
All other factors being equal, what would the premium be like in a survivorship life policy as compared to the premium in a joint life policy?
Limited Pay Whole Life premiums
All paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the premium paying period that is limited, not the maturity.
Cost of living rider, accidental death rider, and guaranteed insurability rider
All riders that will cause the death benefit to increase?
a blanket policy
All students attending a large university could be covered by
Funding business continuation agreements, compensating executives, funding against financial loss caused by the death of a key employee.
All the following are business uses of life insurance:
Rebates are allowed if it's in the best interest of the client
All the following are true regarding rebates except?
The dance from a mutual insurer
All the following could be considered rebates if offered to an insured in the sale of insurance except?
Defamation, misrepresentation, rebating
All the following would be considered an unfair and deceptive practice
automatic premium loan rider
Allows the insurance company to deduct overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy.
Single Premium Whole Life
Allows the insured to pay the entire premium in one lump-sum and have coverage for the insured's entire life. • An immediate nonforfeiture value is created • An immediate cash value is created • A large part of the premium is used to set up the policy's reserve
Accelerated Benefit Rider
Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.
Automatic Premium Loans
Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision.
Waiver of Premium Rider
Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void.
Characteristics of group life insurance
Amount of coverage is determined according to nondiscriminatory rules, individuals covered, under the policy receive a certificate of insurance, certificate holders may convert coverage to an individual policy without evidence of insurability
Death Benefit
Amount paid upon the death of the insured in a life insurance policy
If a corporation collects the policy benefit on a key person life policy, which of the following is correct? Amount received is taxable Amount received is non-taxable Amount received is partially taxable Amount received is subject to exclusionary rule
Amount received is non-taxable (Key person life insurance receives favorable tax treatment. The death proceeds received by the business are not taxable. Premiums, of course, are not deductible for income purposes.)
The Application
An Insurer wants to begin underwriting procedures for an applicant. What source will it consult for the majority of its underwriting information?
Irrevocable
An ______ beneficiary designation requires the beneficiaries signature.
Transfer of all ownership rights in a policy
An absolute assignment is a..
Equity Indexed Annuity
An annuity owner is funding an annuity that will supplement her retirement. Because she does not know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 index. She would likely purchase a(n)?
Refund Annuity
An annuity that returns difference between the annuity value and the income payments made to a beneficiary when the annuitant dies during the distribution period is a _______ annuity.
Making an offer
An applicant makes an offer by filling out an application including whatever medical report is required and paying a premium
Conditional Contract
An insurance contract that requires both the insured and the insurer meet certain conditions in order for the contract to be enforceable is...
Buy-Sell Plan
An attorney drafts what kind of plan stating that the employees agreement to purchase the proprietor's estate and sell the business at a price that has been agreed upon beforehand?
noncontributory group life insurance plan
An employee group plan in which employees do NOT share in the cost. Insurance company requires that 100% of all employees be eligible.
Contributory Group life insurance plan
An employee group plan in which employees share the cost. Insurance company requires that at least 75% of all employees participate.
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan.
An employee has group life insurance through her employer. After five years, she decides to leave the company and work independently. How could she obtain an individual policy?
$10,000, no tax consequence
An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer?
The insurer will pay the full death benefit from the group policy to the beneficiary
An employee quits his job on May 15 and doesn't convert his group life policy to an individual policy for 2 weeks. He dies in a freak accident on June 1. What best describes what will happen?
Profit sharing plan
An employer has sponsored a qualified retirement plan for its employees where the employees where the employer will contribute money wherever a profit is realized. What is this called?
Guaranteed Renewable
An insurance policy that obligates the insurer to continue coverage as long as premiums are paid is ________.
1 Month
An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments?
Decreasing term
An individual had just borrowed $10,000 from his bank on a 5-year installment loan requiring monthly payments. What type of life insurance policy would be best suited to this situation?
A portion of the benefit up to a limit is tax free; the rest is taxable
An individual has been diagnosed with Alzheimer's disease. He's insured under a life insurance policy with the accelerated benefits rider. Which of the following is a true statement regarding taxation of the accelerated benefits?
Deferred
An individual has been making periodic payments on an annuity. The annuity income payments are scheduled to begin after 1 year since the annuity was purchased. What type of annuity is it?
Which scenario would most life insurance policies exclude coverage for? A tourist traveling abroad on a major airline carrier An individual who has a hobby racing cars once a month An airline pilot who flies for a commercial carrier A soldier on leave at home
An individual who has a hobby racing cars once a month
Maximum penalty for habitual willful noncompliance is $2,500
An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to....
Multi-Line Insurer
An insurance company selling more than one insurance is called what?
Loss of eyesight due to an accidental injury
An insurance company would MOST likely pay benefits under an Accidental Death and Dismemberment policy for which of the following losses?
Legal Purpose
An insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void.
Offer & Acceptance, Consideration, competent parties, and legal purpose
An insurance contract must contain...
Refund the premiums paid
An insured committed suicide 6 months after his life insurance policy was issued. The insurer will...
All of the following statements pertaining to the conversion privilege of group term life insurance are correct EXCEPT An insured employee typically has 31 days following termination of employment in which to convert the group insurance. An insured employee must convert to the same type of coverage that was provided under the group plan (that is, term). Insureds who convert their coverage to individual plans pay a premium rate according to their attained age. An insured employee may exercise the conversion privilege regardless of that employee's insurability.
An insured employee must convert to the same type of coverage that was provided under the group plan (that is, term). (Most group conversion provisions require the individual to convert the coverage under a group term plan to a whole life policy.)
$9,800
An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however; the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?
Paid-up option
An insured had a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?
Paid-up option
An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called?
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
Accelerated benefits
An insured is diagnosed with cancer and needs help paying for her medical treatment
Adjustment in the amount of the death benefit
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in?
$50,000
An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?
Universal Life- allows to have an applicant withdraw a limited amount.
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
Viatical settlement
An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with upcoming medical expenses. What option could the insured utilize?
Reinstatement provision
An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?
Illegal
An insurer devises in a determination strategy in order to quarter a large portion of the insurance market. What best describes this practice?
10 days
An insurer must present a buyers guide and policy summary prior to accepting the applicant's initial premium, unless the policy contains an unconditional refund provision lasting at least how many days?
STOLI policy.
An investor buys a life insurance policy on an elderly person in order to sell it for a life settlement.. what is this an example of?
Offer and Acceptance
An offer is made when the applicant submits an application and money for insurance to the insurance company. The offer is accepted after it has been approved by the insurance company's underwriter and issues a policy. If no money is given, the applicant is making an invitation.
Inspection report
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n)
The insurer
And any controversy between the insured or the insured's beneficiary and the insured that arises from the application for insurance of any policy issued a connection with the application, the producer is considered to be the agent and which of the following?
She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan
And employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy?
The insured would not need to prove insurability for a conversion policy, the insured make convert coverage to an individual policy within 31 days, the premium for individual coverage will be based upon the insured's attained age
And employee is insured under her employers group life plan. If she terminates her group coverage, what is true?
$8,000, 60 days
And employee quits her job where she has a balance of $10,000 in her qualified plan. The balance is paid out directly to the employee in order for her to move the funds to a new account. If she decides to roll over her plan to a traditional IRA, how much will she receive from the plan administrator and how long does she have to complete the tax free-roll over?
Attained age
And employee quits his job and converts his group policy to an individual policy; the premium for the individual policy will be based on his...
Illegal under any circumstances
And in sure publishes intimidating brochures at portray the insurer's competition as financially and professionally unstable. Which of the following best describes the act?
Completed all continuing education requirements
And insurance producer license may be renewed at the producer has paid the applicable fees, submitted the renewal form to the commissioner, and..
Appointed
And insurance producer may not act as an agent for an insurer unless he/she has become which of the following??
He will have to pay a penalty if he is younger than 59 1/2
And insured has a modified endowment contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?
Increases annually
Annually Renewable Term policies provide a level death benefit for a premium that?...
A single payment or periodic payments
Annuities are characterized by how they can be paid for which is:
Which of these is NOT considered to be a purpose of an annuity? Annuities are intended to create an estate Annuities are intended to liquidate an estate Annuities are intended for the tax-free growth of principal Annuities are intended to distribute accumulated principal
Annuities are intended to create an estate
Liquidate an estate. Annuities do not provide death benefits; those are provided by life insurance.
Annuities are most commonly used to fund a persons retirement, but they can technically be used to accumulate cash for any reason. Annuities can also be used to..
Which of the following is considered to be the period when the accumulated value in an annuity is paid out? Annuitization phase Accumulation phase Principal phase Period certain phase
Annuitization phase
Flexible Premium Deferred Annuity
Annuity that requires payments that vary from year to year.
Mass Marketing
Another way to sell insurance is through mass marketing methods. Direct selling is a mass marketing method where agents are not used. Instead, policies are marketed and sold through television and radio advertisements, print sources found in newspapers and magazines, by mail, in vending machines, and over the internet.
24 hours
As a condition for renewal of their licenses, how many hours of continuing education required for all resident and nonresident insurance producers?
Distributions from a traditional individual retirement annuity (IRA) must begin by The participant's 65th birthday The participant's 70th birthday December 31st of the year the participant turns 70 1/2 April 1st of the year following the year the participant attains age 70 ½
April 1st of the year following the year the participant attains age 70 ½
Misrepresentations
Are Untrue statements on the application, and can avoid the contract.
Mortality actuarial tables
Are actuarial tables that tell insurance companies how many people of each age and sex (gender) are likely to die
Investigative Consumer Reports
Are similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends, and neighbors of the consumer. Unlike consumer reports, these reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. The consumer must be advised they have a right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with the additional information. The reporting agency and users of the information are subject to civil action for failure to comply with the provisions of the Fair Credit Reporting Act. A person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be fined and or imprisoned for up to 2 years.
Warranties
Are specific, GUARANTEED STATEMENTS in an application attachment regarding extra risks upon which the insurance company can contest the policy within the first two years of the policy if the statement is in any way concealed or false
Representations
Are statements believed to be true to the best of one knowledge
Representations
Are statements in an application (including medical reports) upon which the insurance company can contest the policy within the first two years of the policy if the statement is 1. Concealed or false and 2. Material and 3. Intentional
Actuarial Tables
Are statistical tables that are used when calculating premium rates and mortality loss reserves. They tell insurance companies how many claims are likely to be made each year enabling the insurance companies to estimate what their losses will be
STANDARD RISKS
Are those individuals who according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people at their age and with similar lifestyles. They are the average risk.
PREFERRED RISKS
Are those individuals who meet certain requirements and qualify for lower premiums that the standard risk. These applicants have a superior physical condition, lifestyle, and habits.
THe full premium was submitted with the app for life insurance, and the policy was issued two weeks later as requested. When does coverage become effective?
As of the application date. If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application
Jackie has just signed up to participate in her employer's franchise life insurance program. Which of the following statements is CORRECT? She may not continue the policy if she terminates employment. As the "sponsor" of the program, her employer collects premiums from her and remits them to the insurance company. The employer is given a certificate of insurance. Jackie is allowed to select the type and amount of insurance coverage.
As the "sponsor" of the program, her employer collects premiums from her and remits them to the insurance company. (Franchise life insurance is a form of group insurance covering employees of a common employer or are members of a common association. The employer or association is not the master policyholder but simply a "sponsor". Each insured is given an individual policy.)
An attending physician's statement would be appropriate for which life insurance purpose? Attending physician's statements are mandatory during the application process At the request of the applicant to assist in the underwriting decision At the request of the producer to assist in the underwriting decision At the request of the insurer to assist in the underwriting decision
At the request of the insurer to assist in the underwriting decision
65
At what age will a person normally enroll under a Part C Medicare plan?
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be..
Authorized
Which of these factors would an insurer consider when determining whether to accept a group life plan? Number of dependents Incontestable period Average age Grace period
Average age
Exclusions
Aviation: The insurer will not pay the claim if the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft. War or Military Service: The insurer will not pay the claim if the insured dies while in active military service or due to an act of war. Hazardous Occupation or Hobby: If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.
A qualified plan participant elected a trustee-to-trustee transfer of rollover funds instead of personally receiving the funds and then rolling them over. The election permits the participant to Avoid mandatory income tax withholding on the amount transferred Eliminate the possibility of funds being lost in the mail Significantly reduce the amount of time required for the transaction Eliminate the penalty tax that normally applies to rollover funds
Avoid mandatory income tax withholding on the amount transferred (There is no federal tax withholding involved in a transfer of funds from one qualified plan into another. Rollovers, however, involve a 20% withholding. Once the rollover takes place to the new custodian, the remainder of the distribution is made.)
Contract of Adhesion
Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered a contract of adhesion. In a contract of adhesion there is only one author - the insurance company. If there is an ambiguity in the contract, the courts always favor the insured over the insurer.
Legal purpose, offer & acceptance, and consideration
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements...
Why are dividends from a mutual insurer not subject to taxation? Because insurance premiums are tax-deductible Because dividends are already subject to capital gains Because dividends are payable directly to the policyholder Because dividends are considered to be a return of premium
Because dividends are considered to be a return of premium
Fiduciary Responsibility
Because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds. This is called commingling.
Contracts of Adhesion
Because the design and wording of a policy are in the hands of the insurer, insurance policies are said to be ______.
Preferred Risk
Because the insured has a better ability than average mortality experience, which type of risk are they?
Modified Endowment Contract
Because the interest on cash value is tax deferred, some people have used cash value life insurance as tax shelters. The IRS has written rules that define when a life insurance policy does not have a real, valid life insurance purpose and is in substance an investment or savings plan
Consequences of Incomplete Applications
Before a policy is issued, all the questions on the application must be answered. If the insurer receives an incomplete application, the insurer must return it to the applicant for completion. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived it's right to have an answer to the question. The insurer will not have the right to deny coverage based on any information that the unanswered question might have contained.
The Primary
Beneficiary who is first in line to receive death benefits is what?
Secondary (Cotangent)
Beneficiary who is second in line to receive death benefit proceeds if primary beneficiary dies first?
Tertiary
Beneficiary who is third in line to receive death benefits.
All of the following conditions are included in group credit life programs EXCEPT Premiums are usually paid by the borrower The amount of insurance per borrower is limited Benefits are paid to the borrower's beneficiary Benefits are paid to the creditor
Benefits are paid to the borrower's beneficiary (Benefits in a credit life policy are normally paid to the creditor.)
It is level term insurance
Best description of annually renewable term insurance...
The period of time during which accumulated money is converted into income payments.
Best description of what an annuity period is:
Which of these premium payment frequencies is not typically available to a policyowner? Bi-weekly Monthly Quarterly Semi-annual
Bi-weekly
All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT * Bilateral * Unilateral * Aleatory * Adhesion
Bilateral
What is the interval spanning between the day when the youngest child of a family turns 16 and before the surviving spouse turns age 60 called? Accumulation period Nonpayment period Blackout interval Blackout period
Blackout period (The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts immediately.)
An insurer has a right to screen applicants for HIV in which of the following ways? Blood test for HIV Inquiring about risky sexual behavior Inquiring about sexual orientation Automatically declining an application due to sexual orientation
Blood test for HIV
Flexible premium
Both Universal Life and Variable Life have a...
Required Signatures
Both the agent and the proposed insured. If the proposed insured and the policy owner are not the same person, such as a business purchasing insurance on an employee, then the policy owner must also sign the application. An exception to the proposed insured signing the application would be in the case of an adult, such as a parent or guardian, applying for insurance on a minor child.
Which of the following best describes fixed period settlement options?
Both the principal and interest will be liquidated over a selected period of time. Under the fixed period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.
All of the following are considered to be costs associated with an individual's death EXCEPT Estate taxes Probate costs Business expenses Burial expenses
Business expenses
In which of the following relationships would there NOT be an insurable interest? Parent to child Business partner to business partner Brother to sister Business owner to business customer
Business owner to business customer
Funding against financial loss caused by the death of a key employee, funding business continuation agreements, compensating executives
Business uses of life insurance
buy-sell agreement
Buy-sell agreements are normally funded with a life insurance policy
20 hours
Candidates for either a property license or a casualty license must complete how many hours of pre-licensing education?
All the following employees may use a 403B plan for their retirement except..
CEO of a private corporation
Human Life Value Approach
Calculates the amount of money a person is expected to earn over his lifetime to determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual.
Donald is the primary insured of a life insurance policy and adds a children's term rider. What is the advantage of adding this rider? Can be converted to permanent coverage without evidence of insurability Coverage can be different for each child Premiums on this rider are not required until the limiting age is reached Increases the policy's overall cash value
Can be converted to permanent coverage without evidence of insurability
Nonforfeiture options (actual options) Cash surrender Extended term Reduced paid up option
Cash Surrender: allows the policyowner to receive the policy's cash value. Policyowner no longer has coverage at this point. Normally, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (Delayed Payment provision). • Extended Term Option: permits the policyowner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy. • Reduced Paid-Up Option: the policyowner pays no more premiums but the face amount is decreased.
Nonforfeiture options
Cash surrender, extended term, reduced paid-up
cash value
Cash value applies to the savings element of whole life insurance policies that are payable before death. However, during the early years of a whole life insurance policy, the savings portion brings very little return compared to the premiums paid.
Liquidity in a life insurance policy
Cash values can be borrowed at any time
The insured is which one of these in group life insurance? Applicant Policyowner Beneficiary Certificate holder
Certificate holder (Each employee eligible to participate in the plan fills out an enrollment card and is given a certificate of insurance, which summarizes the coverage terms and explains the employee's rights under the group contract.)
The coverage, conditions, and limitations in the master policy of a group contract can be found in which document? Certificate of Authority Consumer report Coverage document Certificate of coverage and benefits
Certificate of coverage and benefits
Straight life Policies
Charge a level annual premium throughout the insured's lifetime and provide a level, guaranteed death benefit.
What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day? Claim will be denied by insurer Claim will be paid if money was received by the insurance company Claim will be paid if underwriter has received the application Claim will be paid if application is approved
Claim will be paid if application is approved
Naming a contingent beneficiary as "all surviving children" is described by which term? Contingent designation Primary designation Class designation Tertiary designation
Class designation
Variable Universal Life Policy
Combines the flexibility of a universal life policy with investment choices __________?
Mutual Companies
Commercial insurers that are owned by their policy holders are what?
Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits? Nonforfeiture clause Common disaster clause Spendthrift clause Accident indemnity clause
Common disaster clause
Which of the following would be considered an underwriting duty of an agent? Requesting medical information from the Medical Information Bureau (MIB) Completing all applications and collecting initial premiums Accepting or declining an application Assigning a risk classification
Completing all applications and collecting initial premiums
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
Consideration
Consideration
Consideration is something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit.
Standard risk
Considered to be the average risk; representative of the majority of people in their age and with similar lifestyles
The acceptability of a risk is determined by checking the individual risk against many factors directly related to the risk's potential for loss. These reports fall into 2 categories:
Consumer Reports and Investigative Reports. Both reports can only be used by someone with a legitimate business purpose, including insurance underwriting, employment screening, and credit transactions.
Skilled Nursing Care
Continuous 24 hour care provided by licensed medical professionals under the direct supervision of a physician is called _______.
Contracts of Adhesion
Contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as?
Tax qualified plans
Contributions can be tax deducted
Non qualified plans
Contributions cannot be tax deducted
Tim is covered under a group plan and would like to change his group coverage to an individual policy with the same insurer because of employment termination. Which of these describes the change that will take place? Coordination of benefits Conversion Extension of benefits Rollover
Conversion
group insurance (if employee is terminated)
Conversion to Individual Policy: If a member's coverage is terminated, the member and his dependents may convert their group coverage to individual whole life coverage, without having to show proof of insurability. Conversion Period: An individual must apply for individual coverage within 31 days after the date of group coverage termination. An individual is covered under the group policy during the conversion period. Group Policy Termination: If the master policy is terminated, each individual member who has been insured for at least 5 years is permitted to convert to an individual policy, providing coverage up to the face value of the group policy.
Either the insurer or the insured.
Coverage under a cancelable health insurance policy may be terminated by _______.
blanket life insurance (group)
Covers groups of people exposed to the same hazard, such as passengers on an airplane. No one is named on the policy and there is not a certificate of coverage given out. Individuals are only covered for the common hazard.
In which business plan do the partners agree to buy the interest of the deceased partner? Entity Cross purchase Stock purchase Business insurance plan
Cross purchase (Under the cross-purchase buy-sell plan (the more common approach to a buyout), the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the interest to the surviving partners. The partnership itself is not a party to the agreement.)
Risk
Described as a potential loss.
Risk Retention Groups
Described as mutual companies formed by a group of people in the same industry or profession. Ex. pharmacist, dentist, engineers
Peril
Described as something that can cause a financial loss.
Loss
Described as unintentional decrease in the value of an asset due to a peril.
Mortality Factor
Describes a measure for the number of deaths in a given population.
Increasing Term
Describes a type of term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.
Single Life
Describes the type of policy in which a one-time lump sum payment is made.
Limited Pay
Describes the type of policy in which it is paid-up before 100.
Straight
Describes the type of policy in which the policy owner pays a fixed premium for the time the policy is issued until they turn 100.
What is the primary purpose of a rating service company such as A.M Best? Determine which insurer offers the best rates Determine which insurer offers the best policies Determine financial strength of an insurance company Determine which agent to use locally
Determine financial strength of an insurance company
According to the Fair Credit reporting act
Disputes regarding comsumer information would not be considered negative information
One of the purposes of a qualified profit-sharing plan is to Motivate management to achieve a 25% profit margin Distribute a portion of company earnings to employees Liquidate the assets of a corporation Reward the stockholders of a corporation
Distribute a portion of company earnings to employees
Stockholders
Dividends from a stock company are paid to who?
Mutual insurers pay dividends to participating policyowners if the insurer has which of the following? Divisible surplus Reciprocal Dividend Agreement Certificate of Authority Participating clause
Divisible surplus (By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.)
Lisa has recently bought a fixed annuity. Which of these is considered to be a disadvantage of owning this type of annuity? Payments cease 5 years after the annuitant's death During periods of inflation, annuitants will experience an increase in purchasing power of their payments During periods of inflation, annuitants will experience a decrease in purchasing power of their payments Payment amounts can be unpredictable from month to month
During periods of inflation, annuitants will experience a decrease in purchasing power of their payments
Obtain a list of all life insurance policies that will be replaced
During replacement of life insurance, or replacing ensure musky which of the following?
A Pension Plan
Employees contribute to a plan based on the employee's compensation and years of service, not company profitability or performance is what?
In group life policies, individual certificates are given to Each policyholder Each insured Each applicant The insurance agent
Each insured (Each employee eligible to participate in a group plan fills out an enrollment card and is given a certificate of coverage. This certificate summarizes the coverage terms and explains the employee's rights under the group contract.)
Which of these statements concerning Traditional IRAs is CORRECT? Earnings are not taxable when withdrawn Earnings are taxable when withdrawn Contributions are never tax-deductible Contributions are always made by the employer
Earnings are taxable when withdrawn
Non-qualified retirement plan
Earnings grow tax-deferred, contributions are not currently taxable, it can discriminate in benefits and selecting participants
Which of the following is NOT a federal requirement of a qualified plan? Must benefit a broad cross-section of employees Employee must be able to make unlimited contributions Vesting schedule must be defined Employer establishes the plan
Employee must be able to make unlimited contributions
All of the following pertains to a Simplified employee pension plan (SEP):
Employer contributions are not included in the employee's gross income, SEP's allow the employer to make annual tax-deductible contributions of the 25% of an employee's earned income, SEP's have a higher tax deductible contribution limit than an IRA.
Federal tax advantages of a qualified plan
Employer contributions are tax deductible as ordinary business expense, funds accumulate on tax-deferred basis, employee and employer contributions are not counted as income to the employee for income tax purposes
Are subject to vesting requirements
Employer contributions made to a qualified plan..
A group life insurance plan must insure all eligible employees if the Group was formed for the express purpose of obtaining insurance Employer pays the entire premium Employees are covered under a retirement plan Employer pays for a group health insurance plan
Employer pays the entire premium
Which type of life insurance policy pays the face amount at the end of the specified period if the insured is still alive? Adjustable life policy Modified life policy Endowment policy Universal life policy
Endowment policy
What is the name of the provision which states that a copy of the application must be attached to the policy when issued? Policy Summary Buyer's Guide Entire Contract Entire Policy
Entire Contract
What is created after policy proceeds are obtained in a lump sum and then immediately invested? Viatical Settlement Emergency Fund Lump Sum Fund Estate
Estate
Craig purchased a life insurance policy to enable his heirs to pay estate taxes. What is this called? Estate conservation Liquidity maintenance Survivor fund Human value protection
Estate conservation
Per Capita
Evenly distributed benefits amount all named living beneficiaries (meaning by the head)
30
Every licensee must notify the Louisiana Insurance Commissioner of personal OR business changes within how many days?
All of the following statements about group life insurance for employees are true EXCEPT The policy is issued to the employer Evidence of insurability is normally required of each participant Premiums may be paid jointly by the employer and the employees Eligible groups may be required to meet minimum size standards
Evidence of insurability is normally required of each participant
Cash value available to the policy owner
Example of liquidity in a life insurance contract
$100,000
Example: the insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?
Aleatory Contract (Example)
Exchange of unequal values
Which of these would limit a company's liability to provide insurance coverage? Waiver Exclusion Rider Provision
Exclusion
The taxable portion of each annuity payment is calculated using which method? Exclusion Ratio Taxable Ratio Cost Basis Tax Basis
Exclusion Ratio
Which law requires fair and accurate reporting of information about consumers? Financial Services Modernization Act Fair Credit Reporting Act McCarran-Ferguson Act Unfair Trade Practices Act
Fair Credit Reporting Act
A spouse and child can be added to the primary insured's coverage as what kind of rider? Dependent term Guaranteed insurability Primary term Family term
Family term
Which of these riders will pay a death benefit if the insured's spouse dies? Guaranteed Insurability rider Family term insurance rider Family whole insurance rider Payor benefit rider
Family term insurance rider
All of these are characteristics of a universal life insurance policy EXCEPT Flexible death benefit All of these are characteristics of a universal life insurance policy EXCEPT Flexible death benefit Fixed surrender value Flexible premiums Builds cash value
Fixed surrender value
Which of these annuities require premium payments that vary from year to year? Flexible premium immediate annuity Flexible premium deferred annuity Fixed premium deferred annuity Fixed premium immediate annuity
Flexible premium deferred annuity
Employer contributions are tax deductible as ordinary business expense,funds accumulate on a tax-deferred basis, employee and employer contributions are not counted as income to the employee for income tax purposes
Follow the following are true of the federal tax advantages of a qualified plan
Employees
For a retirement plan to be qualified, it must be designed for the benefit of
Tax deductible
For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are
Tax deductible
For an individual who is not covered by an employer sponsored plan, IRA contributions are...
Subpoena witness, examine witness under oath, obtained evidence in the form testimony and documents
For the purpose of making an investigation, the commissioner does have the power to do all the following:
Coercion
Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as
Which of the following is NOT a commercial insurer Industrial Company Fraternal Company Stock Company Mutual Company
Fraternal Company
The primary insurance amount (PIA) is equal to 1/2 worker's retirement benefit at 62 1/2 worker's retirement benefit at 65 Full worker's retirement benefit at 62 Full worker's retirement benefit at 65
Full worker's retirement benefit at 65 (The PIA is actually the amount equal to the worker's full retirement benefit at age 65 (benefits are reduced for early retirement) or benefits to a disabled worker. Benefits payable to workers and their spouses and dependents are usually expressed as a percentage of the worker's PIA. For example, a person who elects to retire at age 62 with Social Security retirement benefits will receive benefits equal to 80% of his or her PIA.)
All of these are legitimate uses of insurance in a business setting EXCEPT Funding against general company financial loss Funding against financial loss by the death of a key employee Funding business continuation agreements Funding a buy-sell plan
Funding against general company financial loss (Life and health insurance can be used for a variety of reasons in a business setting. Safeguarding against general company financial loss is not one of them.)
When a qualified plan starts making payments to its recipient, which portion of the distributions is taxable? Principal Contributions made by employee Contributions made by employer Gains
Gains
Free-Look Provision
Gives policy owners the right to return the policy for a full premium refund within a limited period of time after the delivery of the policy is described as what provision?
An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period? Incontestable period Probation period Reinstatement period Grace period
Grace period
Which of the following is NOT considered to be a group permanent plan? Group ordinary Group credit Group universal Group paid-up
Group credit
The recipient
Group disability benefits are tax-free to the insured when the premiums are paid by _________.
Which of the following statements regarding group life insurance plans is CORRECT The employee is generally responsible for paying the entire premium. Group insurance, per unit of benefits, is available at rates lower than those for individuals. An employee may not continue the policy if he/she terminates employment. Group insurance plans are only available to key employees.
Group insurance, per unit of benefits, is available at rates lower than those for individuals. (Group insurance generally is available at rates lower than those for an individual because of the lower administrative, operational, and selling expenses associated with them.)
eligible groups for group insurance
Group life insurance can be formed by the following as well as other organizations, just as long as they are formed for a reason other than to purchase insurance. There is no minimum # of members required for group life insurance. • Single -employee groups • Multiple-employee groups • Labor Unions • Trade Associations • Credit/Debit groups • Fraternal Organizations
100% participation of members is required in noncontributory plans
Group life insurance is a single policy written to provide coverage to members of a group. What statement concerning group life is true?
100% participation of members is required in noncontributory plans
Group life insurance is a single policy written to provide coverage to members of a group. What statement is correct?
A business will typically use which type of life insurance to cover their employees? Group policy Adjustable life policy Whole life policy Endowment policy
Group policy
If the financial company or insurer knows, suspects or has reason to suspect that the transaction
Has no business or lawful purpose; Is designed to deliberately misstate other reporting constrainsts; Uses the financial institution or insurer to assist in criminal activity; Is obtained using fraudulent funds from illegal activities; or Is intended to mask funds from other illegal activities.
Straight whole life policies
Have a guaranteed face amount and a level premium for the life of the insured.
Rebating
Having a client in inducement to a sale not stated in the policy is an unlawful practice known as?
March 23, 2010
Health plans purchased before which date grandfathered and do not have to follow the ACA's rules and regulations?
Noncancellable
Health: A ________ policy cannot be cancelled nor can its premium rates be increased under any circumstances
Conditionally Renewable
Health: A ______________ policy allows an insurer to terminate the coverage but only in the event of one or more conditions stated in the contract.
Delores just received her first Social Security Disability payment. What can we correctly assume about her? Her disability is expected to last at least 12 months She is at least 65 years old She has applied for Medicare She became disabled 12 months ago
Her disability is expected to last at least 12 months (The qualification for Social Security Disability benefits is subject to rigid requirements. One of these requirements states the disability must be the result of a physical or mental impairment expected to last at least 12 months.)
They are not included as income for the employee, but are taxable upon distribution
How are contributions to a tax-sheltered annuity treated with regards to taxation?
Law of Large Numbers
How do insurers predict the increase of individual risk?
Premiums are lower
How does group insurance differ from individual insurance?
General tax revenue and user premiums
How is Medicare part B funded?
$3,000
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, which of the following would be taxable annually?
Increases
How is the cost of a policy affected when premiums are paid for frequently?
3 years following the date of its last authorized use
How long must an insurer keep a copy of an authorized form in its records?
3 accounts: life insurance, annuities, and health insurance
How many accounts must to Tennessee life and health insurance Guaranty association maintain?
12 hours
How many credit hours of excess continuing education or producers allowed to carryover to the next renewal cycle?
Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death? Financial loss value Human life value Assessment value Replacement value
Human life value (The human life value calculator helps you assess the financial loss your family would incur if you were to die today.)
Which approach predicts a person's earning potential and determines how much of that would be devoted to dependents? Future value approach Earnings approach Needs approach Human life value approach
Human life value approach (The human life value approach predicts an individual's future earning potential and determines how much of that amount would be devoted to dependents.)
Needs analysis is a method of life insurance planning which Identifies the needs of an individual and the individual's dependents Eliminates the need for estimating future interest and inflation rates Requires the team effort of the producer and home office underwriter Ignores Social Security benefit payments
Identifies the needs of an individual and the individual's dependents (Needs analysis is a method of life insurance planning which identifies the needs of an individual and the individual's dependents.)
5 days
If a (consumer) requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
Fixed period
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
Changes to an application may involve drawing a line through the first answer, record the correct answer, and have the applicant initial the change, one may note on the application the reason for the change, and if all else fails one may destroy the application and complete a new one.
If a change needs to be made to the application for insurance, the agent may do all of the following....
A qualified plan for a small business
If a company has a simplified employee pension plan, what type of plant is it?
Dangerous Recreational Activities and Aviation
If a dangerous recreation or aviation exclusion is added to a policy, coverage is excluded while the insured is engaged in the excluded dangerous recreation activity or is flying as something other than a fare paying passenger on a commercial airline
A modified endowment contract
If a life insurance policy develops cash no you faster than a seven-pay whole life contract, it is?
The balance of the loan will be taken out of the death benefit
If a policy had an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
The balance of the loan will be taken out of the death benefit
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
With the policy
If a policy includes a free-look period of at least 10 days, the Buyer's Guide must be delivered to the applicant...
Dividends are not guaranteed
If a producer discusses policy dividends in a sales presentation, what statement must the producer also make?
30 days
If a resident insurance producer moves from Tennessee to another state, he/she must file a change of address and provide certification from the new resident state within how many days of the change of legal resident?
Guaranteed Insurability rider
If added for an extra premium charge, it guarantees the insured the right to purchase additional insurance at the premium rate for the insured's attained age without evidence of insurability
Return the application to the applicant for a signature
If an agent fails to obtain an applicant's signature on the application, the agent must...
Settlement option
If an immediate annuity is purchased with the face amount at death or with the cash value at surrender, this would be considered a?
All of the above may happen
If an individual licensee's violation of the entrance code was known or should have been down by one or more of the partners, officers, or managers of the agency, what could happen to agency?
Dangerous Recreation Activities and Aviation
If an individual truthfully answers "no" to the dangerous recreation questions, then engages in a dangerous activity, the insurance company cannot rate up or add exclusions after the policy has been issue LIVE YOUR LIFE
Fully insured
If an injured worker has earned 40 quarters of coverage, the worker's status under Social Security disability is?
False advertising
If an insurance company has published a brochure that in accurately portrays the advantages of a particular insurance policy. What is this an example of?
Prior insurance, credit history, and habits
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information of the applicant...
The policy will terminate when the cash value is reduced to nothing.
If an insured continually uses the automatic premium loan option to pay the policy premium,
The policy will terminate when the cash value is reduced to nothing
If an insured continually uses the automatic premium loan option to pay the policy premium..
0%
If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death?
It is only taxable if the cash value exceeds the amount paid for premiums
If an insured surrenders his life insurance policy, what is true regarding the cash value of the policy?
It is only taxable if the cash value exceeds the amount paid for premiums
If an insured surrenders his life insurance policy, which statement is true regarding the cash value of the policy?
the amount of earnings lost by the insurance company in interest income
If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount plus..
Be interpreted as if the insurer waived its right to have an answer on the application.
If an insurer issued a policy based on the application that had unanswered questions it would...
The Employer
In health insurance, the contract for coverage is between the insurance company and the employer and a "Master Policy" is issued to who?
Payor Rider (or Payor Clause):
If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived.
Effective date of Coverage
If the initial premium is not paid with the application, the agent will be required to collect the premium at the time of policy delivery. In this case, the policy does not go into effect until the premium has been collected. The agent may also be required to get a statement of good health from the insured. This statement must be signed by the insured and verifies that the insured has not suffered injury or illness since the application date.
simultaneous death
If the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the Uniform Simultaneous Death Act law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.
The policyowner
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who had the ownership rights?
Day
If the producer continues to violate the entrance code, I knew so penalty will be assessed every?
Test topic
If within the first two years of the policy, the insured dies and the insurance company discovers a false representation or warranted statement, the insurance company can refuse to pay the claim and refund the premiums
Test topic
If within the first two years of the policy, while the insured is alive, the insurance company discovers a false representation or warranted statement, the insurance company can rescind the policy and refund the premiums that have been paid
Unfair trade practices
If you insurance company makes a statement that it's policies are guaranteed by the existence of the Insurance Guaranty Association, that would be considered?
If the agency contract gives the producer the authority to solicit insurance but states nothing about the collection of premiums, the producer normally has authority to collect premiums based on * Implied authority * Express authority * Apparent authority * Licensee authority
Implied authority
Utmost Good Faith
Implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.
Stranger Oriented Life Insurance
In Stranger-Originated Life Insurance, or STOLI, a consumer purchases a life insurance policy with the agreement that a third party agent/broker or investor will purchase the consumer's policy and receive the proceeds as a profit upon the consumer's death.
From trustee to trustee
In a direct rollover, how is the money transferred from one plan to the new one?
The owner
In a life settlement contract, whom does the life settlement broker represent?
Taxable Income
In a qualified retirement plan, withdrawals by the employee are treated as ________.
Medical Information Bureau
In addition to and attending physician's report, the underwriter will usually request a Medical Information Bureau (MIB report.
Test topic
In addition to tax on gains withdrawn, there is a tax penalty on all amounts withdrawn if the withdrawal is prior to age 59.5
Annuitization Period
In an annuity, the accumulated money is converted into a stream of income during what time period?
Consideration
In an insurance contract, the element that shows each party is given something of value is called..
Applicants present physical condition, present occupation, and past medical history.
In classifying a risk, the Home Office underwriting department will look at all of the following..
Risk Classification
In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits, and morals. If the applicant is acceptable, the underwriter must then determine the risk or rating or rating classification to be used in deciding whether or not the applicant should pay a higher or lower premium. A prospective insured may be rated a s one of the three classifications: standard, substandard, or preferred.
The customer's associates, friends, and neighbors provide the report's data
In comparison to consumer reports, what best describes a unique characteristic of investigate consumer reports?
Grow tax deferred
In life insurance policies, cash value increases
Cross-Purchase Plan
In what type of plan does each partner buys, pays the premiums, and is the beneficiary of a life insurance policy on each of the other partners?
Premiums paid by an employer on a $30,000 group term life insurance plan for employees
In which instance would the premium be tax deductible?
It is never legal to limit coverage based on marital status
In which of the following situations is it legal to limit coverage based on marital status?
Whole Life
In which type of insurance can the policy owner borrow against the cash value while the policy is still in effect or when surrendered?
Consumer Reports
Include written and or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
Premium amounts and surrender values
Included in a policy summary
Upon retiring at age 60, an employee requested the 401(k) plan trustee to issue a check payable to the employee for the entire accrued benefit in the employee's account. The funds were immediately rolled over into an IRA. The 401(k) distribution will be Subject to a penalty tax Eligible for capital gains tax treatment Included in gross income for tax purposes Reduced by the amount withheld for federal income tax
Included in gross income for tax purposes (In this situation, the 401(k) distribution will be included in gross income for tax purposes because the plan participant took physical receipt of the distribution before its rollover to the IRA.)
Which of the following is generally assessed when a participant receives retirement savings from an IRA before reaching age 59 1/2? Income tax only A penalty tax only Income tax and a penalty tax Capital gains tax
Income tax and a penalty tax
Which of these is considered a major tax advantage of life insurance? Tax credits are available for life insurance premiums paid Annual earnings are tax free Premiums are tax deductible by an employee if paid for by an employer Income tax is typically not owed on proceeds paid directly to a beneficiary
Income tax is typically not owed on proceeds paid directly to a beneficiary
An individual, age 45, received a distribution of $15,000, less $3,000 income tax withholding, from a former employer's 401k plan. None of the money was rolled over. Which federal taxes apply? Only income taxes on $15,000 Only income taxes on $12,000 Income taxes plus a 10% penalty tax on $15,000 Income taxes plus a 10% penalty tax on $12,000
Income taxes plus a 10% penalty tax on $15,000 (All withdrawals from a qualified retirement plan are taxable as current income. In addition, any withdrawals made before age 59 1/2 is subject to an additional tax penalty of 10% of the amount withdrawn.)
Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake? Reinstatement clause Entire Contract clause Incontestable clause Nonforfeiture clause
Incontestable clause
Stock companies
Incorporated companies owned by their stock holders are what?
How is the cost of a policy affected when a policyowner pays premiums more frequently? Not affected Increases Decreases Depends on the type of coverage
Increases
What happens to the total amount of premium paid for an insurance policy when the payment frequency increases? No difference in cost Decreases Increases Depends on the type of coverage
Increases
What type of agent may represent a number of insurance companies under separate contractual agreements Career agent Captive agent Company agent Independent agent
Independent agent
Independent Agency System (American Agency System
Independent agents represent a number of insurance companies under separate contractual agreements. They may also work for themselves or under other insurance agents. Independent insurance agents have control and ownership over their clients' accounts. This means they may place clients' business with a different insurer when policies are up for renewal. Independent insurance agents earn commissions
The law of large numbers
Indicates that the larger the group, the more accurate the mortality actuarial tables will become and the losses will become more predictable and manageable
Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid? Individual Group Class Estate
Individual
How does one qualify as a fully-insured individual under Social Security disability coverage? Individual has been credited with the appropriate number of quarters of coverage Individual is currently covered under Medicaid Individual is expected to be disabled for 5 months Individual is currently employed
Individual has been credited with the appropriate number of quarters of coverage
All of the following are distinguishing characteristics of group life insurance EXCEPT Flow of insureds Group underwriting Master contract Individual policies
Individual policies
Characteristics of group life insurance
Individuals covered under the policy receive a certificate of insurance, certificate holders may convert coverage to an individual policy without evidence of insurability, and amount of coverage is determined according to non discriminatory rules.
The principle of insurable interest, in regards to a life insurance contract, is accurately described in which statement? An agent establishes insurable interest An individual does not have insurable interest on his or her own life Insurable interest only pertains to business arrangements Insurable interest can be based on the love and affection of individuals related by blood or law
Insurable interest can be based on the love and affection of individuals related by blood or law
at the time of application
Insurable interest must exist between the policy owner and the insured
Expense Factor
Insurance companies are just like any other business. They have operating expenses which need to be factored into the premiums. The expense factor is also known as the loading charge. Other factors that impact the premium amount include: • Age: The older the person, the higher probability of death and disability • Sex / Gender: Women tend to live longer than men, so their premiums are usually lower • Health: Poor health increases probability of death and disability • Occupation: Hazardous job increases the risk of loss • Hobbies: High risk hobbies also increase the risk of loss • Habits: Tobacco use presents a higher risk than non-smokers
Interest Factor
Insurance companies invest the premiums they receive in an effort to earn interest. The rate of earnings on investments is one of the ways an insurance company can reduce premium rates.
Aletory Contract
Insurance contracts are aleatory, which means there is an unequal exchange. The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss. • Consideration may be unequal • The outcome depends on chance or uncertain event • A legal bet is considered an aleatory contract
Conditional Contract
Insurance contracts are conditional because certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable.
Loss
Insurance is a contract by which one seeks to protect another from...
Disclosures
Insurance producers and insurance companies must 1. disclose that they keep applicants medical information confidential 2. Give notice as to whom the medical information may be disclosed to 3. Give notice as to the applicants privacy rights and notice of the right to refuse dissemination of medical records
An agent is an individual that represents whom? * Insurer * Insured * Broker * Himself/Herself
Insurer (An agent is an individual who is authorized by an insurer to sell goods and services on its behalf. An agent is also the insurer's representative in dealing with the public.)
What action may the insurer take on future policy anniversaries after a group life master policy has been issued? Cancel insurance on group members who become terminally ill Insurer can make no changes to policy Insurer can deny claims after a group has excessive claims Insurer can adjust premium
Insurer can adjust premium (Most group life plans are term plans, which use annual renewable term (ART) insurance for the underlying policy. This gives the insurer the right to increase the premium each year (based on the group's experience rating), and it gives the policyholder the right to renew coverage each year.)
Who makes up the Medical Information Bureau?
Insurers (this is so the insurers can compare the info that have collected on the individual)
When a large face amount is requested by an applicant it is protocol to do this..
Insurers commonly require HIV testing; the insurer must abide by a variety of rules created by its respective state.
Stock
Insurers who are owned by stockholders who have the usual rights of ownership, including the right of voting?
Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy? Interest only Reduced paid-up insurance Extended term insurance Cash surrender
Interest only
Interest sensitive life insurance (non trad)
Interest-sensitive life insurance is a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant. This is also called current assumption whole life insurance. It also gives the insured the opportunity to either increase the face amount or use the extra cash value to lower future premiums. Premiums can vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors. CAWL (current assumption whole life) policies are almost always a MEC due to accelerated premiums.
403(b) Plam (TSA)
Internal revenue code provision that specifically provides for an individual retirement plan for public school teachers is a(n)
Interest Factor
Invest the premiums they receive in an effort to earn interest is called what?
An applicant's character and personal habits can be obtained for underwriting purposes from which source? Investigative consumer report Attending physician's statement Medical Information Bureau (MIB) Credit report
Investigative consumer report
Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this? Tertiary Contingent Revocable Irrevocable
Irrevocable
A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation? Contingent beneficiary Tertiary beneficiary Revocable beneficiary Irrevocable beneficiary
Irrevocable beneficiary
A rider
Is a form that can be added to an insurance policy. It is usually added for an extra premium charge to add coverage. It can, however, sometimes be added to limit coverage
The free look provision
Is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid
MIB is...
Is a membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.
An insurance policy
Is a social device, legal contract, or policy for the transfer of financial risks
A Warranty
Is an absolutely true statement upon which the validity of the insurance policy depends.
Rating up your policy
Is an additional charge for dangerous activity
Ordinary Life Insurance
Is made up of several types of individual life insurance, such as temporary (term), permanent (whole)
Life Annuity
It guarantees monthly income benefits to the annuitant for the rest of his/her life no matter how old he/she lives
What is the benefit of choosing extended term as a nonforfeiture option?
It has the highest amount of insurance protection Under this option the insurer uses the policy cash value to convert to term insuirance for the same face value amount as the former permanent plsn
Purpose of a conditional receipt
It is intended to provide coverage on a date earlier than the age of the issuance of the policy
Which of the following is NOT true regarding a Certificate of Authority?
It is issued to group insurance participants Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority
What happens to interest earned if the annuitant dies before the payout start date? It is taxable It is taxable only if no beneficiary is named It is not taxable It is only taxable if contract has been in force under one year
It is taxable
Which of the following would disqualify a company's retirement plan from receiving favorable tax treatment? Contains a vesting schedule Contributions are applied with no regard to income Formed for the sole benefit of employees and their beneficiaries It is temporary
It is temporary
15
It is the company's responsibility to supply a claim form to an insured within how many days after receiving the notice of claim?
Accidental Death Coverage
It pays benefits for death caused by injuries sustained by accidental means - both the injury and the cause of the injury must be unintended or accidental
All of the following statements correctly describe the purpose of Social Security EXCEPT It provides a source of income for a meaningful standard of living during retirement It provides basic protection against financial problems accompanying death, disability, and retirement It augments a sound personal insurance plan It provides retirement and survivor benefits to a worker and the worker's family
It provides a source of income for a meaningful standard of living during retirement
Conditional receipt
It provides temporary coverage from date of application to the date of policy delivery. Coverage is subject to the condition that the underwriter would have found the applicant acceptable at the premium rate paid according to the insurance company's standard practices
Temporary insurance agreement
It provides temporary term life insurance coverage from the date of application until the date the insured wants a permanent policy to take effect
Which of the following statements about the certificate of insurance is true? It is a binding contract between the employee and the insurer It serves as evidence of an employee's coverage It is issued to the employer It is used only when accidental death benefits are provided
It serves as evidence of an employee's coverage
Which of the following statements best describes the effect the Accerlerated Benefit provision would have on the benefits paid to the beneficiary?
It will decrease the benefits paid to the beneficiary
Domestic insurer
Licensed in the state where the individual resides.
A life insurance policy written on one contract for two people in which it is payable upon the first death is called Split Shared Joint Survivorship
Joint
Which type of life insurance is normally associated with a Payor Benefit rider? Juvenile insurance Family income insurance Spouse insurance Term rider
Juvenile insurance
All of the following would be considered a nonqualified retirement plan
Keogh plan, Roth IRA, 401(k)
Alien insurer
Licensed, however, is outside of the U.S.
What is the reason for key person insurance? Lessen the risk of financial loss due to the death of a key employee Provide health and life insurance to families of key employees Provide retirement benefits to key employees Lessen the chance of financial loss due to fraud by a key employee
Lessen the risk of financial loss due to the death of a key employee (Key person insurance can lessen the risk of financial loss due to the death of a key employee who has specialized skills, knowledge, or business contacts.)
Juvenile Insurance
Life insurance which is written on the lives of a minor is called juvenile insurance. The adult applicant is usually the premium payor as well, until the child comes of age and is able to take over the payments. A payor provision is typically attached to juvenile policies. It provides that, in the event of death or disability of the adult premium payor, the premiums will be waived until the child reaches a specified age (such as 18, 21, or 25).
Which of the following annuity payout options makes no additional payments regardless of when the annuitant dies? Life only Life with period certain Cash refund Installment refund
Life only
Which of the following is an example of a limited pay life policy?
Life paid up at Age 65 Limited Pay Whole Life premiums are all paid by the time the insured reaches age 65. The policy endows when the insured turns 100. It is the period that is limited, not the maturity.
They could be used for a key person coverage, they could be sold for an amount greater than the current cash value, they involve insurance policies with large face amounts
Life settlements
Modified Whole Life
Low premiums in the early years and jumps to a higher premium in the later years and remains fixed thereafter. Premiums increase just once.
Which of the following makes a group life policy different from an individual life policy? Higher premium Higher underwriting costs Individual underwriting Lower premiums
Lower premiums (The primary reason for a group life plan having lower premiums is the lower administrative, operational, and selling expenses associated with servicing one contract, as opposed to several individual contracts.)
A method of marketing group benefits to employers who have a small number of employees is the MET Blanket Life Insurance ART Small Employer Trust
MET (A method of marketing group benefits to employers who have a small number of employees is the multiple employer trust (MET). METs may provide a single type of insurance (such as health insurance) or a wide range of coverage (life, medical expense, and disability income insurance).
What is involved when a life insurance policy has been backdated? Setting a policy's effective date prior to a preexisting condition Redating a policy after it has been issued Reinstating a lapsed policy Making the policy effective on an earlier date than the present
Making the policy effective on an earlier date than the present
It commences when the policy is delivered
Mandatory free look in a life insurance policy
Business Overhead Expense
Many small business owners worry how their business would survive financially if the owner becomes disabled. The policy which BEST addresses this concern is
All of these are considered key factors in underwriting life insurance EXCEPT Tobacco use Health history Age Marital status
Marital status
Which of the following examples pertaining to Social Security benefits is CORRECT? -Simon was a fully employed worker at the time of his death. His surviving spouse will receive a lump-sum death benefit of $2,250. -Lola, age 30, has a daughter, age 10. Her husband, who is covered under Social Security, died unexpectedly last month following surgery. Both Lola and her daughter are entitled to receive monthly survivor benefits until her daughter reaches age 18. -Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old. -Arlene, the 20-year-old daughter of a fully insured retired worker, becomes totally and permanently disabled from injuries received in a car accident. Because her disability occurred after age 16, Arlene is not eligible for her father's Social Security benefits.
Mason, who is married with one son, age 16, is a fully insured retired worker receiving Social Security benefits. In addition, his spouse is eligible for benefits at age 62 and his son is eligible for benefits until he is 18 years old. (The spouse of any worker eligible for retirement benefits is entitled to an old age income at a reduced amount starting at age 62. An unmarried child of a worker on retirement income is generally eligible to receive a monthly benefit until the child turns 18.)
In an employer group plan, what is the name of the policy issued to the employer? Certificate of insurance Certificate of authority Group contract Master contract
Master contract
The guaranteed insurability rider
May be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates, and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age of 40.
Term rider
May be used to customize a permanent life insurance policy to meet the needs of the policyowner
Which of the following mandated that insurance would be regulated by the states as well as made possible the application of federal antitrust laws? Paul v. Virginia McCarran-Ferguson Armstrong investigation U.S. v. Southeastern Underwriters
McCarran-Ferguson
Which of these is likely to occur when life or health insurance is being applied for? The Medical Information Bureau (MIB) will determine the risk classification The agent is required to report all medical information to the Medical Information Bureau (MIB) Physical examinations are required Medical history from the insured may be reviewed and reported
Medical history from the insured may be reviewed and reported
Lloyds of London
Members of this association form syndicates to underwrite and issue insurance-like coverage.
6 credits
Minimum number of credits required for partially insured status for Social Security disability benefits is
premium payment mode
Mode refers to the premium payment schedule and permits the policyowner to select the timing of premium payments. Insurance policy rates are based on the assumption that the premium will be paid annually at the beginning of the policy year and that the company will have the premium to invest (interest factor) for a full year. If the policyowner chooses to pay the premium more than once per year (example monthly, quarterly, semi-annually) there normally will be an additional charge because the company will have additional charges in billing and collecting the premium payments.
reserves
Money that together with future premiums, interest, and survivorship benefits will fulfill an insurance company's obligations to pay future claims.
Over the course of a year, which premium payment mode is most expensive? Monthly Quarterly Semi-Annually Annually
Monthly
Z falls from the roof of his house while fixing it and damanages his spinal column enough to render him disabled for a year. His insurance policy carries a Disabililty Income Benefit Rider. Which of the following benefits will Z receive?
Monthly premium waiver and monthly income The Disability Income Benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver of Premium rider, it allows the insurer to receive a weekly or monthly income during the disability period.
A qualified retirement plan is "top heavy" when More than 20% of participants are highly compensated More than 20% of annual additions are for key employee accounts Fewer than 60% of employees benefit by the plan More than 60% of plan assets are in key employee accounts
More than 60% of plan assets are in key employee accounts (A plan is considered to be top heavy if more than 60% of plan assets are attributable to "key employees" as of the last day of the prior plan year.)
What would be an expense factor in an insurance program? Premiums collected Mortality costs Opportunity costs Investment interest
Mortality costs
A policy summary
Must be delivered along with the policy and will provide the producer's name & address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value & death benefit figures for specific policy years.
The policy holders
Mutual company dividends are paid to who?
Who created an insurance code of ethics?
NAIFA and NAHU
Which entity has preserving state regulation of insurance as one of its objectives? American Council of Life Insurance National Association of Life Underwriters National Committee to Preserve the Republic National Association of Insurance Commissioners
National Association of Insurance Commissioners
All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT Agent's report Medical Information Bureau (MIB) Inspection reports National Association of Insurance Underwriters
National Association of Insurance Underwriters
Which of these requires an analysis of a family's financial needs and objectives should the breadwinner die or become disabled? Needs Approach Human Value Life Approach Human Needs Approach Human Value Needs Approach
Needs Approach (The needs approach requires an analysis of the family's financial needs and objectives should the breadwinner die or become disabled. Those needs are weighed against the ability of the family to meet them out of current or anticipated assets.)
The approach that is used to make life insurance recommendations, determines the total funds available to a family from all sources, and subtracts the amount needed to meet their financial objectives is known as the Human Life Value approach Needs approach Dollar Valuation approach Input-Output approach
Needs approach (The needs approach analyzes the family's financial needs and objectives should the breadwinner die or become disabled. These needs are then weighed against the ability of the family to meet them out of current or anticipated assets.)
Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE? Net death benefit will be reduced if the loan is not repaid No interest will be charged on loan balance Term life policies are the only type of insurance that allows policy loans A loan can be taken out for up to the face amount of the policy
Net death benefit will be reduced if the loan is not repaid
Graded benefits
No benefits or low benefits for the initial specified period. Benefits increase by specified amounts at specified intervals until they equal face amount. Premium charge is fixed.
A beneficiary has just received a claim payment for a life insurance policy. Which of the following is TRUE regarding the federal income tax liability owed? A flat tax of 10% is owed on all proceeds Federal income tax is owed if proceeds exceed $250,000 No federal income tax is owed on life insurance proceeds Tax liability owed depends on the type of life insurance policy
No federal income tax is owed on life insurance proceeds
That the cash value will not be lost
Nonforfeiture values guarantee which policyowner?
How are contributions made to a Roth IRA handled for tax purposes? Fully tax deductible Not tax deductible Partially tax deductible Conditionally tax deductible
Not tax deductible
Which of these is NOT considered to be a risk factor in life insurance underwriting? Number of children Health history Hobbies Occupation
Number of children
40
Number of credits required for fully insured status for Social Security disability benefits?
IN a Commerical General Liability policy, which of the following forms covers losses that occur, start or are discovered during the policy period, regardless of when the date is actually reported by the insurer?
Occurrence A clims made form provides coverage that occurs after a retroactive date and when a claim is made during the policy period. An occurrence form covers losses that start or are discovered during the policy period, regardless of when the date is actually reported and filed by the insured
What is the formal name for Social Security? Qualifed Age Survivors Disability Insurance Advanced Age Survivors Disability Insurance Retirement Age Survivors Disability Insurance Old Age Survivors Disability Insurance
Old Age Survivors Disability Insurance (The Social Security program, enacted in 1935 and administered at the federal level by the Social Security Administration, is more formally called OASDI. This acronym aptly identifies the types of protection provided under the program: "Old Age" (retirement), "Survivors" (death benefits), and "Disability Insurance".)
Social Security benefits
Old-age and retirement benefits, disability benefits, death benefits
"Not taxable" since the IRS treats them as a return of a portion of the premium paid.
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are
How do interest earnings accumulate in a deferred annuity? On a tax credit basis On a tax-deferred basis On a tax-free basis On a taxable basis
On a tax-deferred basis
Policy Issue and delivery
Once the underwriting process has been completed and the company issues the policy, the agent will deliver it to the insured. Although personal deliery of the insurance policy is the best method of finalizin the insurance trasaction, mailing the policy directly to the policy owner is acceptable. When the insurer relinquishes control of the policy by mailing it to the policyowner, policy is considred legally dlivered. However, it is advisable to obtain a signed delivery receipt.
Jan. 1st - March 31st.
Open enrollment for Medicare Part B is .....
Which explains the policy owner rights to change beneficiaries, choose options and receive proceeds of a policy?
Owner's rights
policy loan provision
PO has right to borrow from cash value with no legal obligation to repay the loan interest is added, varies in each state (usually 8%) partial surrenders are allowed with a universal life or a variable universal life policy if total indebtednedd equals or exceeds the cash value of the contract the policy will terminate (30 day notice) in whole life the PO can borrow up to 90% of cash value after it has been in force for 3 years min 75% must be made available
Two options for medical examination
Paramedical report done by a paramedic or a registered nurse, or an Attending Physician's Statement from a medical practicioner who treated the applicant for a prior medical problem.
Family health history, alcohol/tobacco consumption, and recent surgeries
Part 2 of the application for life insurance provides questions regarding all of the following..
65
Part C Medicare Advantage plan age is what?
Larry died in an automobile accident. His survivors are eligible for limited Social Security benefits. Larry's insured status was Partially insured Insured Conditionally insured Half insured
Partially insured (To be considered partially insured, a worker must have earned 6 credits during the 13-quarter period ending with the quarter in which the worker died.)
All of these are requirements of a group life plan EXCEPT A minimum number of participants are required The cost of the plan is dictated by average age of group Participants receive a certificate of coverage Participants are required to provide evidence of insurability
Participants are required to provide evidence of insurability
How is Social Security (OASDI) funded? Federal grants Sales taxes Treasury Bonds Payroll taxes
Payroll taxes (OASDI is supported by a payroll tax, paid by employees, employers, and self-employed individuals.)
Dividend options Cash option reduced premiums options accumulate interest option paid up additions option one year term option
Participating policies pay dividends to policyowners if the company's operations result in a divisible surplus. Recall that dividends are a return of overcharged premiums, and are therefore not taxable. Insurers typically pay dividends on an annual basis. • Cash Option: Take the cash • Reduced Premiums Option: Reduces premium payments • Accumulate Interest Option: Allows dividends to accumulate interest • Paid-Up Additions Option: Purchase single payment whole life coverage • One-Year Term Option: Purchase one-year term protection
Any form of life insurance
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?
What is an insurer required to do when faced with an error made under the Misstatement of Age provision? Cancel the policy Pay age-corrected benefits Pay full benefits as stated in the policy Bill the policyowner for back premiums
Pay age-corrected benefits
A business often buys life insurance on a key employee to: Take a tax deduction Pay estate taxes for the key employee Pay the remaining balance of the key employee's mortgage Pay for finding and training a replacement if the employee dies prematurely
Pay for finding and training a replacement if the employee dies prematurely (One reason for a business to purchase key person life insurance is to pay for finding and training a replacement if the employee dies prematurely.)
A prospective insurer 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
Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies? Waiver of premium Juvenile waiver Guaranteed insurability Payor benefit
Payor benefit
Multiple Protection Policie
Pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period has expired, only the policy face amount is paid. The period may be for a specified number of years - 10, 15, or 20 years or to a specified age such as 65. These policies are combinations of permanent insurance and level term insurance.
cash refund payout option
Pays a guaranteed income to the annuitant for life. If the annuitant dies before all the money is gone, a lump‐sum cash payment of the remaining funds are paid out to the annuitant's beneficiary.
installment refund payout optino
Pays a guaranteed income to the annuitant for life. If the annuitant dies before the money is gone, the beneficiary will continue to receive the same monthly installment payments.
Accidental Death Benefit Rider (multiple indemnity)
Pays an additional sum to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple the original benefit.
period certain payout option
Pays guaranteed income payments for a certain period of time, such as 10 or 20 years, whether or not the annuitant is living.
Joint and Full Survivor Payout Option
Pays out the annuity to two or more people until the last annuitant dies.
joint and full survivor payout option
Pays out the annuity to two or more people until the last annuitant dies. If one of them dies, the other will continue to receive the same income payments. There are two additional options made available with a joint and survivor payout: • Joint and two-thirds survivor: Survivor will have payments reduced to two‐thirds of the original payment. • Joint and one-half survivor: Survivor will have payments reduced to one‐half of the original payment.
Adverse Selection
People who have higher loss exposure have the tendency to purchase insurance more often, which is described as what?
What is an insurance policy's grace period? Period of time after the initial premium is paid and before the policy is issued Period of time it takes for a policy's underwriting to complete Period of time after a policy is issued and before it is delivered to policyowner Period of time after the premium is due but the policy remains in force
Period of time after the premium is due but the policy remains in force
An annuity
Periodic payments of accumulated funds best describes...
Guaranteed Insurability Rider (future increase option)
Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy.
Reinstatement
Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years.
Policyowner
Person entitled to exercise the rights and priveleges in the policy
Explaining the Policy
Personal delivery of the policy allows the agent an opportunity to make sure that the insured understands all aspects of the contract. Review of the contract with the insured involves pointing out provisions or riders that may be different than anticipated, and explaining what effect they have on the contract. In addition, the agent should explain the rating procedure to the client, especially if the policy is rated differently than applied for. The agent should also explain any other choices and provisions available toe the policy owner that may become active at this time.
What are blanket life policies? Policies that are mass-marketed Policies that cover everyone in a household Policies that are issued by the Guaranty Association covering multiple insurers Policies that cover a group of people exposed to a common hazard
Policies that cover a group of people exposed to a common hazard (Blanket life insurance covers a group of people exposed to a common hazard. Individuals do not need to apply for blanket coverage and insurers do not need to provide each person with a certificate of coverage. Insureds are not specifically named in the policy because coverage is temporary.)
Policy Loan Provision
Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.
Which situation accurately describes a reduced paid-up nonforfeiture option? Policy has a decreased face amount Face amount of the new policy equals that of the original policy Cash value is surrendered to policyowner Premiums must continue to be paid
Policy has a decreased face amount
Policy loans can be repaid at death, an insurer can charge interest on outstanding policy loans, A policy loan may be repaid after the policy is surrendered
Policy loans
Which of these is considered to be a document that describes the critical segments of a life insurance policy? Buyer's guide Policy summary Consumer report Buyer's summary
Policy summary
Universal life
Policy which allows the partial withdrawal, or surrender, of the policy cash value
Who is considered the owner of a mutual insurance company? Stockholders Policyholders Mutual fund shareholders Attorney in fact
Policyholders
Who receives dividends in a mutual insurance company? Policyholders Stockholders Beneficiaries Employees
Policyholders
During the accumulation period, who can surrender an annuity? Payor Annuitant Beneficiary Policyowner
Policyowner (The policyowner is the only one who can surrender an annuity during the accumulation period.)
Variable life insurance and Universal life insurance are very similar. Which of these features are held exclusively by variable universal life insurance? Policyowner may increase or decrease the premium payments Policyowner may increase or decrease the face amount Policyowner can contribute large sums of money Policyowner has the right to select the investment which will provide the greatest return
Policyowner has the right to select the investment which will provide the greatest return
When an agent collects the initial premium from the applicant, the agent should issue the applicant a...
Premium receipt
Which of the following statements regarding key person insurance is NOT correct? Key person life insurance indemnifies a business for financial loss caused by the death of a key employee or key executive. The business may borrow from the cash value of a permanent key person life insurance policy. The policy's death proceeds received by the business are not taxable. Premiums for a key person life insurance policy are a tax-deductible expense to the business.
Premiums for a key person life insurance policy are a tax-deductible expense to the business.
Which of the following statements is correct when comparing participating policies with non-participating policies? Premiums for participating policies are usually higher than for non-participating policies Dividends from participating policies are treated as taxable income, but dividends from non-participating policies are not The dividends on participating policies increase the value of the policyholder's stock, but non-participating dividends do not The guaranteed cash values in a participating policy are greater than in a non-participating policy
Premiums for participating policies are usually higher than for non-participating policies
Test topic
Premiums on group life insurance policies paid by an employer on face amounts up to $50,000 usually can be tax deducted by the employer
IN which of the following instances would the premium be tax dedcutible
Premiums paid on a 30,000 ife insurance group term life insuranc eplan for an employee
Test topic
Premiums paid on individual life insurance policies usually cannot be tax deducted
An insurer wants to obtain info on an applicant. What must insurer do?
Present the insured with a Disclosure authorization notice
spendthrift clause
Prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.
To determine financial strength of an insurance company
Primary purpose for a rating service company such as A.M best?
Provide death benefits
Primary reason for buying life insurance?
The applications
Primary source of insurance underwriting
immediate annuities
Purchased with a single lump sum payment, and will start providing income payments within the first year, but usually starting 30 days from the purchase date. It's purpose is to provide for liquidation of a principle sum. J • Commonly used to structure the payment of liability insurance settlements, lottery winnings, and other large sums • This type of annuity is usually called a Single Premium Immediate Annuity (SPIA)
Estate Conversion
Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called _______.
Annually Renewable Term
Purest form of term insurance; death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
Dana is an employee who deposits a percentage of her income into her individual annuity. Her company also contributes a percentage into a separate company pension plan. What kind of annuity is this considered? Qualified retirement annuity Key employee retirement annuity Executive compensation plan Keogh annuity plan
Qualified retirement annuity
An individual has been contributing to a retirement account after taxes are taken out of his paycheck. His financial advisor told him that he will be allowed to make contributions after 70 1/2 . The account holder does not have to pay taxes on the growth of his account. What type of retirement account is this?
ROTH IRA
Which one of the following is NOT covered by Social Security Self-employed worker Business owner Railroad worker Insurance salesman
Railroad worker
Individuals covered by Social Security include all of the following EXCEPT Small business owners State workers who are not covered by state pension plans Federal employees (after 1984) Railroad workers
Railroad workers (Railroad workers are covered under a separate federal program, the Railroad Retirement System.)
What is the primary feature of a viatical settlement? No interest on policy loans Reduced death benefit prepayment Longer contestable period Lower premiums
Reduced death benefit prepayment
All of the following are considered to be nonforfeiture options available to a policyowner EXCEPT Extended Term Insurance Cash Surrender Reduction of Premium Reduced Paid-Up Insurance
Reduction of Premium
A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due? Reduction of premium dividend option Extended term option Paid-up option Cash dividend option
Reduction of premium dividend option
An annuitant dies during the distribution period. What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made? Variable annuity Refund annuity Rebate annuity Return annuity
Refund annuity
Which of the following statements regarding types of insurers is NOT correct? Reinsurers usually deal with group policyowners. Mutual insurance companies are "owned" by their policyowners. Stock insurance companies seek a profit for their shareholders. Fraternal benefit societies must be nonprofit organizations.
Reinsurers usually deal with group policy owners. (Reinsurers make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the ceding company and the company assuming the risk is the reinsurer.)
A) Level death benefit with increased premiums
Renewable term insurance can be best described as what? A) Level death benefit with increased premiums B) Level death benefit with decreased premiums C) Decreasing death benefit with level premiums D) Increasing death benefit with level premiums
If an employee wants to enter the group outside the open enrollment period, the insurer may Require evidence of insurability Require a higher premium Require an extended open enrollment period Require physical exams on existing members
Require evidence of insurability (If an employee does not enroll in the plan during the enrollment period (typically 31 days), the employee may be required to provide evidence of insurability if enrollment is desired at a later date. This is to protect the insurer against adverse selection.)
Life expectancy
Result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors?
Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death? Active Status Results Leave
Results
Changing a Beneficiary: revocable vs. irrevocable
Revocable Beneficiary - The policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary. • Irrevocable Beneficiary - An irrevocable designation may not be changed without the written consent of the beneficiary. The irrevocable beneficiary has a vested interest in the policy, therefore the policyowner may not exercise certain rights (such as taking out a policy loan) without the consent of the beneficiary.
A policyowner who is also the insured wants to name her husband as the beneficiary of her policy. She also wishes to retain all of the rights of ownership. The policyowner should have have her husband named as
Revocable beneficiary
Nonparticipating
Stock insurers are called _____ insurers because policy holders don't receive dividends.
Avoidance
Risk ________ will remove the risk of losing money in the stock marker by never purchasing stocks.
Standard Risk
Risk described as average, no extra ratings or restrictions..
Substandard Risk
Risk described as high, rated up, and have higher premiums...
Declined Risk
Risk that is not insurable and has a potential of loss.
20%
Rollovers are subjected to ______% withholding tax if eligible rollover funds are received personally by a participant in a qualified plan.
Which of these retirement plans do NOT qualify for a federal income tax deduction? SIMPLE Plan Traditional IRA Keogh Plan Roth IRA
Roth IRA
Parol Evidence Rule
Rule that prevents parties in a contract from changing the meaning of a written contract by introducing oral or written evidence made prior to the formation of the contract but are not part of the contract.
Whole life policies, limited-pay policies, annuities
Rules of replacement apply to all of the following:
Which market index is normally associated with an indexed annuity's rate of return? NAIC SEC S & P 500 A & P 300
S & P 500
The Human Life Value Approach does not consider which of the following? Earnings Investments Occupation Savings
Savings
Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence? Section 1040 exchange Section 1035 exchange Nonforfeiture Option Spendthrift Option
Section 1035 exchange
Fraternal Benefit Societies
Special type of mutual companies/nonprofit religious, ethnic, or charitable organizations that provides insurance solely to their members.
Which of the following are the premium payments for a Universal life policy NOT used for? Death benefits Cash value Loading costs Separate account investments
Separate account investments
Homogeneous Exposure Units
Similar objects of insurance that are exposed to the same group of perils.
Which of the following determines the length of time that benefits will be received under the Fixed Amount settlement option?
Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option.
Which of the following does the FICA tax fund Social Security(OASDI) and Unemployment benefits Medicare and Railroad Retirement System benefits Unemployment and Medicaid benefits Social Security(OASDI) and Medicare benefits
Social Security (OASDI) and Medicare benefits (A majority of FICA tax is used to fund Social Security benefits. The remaining portion funds Medicare benefits.)
group permanent life
Some group life plans are permanent (whole life) plans, using some form of permanent or whole life insurance as the underlying policy. The most common types of permanent group plans are group ordinary, group paid-up, and group universal life.
Participating policy
Some life insurance policies, but not all, pay dividends. A life insurance policy that pays dividends is referred to as a participating policy. There is no tax on dividends paid to the policyowner on participating policies
Consideration
Something of value exchanged between the insurer and the insurer is considered....
What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured? Policy Dividend Specified amount of money Policy's cash value Funeral expense fund
Specified amount of money
Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors? Spendthrift Clause Protection Clause Viatical Clause Settlement Clause
Spendthrift Clause
Which plan can be used as an incentive by an employer to help an employee buy life insurance? Deferred compensation plan Key person insurance Sole proprietor buy-sell plan Split-dollar plan
Split-dollar plan (In a typical split-dollar plan, the employer and the employee share the premium cost.)
Guarantee Associations
State life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insureds in the event of insurer insolvency, or inability to pay claims up to a certain limit.
when the initial premium is not paid until the policy is delivered, the agent must also obtain a statement signed by the insured attesting to the insureds continued good health before leaving the policy with the insured called what?
Statement of Good health
A Material Misrepresentation
Statement that if discovered, would alter the underwriting decision of the insurance company. If material misrepresentations are intentional, they are considered fraud.
Representations
Statements made by the applicant believed to be true - (height, weight)
Warranties
Statements made by the applicant guaranteed to be true - (name, DOB)
Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies? Standard risk Preferred risk Unacceptable risk Substandard risk
Substandard risk
Rated
Synonym for a substandard risk classification
Admitted insurer
Synonym for authorized insurer
Primary carrier
T is covered by two health insurance plans: a group plan through his employer and his spouse's plan as a dependent. When T submits a claim, his employer's plan is considered what type of carrier under the Model Group Coordination of Benefits provision?
Payments earn interest and and grow tax deferred.
The "accumulation period" is the period of time over which the annuitant makes payments (premiums) into an annuity.
Annuity owner
The "owner" is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant or the beneficiary.
Standard, substandard, and preferred
The 3 risk classifications used by underwriters for life insurance
Insurance companies from adverse selection by high risk persons
The Medical Information Bureau (MIB) was created to protect...?
In determining Social Security retirement benefits, which of the following statements is CORRECT? Average monthly wages (AMW) are adjusted for inflation. The Primary Insurance Amount (PIA) determines the worker's average indexed monthly earnings (AIME). The PIA is a determination of the amount equal to the worker's full retirement benefit at the worker's full retirement age. Workers retiring past age 59 can receive 100% of their PIA.
The PIA is a determination of the amount equal to the worker's full retirement benefit at the worker's full retirement age. (The Primary Insurance Amount (PIA) is the amount equal to the worker's full retirement benefit at age 65. )
USA PATRIOT Act/Anti-Money Laundering
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as the USA PATRIOT Act was enacted on October 26, 2001. The purpose of the Act is to address social, economic, and global initiatives fo fight and prevent terrorist activities. The Act enabled the Financial Crime Enforcement Network (FinCen) to require banks, broker-dealers, and other financial intitutions to establish new anti-money laundering (AML) standards.
Accumulation at Interest
The annual dividend is retained by the company, the interest is credited at a rate specified by the policy, and the policyholder has the right to withdraw the accumulations at any time
Variable annuities
The annuitant assumes the risks on investment
Which of these statements regarding the annuitant is CORRECT? The contract can only be assigned by the annuitant The annuitant is the only individual who can surrender the contract The annuitant must also be the beneficiary The annuitant's life expectancy determines the annuity payments
The annuitant's life expectancy determines the annuity payments
Situation one when a policy is executed
The application including the required medical report or physical is completed, the premium is paid, and a conditional receipt is issued, then the policy takes place immediately
Situation two when a policy is executed
The application is completed, no premium paid and no receipt issue, the policy takes effect... When the policy is personally delivered If the insured is still in good health and the premium is paid
Apparent
The authority that deals with the relationship between the insurer, the agent, and the customer and is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.
Grace period
The automatic premium loan provision is activated at the end of the...
Which is NOT true about beneficiary designations
The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have interest in the policy holder.
Which of these is NOT a characteristic of the Accelerated Death Benefit option? The face amount and policy premium are not affected by the payment Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal illness There may be a dollar limit on the maximum benefit The benefit can be offered as a rider at a specific extra cost or may be at no cost
The benefit can be offered as a rider at a specific extra cost or may be at no cost
Binding Recepit
The binding receipt or the temporary insurance agreement provides coverage from the date of the application regardless of whether the applicant is insurable. Coverage usually lasts for 30 to 60 days, or until the insurer accepts or declines the coverage. Binding receipts are rarely used in life insurance, and are primarily used in auto and homeowners insurance.
Irrevocable Beneficiary
The can be changed only with the written consent of that beneficiary
Performance or the policy portfolio
The cash value of a variable life policy is not guaranteed and fluctuates with the_________________ in which the premiums have been invested by the insurer.
Incontestable Clause
The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed.
The amount and frequency of premium payments
The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about..
Is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.
The consideration clause states that the value offered by the insured...
James is the insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount? The original face amount will be paid to the beneficiary The policy will be voided with no death benefits paid The death benefit paid will be what the premium would have purchased at the correct age The amount of premiums paid will be returned with interest
The death benefit paid will be what the premium would have purchased at the correct age
Annually Renewable Term
The death protection component of Universal Life Insurance is always..
Annually Renewable Term
The death protection component of Universal Life Insurance is always....
Apparent Authority
The deeds and actions of a producer indicates what authority?
Blanket health policies do not issue certificates
The difference between group insurance and blanket health policies is
One-year Term option
The dividend option in which the policyowner used dividends to purchase a term policy for one year is referred to as the...
Accident
The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n) _________.
Employee's coverage paid for by the employer is tax-deductible to the employer as a business expenditure
The federal income tax treatment of employer-provided group health insurance can be accurately described as
All of the following are types of insurance policy exchanges that can be made without current taxation EXCEPT: The exchange of an annuity for a life insurance policy The exchange of a life insurance policy for an annuity An annuity exchanged for another annuity contract A life insurance policy exchanged for another life policy
The exchange of an annuity for a life insurance policy (The 1035 exchange does not allow for an annuity to be exchanged for a life insurance policy. This is not considered an equal exchange and will be taxed.)
What does the word "level" in Level Term describe? The period of coverage The face amount The premium payments The cash value
The face amount
Krissa purchases a 10-year level term life insurance policy that has a death benefit of $200,000. Which of these statements is true? The policy automatically converts to whole life after the 10-year period The face amount will remain constant and the premium will increase over the 10-year period The premium will remain constant and the face amount will increase over the 10-year period The face amount and premium will remain constant over the 10-year period
The face amount and premium will remain constant over the 10-year period
Loss of income
The face amount of life insurance is determined as a multiple of income (such as 5,6,7,8 times income) depending on the age of the insured's children, the insured's family circumstances, other benefits such as employment provided group insurance benefits, and social security benefits
When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? The income earner's future projected income The family's financial objectives if the income earner were to die or become disabled The insurance company's financial rating The income earner's credit score When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach? The income earner's future projected income The family's financial objectives if the income earner were to die or become disabled The insurance company's financial rating The income earner's credit score
The family's financial objectives if the income earner were to die or become disabled
Offer & Acceptance, consideration, competent parties, and legal purpose
The four essential elements of all legal contracts:
10
The free-look period provided in a life insurance policy is usually ______ days.
A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the life insurance policy?
The full death benefit War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured dies of any other cause.
Which of the following would be a valid reason why a policy premium would be higher than the standard premium? The insurer is not a member of the MIB The agent quoted the wrong price The insured does not have the necessary financial reserves The insured does not meet established underwriting requirements
The insured does not meet established underwriting requirements
Face amount of the policy, the beneficiary's life expectancy, and projected interest rates.
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following:
Who assumes the investment risk with a fixed annuity contract? The owner The annuitant The insurer The beneficiary
The insurer (It is the insurance company that bears the investment risk of a fixed annuity. The insurance company guarantees the annuitant's principal as well as a guaranteed minimum rate of return, even if the underlying assets underperform the guaranteed rate.)
How is it determined whether an insurer is allowed I write business in a state?
The insurer's domicile of location of incorporation will determine whether a company is domestic, foreign, or alien
nonforfeiture clause option
The insurer's surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
Annually Renewable Term
The least expensive first year premium payment is found in..
Estoppel
The legal process of preventing one party from reclaiming a right that was waived.
Incontestability clause
The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the?
When the income payments begin
The main difference between immediate and deferred annuities is...
Conditional Receipt
The most common type of receipt, which is used only when the applicant submits a prepaid application. The conditional receipt says that the coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for. This rule will not apply if a policy is declined, rated, or issued with riders excluding specific coverages.
Receive a policy loan, assign the policy, and designate a beneficiary.
The ownership provision entitles the policyowner to do what?
Receive a policy loan, assign the policy, designate a beneficiary
The ownership provision entitles the policyowner to...
Purchase a smaller amount of the same type of insurance as the original policy
The paid-up addition option uses the dividend to..
The annuitant assumes the risks on investment.
The payments that that annuitant invests into the variable annuity are invested in the insurer's separated account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds".
Grace Period
The period of time policyowners are allowed to pay an overdue premium during which the policy remains in force, usually 30 days. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy less any required premiums.
Beneficiary
The person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.
Owners Right Provision
The person who may name and change beneficiaries, select options available under the policy and receive any financial benefits from the policy is described as what provision?
General requirements of a qualified plan
The plan must be communicated to all employees, the plan must be for the exclusive benefits of the employees and their beneficiaries, the plan must be permanent, written and legally binding
Suicide Clause
The policy will be voided and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.
Reduced Paid-up Nonforfeiture option
The policy will have a decreased face amount under what option?
fixed business expenses
The reason for a business having a Business Overhead Expense Disability Plan is to cover
Which of the following does a life insurance policy summary normally include? The policy's cash value Agent's report Policyowner's MIB report Stated beneficiary
The policy's cash value
Whole life policy
The policyowner is entitled to policy loans
Power of compounding interest
The policyowner makes continuing contributions and does not withdraw moneys during the accumulation period. This allows the value of a life insurance company issued annuity to increase at a fast rate during the accumulation period
Policy assignment
The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment)
Policy assignment
The policyowner may assign a part of the policy or the entire policy.
Which of the following statements describes an insurable interest? * The policyowner must expect to benefit from the insured's death. * The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.) * The beneficiary, by definition, has an insurable interest in the insured. * The insured must have a personal or business relationship with the beneficiary.
The policyowner must expect to suffer a loss when the insured dies or becomes disabled. (The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.)
The policy contains sufficient cash value to cover the cost of insurance.
The policyowner of a Universal Life Policy may skip paying the premium and the policy will not lapse as long as..
The policy contains sufficient cash value to cover the cost of insurance
The policyowner of a Universal Life Policy may skip paying the premium and the policy will not lapse as long as...
The death benefit can be increased by providing evidence of insurability.
The policyowner of an adjustable life policy wants to increase the death benefit. In order to to do that, what may happen?
The death benefit can be increased by providing evidence of insurability.
The policyowner of an adjustable life policy wants to increase the death benefit. What is the result of this?
Reduction of premium
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?
Level Premium Funding
The policyowner pays more in the early years for protection to help cover the cost in later years, which allows the premiums to remain level throughout the life of the policy. The shorter the premium-paying period , the higher the premiums, and vice versa.
Interest only option
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. What settlement option should the policyowner choose?
Tax deductible by the employer
The premiums paid by the employer in a business life insurance policy are
Tax deductible by the employer
The premiums paid by the employer in a business life insurance policy are...
The annuitant is a natural person
The president of a company is starting an annuity and decides that his corporation will be the annuitant. It can happen just as long as..
A non qualified annuity plan
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unavailable to lower-echelon employees. This plan would be funded with before-tax corporate dollars, and it does not meet government approval standards. This annuity plan is...
Retirement Income
The principle use for an annuity is to provide ______.
Conditional Receipt
The producer issues a conditional receipt to the applicant when the application and premium are collected. The conditional receipt denotes that coverage will be effective once certain conditions are met. If the insurer accepts the coverage as applied for, the coverage will take effect from the date of the application or medical exam, whichever is later.
The existing and replacing insurer are the same and the transaction involves credit for life insurance
The protocol for replacement does not apply to which of the following situations?
Entire contract
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the..
Key Person Insurance
The purpose of _____________ is to prevent the financial loss that may ensue when an owner, officer or manager dies.
Help protect policy owners and beneficiaries against financial loss caused by the insolvency of an insurance company
The purpose of the Tennessee Guaranty Association is to
Misstatement of Age provision
The purpose of the misstatement of age provision is to allow the insurance company to issue the policy without proof of age or sex
Which is true about the spouse term rider
The rider is usually level term insurance
Assignment Clause
The right to transfer policy rights to another person or entity. • Absolute assignment: When the assignee receives full control of the policy and rights to the policy benefits from the current policyowner. • Collateral assignment: The partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan with a creditor. Free Look: The policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.
Who were Keogh plans designed to provide pension benefits for? Corporate officers Public school employees The self-employed Government employees
The self-employed
The statement which best describes the relationship between the premiums of a whole life policy and the premium payment period is The shorter the payment period, the lower the premium The longer the payment period, the higher the premium The shorter the payment period, the higher the premium The payment period has no affect on the premium payment
The shorter the payment period, the higher the premium
An IRA owner names the spouse beneficiary. What is true if the owner dies before any distributions are made? All future distributions are forfeited The surviving spouse can roll the account into an IRA Distributions must begin within six month of the decedent's death. Distributions must begin in the year after the deceased would have reached age 70 1/2.
The surviving spouse can roll the account into an IRA (A surviving spouse who inherits IRA benefits or benefits from the deceased spouse's qualified plan is eligible to establish a rollover IRA in the surviving spouse's own name.)
The exclusion ratio
The taxable and nontaxable portions of annuity payments are determined by what?
All the following statements regarding survivor financial needs are correct EXCEPT The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security The period for which there are no Social Security benefits for the surviving spouse is known as the blackout period A final expense fund addresses a deceased breadwinner's last illness and funeral costs, death taxes, outstanding debts, and more A housing fund addresses a family's rental or home mortgage needs
The term dependency period refers to the 20-year period immediately following the insured's death during which the widowed spouse must depend on Social Security (This is an inaccurate statement. The dependency period refers to that period following the death of a breadwinner during which the children are living at home.)
Absolute and Collateral
The two types of assignments are?
Convertible term policy
The type of policy that can be changed from one that does not accumulate cash value to the one that does, is a...
Joint and survivor
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called?
31
The typical grace period for a policy on a semi annual basis is how many days?
Implied Agent Authority
The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement (otherwise unwritten in the contract).
Implied
The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreements.
2 years
The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years?
Face amount
The word "level" in level term is described as the what?
Increasing Term is a type of TERM INSURANCE
There are several types of whole life polices. The first three, Straight life, limited payment, and single premium, are the basic forms of whole life.
Which of the following statements regarding ways to determine the proper amount of life insurance is CORRECT? The most popular method today for determining the proper amount of life insurance is the human life value approach. When using the needs approach to determine the proper amount of life insurance to purchase, non-insurance-type assets, such as pension benefits or personal savings, are not factors in the calculation. The needs approach considers only the most immediate financial concerns without regard for family financial goals, such as college education for children or retirement income for a surviving spouse. There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach.
There are two basic approaches to determining the amount of life insurance that is needed: the human life value approach and the needs approach. (The human life value approach and the needs approach are the two basic approaches to determining the amount of life insurance needed.)
Beneficiary qualifications
There are very few restrictions on who may be named a beneficiary of a life insurance policy. The policyowner is the ultimate decision maker. However, in the underwriting process, the underwriter may consider the issue of insurable interest. When the policyowner lists themselves as the beneficiary, they will require proof of insurable interest.
Key Person Insurance
There is no limitation on the number of key employee plans in force at any one time, the employer is the owner, Payor and beneficiary of the policy, the key employee is the insured.
Test topic
There is no tax on the cash values that are equal to or less than premiums paid aka cost basis. If cash value received upon policy surrender exceed premiums that were paid, there will be tax only on the gain
Test topic
There is usually no tax on the benefits paid to the beneficiary at the insureds death
Family Plan Policies
These are designed to insure all family members under one policy. Usually the family head is covered by permanent (whole life) insurance and the spouse/children are included on the same policy as level term life riders (family term riders) . The term coverage on the spouse and children are normally convertible to permanent coverage without evidence of insurability. Husband - Whole Life Policy o Wife (spouse) - Term Policy - convertible without proof of insurability o Children - Term Policies - convertible usually at age 18 or 21 without proof of insurability; premium remains same regardless of the number of children
group credit life
These are set-up by banks, finance companies, etc. in case the insured dies before a loan is repaid. Policy benefits are paid to the creditor and used to settle the loan balance. The premiums are usually paid by the borrower. A decreasing term policy is commonly used.
Taxation of accelerated benefits under a life insurance policy
They are tax free to terminally ill insured
Life settlements
They could be sold for an amount greater than the current cash value, they involve insurance policies with large face amounts, they could be use for a key person coverage
Which of the following statements regarding deferred compensation plans is CORRECT? A deferred compensation plan must always be designed as a qualified plan. Life insurance is not a permissible funding vehicle, but annuities are. They permit a business to provide extra benefits to officers, executives, and other highly paid employees. A deferred compensation plan must be made available to all employees who are at least 21 years old and have 1 year of service to the business.
They permit a business to provide extra benefits to officers, executives, and other highly paid employees. (Deferred compensation is an arrangement whereby an employee (or owner) agrees to forgo some portion of his or her current income (such as annual raises or bonuses) until a specified future date, typically retirement.)
Fair Credit Reporting Act
This Act outlines the applicants right to information, which includes... 1. The right to the name and address of the inspecting firm 2. The right to see the inspection report 3. The right to have the medical information sent to his or her physician 4. But NOT the right to receive a physical copy of the report
Misstatement of Age provision
This provision states that if the insured has misstated his age or sex to benefit from low premiums, the insurance company can reduce benefits to what they would be with the persons correct information *This provision applies after two years
Payor benefit rider
This rider will not cause the death benefit to increase
group whole life
Though not as common, group whole life offers permanent protection for insured members under the group. Note: The most common types of Group Permanent (whole life) plans are: Group Ordinary, Group Paid-Up, and Group Universal Life
Three individuals form a partnership with equal shares valued at $300,000. If they were persuaded to use an "entity" buy-sell plan funded with life insurance, how many policies and for what amounts would be purchased? One policy for $100,000 Three policies for $200,000 each Three policies for $100,000 each Six policies for $50,000 each
Three policies for $100,000 each
Transfer of risks
Through insurance individuals transfer to insurance companies financial risks they cannot individually afford. Insurance companies can accept for insured risks insureds cannot individually afford by charging a small premium to a large group of people. The premium is small compared to the size of the financial risk transferred.
Test topic
Through life insurance policies, which are issued by life insurance companies, insureds transfer to insurance companies the financial risks of premature death in a defined amount
The annuity period
Time during which accumulated money is converted into an income stream
Buyer's guide purpose
To allow the consume to compare the costs of different policies
15 days
To appoint a producer as it's agent, the appointing insurer must file a notice of appointment with the commissioner within how many days from the date the agency contract is executed?
6 credits
To attain currently insured status under Social Security, a worker must have earned at least how many credits during the last 13 quarters?
Insurable Interest
To buy an insurance policy, a person must be in a position where he/she will lose money should loss occur
What is the purpose of the Medical Information Bureau (MIB)? To accept or decline insurance applicants To set the premium rates for insurers To help underwriters evaluate risk To perform physical examinations on applicants
To help underwriters evaluate risk
What is the purpose of insurance? To replace the uncertainty of risk with guarantees To replace guarantees with the certainty of risk To remove the possibility of loss To remove the predictability of loss
To replace the uncertainty of risk with guarantees
Straight life policy
Traditional level premium contract..
Graded Whole Life
Under a typical graded premium life insurance policy, the premium increases yearly for a stated number of years, then remains level. Premiums continue to stay level for the remainder of the policy. For example, a policy can start out low in a graded whole life and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy.
Benefit payment amounts are not guaranteed
Under a variable annuity, the issuing insurance company does not guarantee a minimum interest rate or the benefit payment amounts.
Respond to the consumer's complaint.
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must...
90 days, 6 months
Under the Waiver of Premium Rider, the disability must be total and permanent and have sustained through the waiting period of how many days/months?
Both the principal and interest are liquidated together over the selected period of time
Under the fixed-period option, a specified period of years is selected, and equal installments are paid to the recipient.
Cash surrender
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined? Adverse calculation Underwriting Risk classification Actuarial determination
Underwriting
why use underwriting
Underwriting is the process used by an insurance company to determine whether or not an applicant is insurable and if so, how much to charge for premiums. The underwriter will utilize several different types of information in determining the insurability of the individual. This is called risk classification. Material facts can affect an applicant being accepted or rejected.
Social Security benefits include all of the following, EXCEPT Unemployment benefits Disability benefits Retirement benefits Medicare benefits
Unemployment benefits
When a wage earner dies, the surviving family may have all of the following expenses EXCEPT Final expenses Unemployment tax liabilities Family living expenses Death taxes
Unemployment tax liabilities
Joe has a life insurance policy that has a face amount of $300,000. After a number of years, the policy's cash value accumulates to $50,000 and the face amount becomes $350,000. What kind of policy is this? Increasing Term Life policy Nonparticipating policy Modified Whole Life policy Universal Life policy
Universal Life policy
Universal Life Option A
Universal life option A (Level Death Benefit Option) Policy must maintain a specified "corridor" or gap between the cash value and the death benefit, as require by the IRS.
2 years
Unless revoked or suspended how long does a producers license remain in effect in Tennessee?
Rollover contributions to an individual retirement annuity (IRA) are Limited to 15 percent of the participant's compensation Limited to $2,000 per year Limited to $35,000 per year for married parties Unlimited by dollar amount
Unlimited by dollar amount
Statement of good health, payment of premium, and delivery receipt.
Upon policy delivery, the producer may be required to obtain?
A good health statement
Upon policy delivery, what must have an applicants signature if no initial premium was collect?
Reinstatement provision
Upon policy reinstatement to pay all overdue premiums with interest before the policy is reinstated
30 days
Upon receipt of notice of appointment, the commissioner must verify the insurance producer is eligible for appointment within how many days?
The beneficiary will only receive payments of the interest earned on the death benefit.
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
Which type of policy combines the flexibility of a universal life policy with investment choices? Adjustable universal life policy Flexible universal life policy Variable universal life policy Modified universal life policy
Variable universal life policy
Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested? Adjustable life policy Variable universal policy Universal policy Modified whole life policy
Variable universal policy
A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract? Viatical settlement agreement Funding medium agreement Split dollar plan Buy-sell plan
Viatical settlement agreement
All of the following riders can increase the death benefit amount EXCEPT Cost of Living Waiver of Premium Accidental Death Rider Guaranteed Insurability
Waiver of Premium
Waiver of Premium Rider
What allows the policy owner to waive premium payments during a disability and keeps the policy in force?
A partial surrender
What allows the policy owner to withdraw the policy's cash value interest free?
Deferred Annuity
What annuity accumulates interest earnings on a tax-deferred basis?
Life Only
What annuity payout option makes no additional payments regardless of when the annuitant dies?
Hazards
What are events or conditions that increase the chances of an insured's life?
Workers compensation
What are examples of a business use of life insurance?
Representations
What are statements made by the applicant BELIEVED to be true? (height, weight)
Warranties
What are statements made by the applicant guaranteed* to be true? (name, DOB)
Level, Increasing, & Decreasing
What are the three basic types of term coverage available, based on how the face amount (death benefit) changes during the policy term:
Insurance and cash account
What are the two components of a universal policy?
Reciprocal Insurers
What are unincorporated groups of individual members that provide insurance for other members through indemnity contracts?
Coverage until death or age 100.
What characteristic makes whole life permanent protection?
Blanket Life
What covers a group of people exposed to a common hazard?
The earnings in the plan accumulate tax deferred
What describes the tax advantage of a qualified retirement plan?
Recipient's life expectancy and amount of principal
What determines the amount of each installment paid in a life income option arrangement?
The performance of the policy portfolio
What determines the cash value of a variable life policy?
Size of each installment
What determines the length of time that benefits will be received under the fixed-amount settlement option?
Face amount
What does "level" refer to in level term insurance?
Prescription drugs
What does Medicare Part D cover?
In forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriter approves coverage and issues a policy
Secondary payor to reduce their benefit payment so you are not overpaying
What does coordination of benefits allow?
Explains some cost that may not be covered
What does the "Notice to Buyer" page say on the long-term policy?
Those who have been insured under the plan for at least 5 years
What employee insured under a group life plan would be allowed to convert to individual insurance of the same coverage once the plan is terminated?
Owner's rights
What explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
Medicare In-House Deductible
What gap in medicare coverage is addressed with medicare supplement insurance?
It is taxable
What happens to interest earned if the annuitant dies before the payout start date?
It remains the same no matter how many children are added to the policy
What happens to the premium on the children's rider in a life insurance policy?
It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age
What happens when a children's rider is added to an insured's permanent life insurance policy?
Coverage ends and the policy cannot be reinstated
What happens when a policy is surrendered for its cash value?
The amount of premium payment
What information will be stated in the consideration clause of a life insurance policy?
Collateral
What involves a transfer of partial rights to another person?
Insurance Contract
What is a legally binding agreement between two or more parties, where a promise of benefits is exchanged for a consideration?
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company.
What is a material misrepresentation?
The accumulation of interest
What is a taxable dividend option?
Mutual
What is a type of insurer that is owned by its policy owners?
Keogh
What is an IRS qualified retirement program for the self-employed?
Representations
What is an applicants statements concerning occupation, hobbies, and personal health history?
Split-Dollar Plan
What is an arrangement where an employer and an employee share in the cost of purchasing a life insurance policy on the employee?
The accelerated death benefit
What is considered to be a living benefit option in a life insurance policy?
Employees receive individual policies
What is correct concerning a non contributory group plan:
Premiums are not tax deductible as a business expense.
What is correct concerning the taxation of premiums in a key-person life insurance policy?
Premiums are not tax-deductible as a business expense
What is correct concerning the taxation of premiums in a key-person life insurance policy?
Self-Funded Plan
What is described as a plan in which an employer pays insurance benefits from a fund derived from the employers current revenue?
Rollovers
What is described as a transfer of funds from one IRA or qualified plan to another?
Liquidity
What is described as an insurers ability to make unpredictable payouts to its policy owners?
Fraud
What is described as an intentional misrepresentation or concealment of material fact made by one party in order to cheat another party out of something that has economic value?
Simplified Employee Plans (SEP's)
What is described as arrangements where an employee establishes and maintains an IRA to which the employer contributes?
Risk Pooling
What is described as spreading risk by sharing the possibility of loss over a large number of people?
Term Life Insurance
What is described as temporary life insurance provided for a specific period of time?
Absolute Assignment
What is described as the permanent and total transfer of all the policy rights?
An S-Corp owner with a greater than 2% share
What is ineligible to participate in a section 125 plan?
Concealment
What is intentional withholding of material facts that would affect an insurance policy validity?
Participating Life Insurance Policy
What is issued by a mutual insurer and provides a return of divisible surplus?
Straight Life Option
What option will pay a specific amount for the remainder of the annuitant's life and provides the highest monthly benefit for an individual annuity?
When the application is given to a prospective insured.
What is not a consideration in a policy?
Worker's Compensation
What is not an example of a business use of life insurance?
Incontestable Clause
What is protects a policy owner from a misrepresentation caused by his or her own innocent mistake?
Recommending appropriate laws and regulations as well as Advertising Code and Unfair Trade Practice Act
What is the National Association of Insurance Commissioners responsible for?
The original age is used for premium determination
What is the advantage of reinstating a policy instead of applying for a new one?
To create an estate
What is the best reason to purchase life insurance rather than annuities?
Common disaster clause
What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?
Policy Summary
What is the document that describes the critical segments of a life insurance policy?
1
What is the min. number of employees needed for a small business medical expense plan in Louisiana?
18
What is the minimum required age for an insurance producer in this state?
Viator
What is the name of the insured who enters into a viatical settlement
Old age survivors disability insurance
What is the official name for the Social Security program?
Pure Risk
What is the only insurable risk and presents a potential for loss only with no possibility of gain, such as injury, illness, and death?
Lump sum
What is the other term for the cash payment settlement option?
Wages
What is the primary factor that determines the benefits paid under a disability income policy?
Reduced death benefit prepayment
What is the primary feature of a viatical settlement?
Retirement
What is the primary purpose of a 401(k) plan?
To explain features and benefits of a proposed policy to the consumer.
What is the purpose of a disclosure statement in life insurance policies?
To provide a guaranteed income for a certain amount of time
What is the purpose of a fixed-period settlement option?
It allows the insured to reject the policy with a full refund
What is the purpose of a free-look period in insurance policies?
To keep the policy in force
What is the purpose of establishing the target premium for a universal life policy?
75%
What is the required percentage of participants in a contributory group plan?
Change of Occupation provision
When an insured changes to a more hazardous occupation, which disability policy provision allows an insurer to adjust policy benefits and rates?
Mode
What is the term for how frequently a policyowner is required to pay the policy premium?
Straight Life
What is the type of whole life insurance that has a level face amount and fixed premiums payable over the insured's entire life?
Limited Pay Life
What is the type of whole life insurance that is covered for your entire life but premiums are paid for a limited time?
The rider is usually level term insurance
What is true about a spouse term rider?
Trusts can be valid beneficiaries, the beneficiary may be a natural person, and the policy does not have to have a beneficiary named in order to be valid
What is true about beneficiary designations?
Buy-Sell agreements are normally funded with a life insurance policy
What is true concerning a buy-sell agreement?
Funds exceeding the premium paid are taxable as ordinary income.
What is true of the cash surrender nonforfeiture option?
They could be used for a key person coverage, they could be sold for an amount greater than the current cash value, they involve insurance policies with large face amounts.
What is true on life settlements?
Earnings grow tax deferred, contributions are not currently tax deductible, it can discriminate in benefits and selecting participants
What is true regarding a non-qualified retirement plan?
They are tax free to terminally ill insured
What is true regarding taxation of accelerated benefits under a life insurance policy?
They are tax-free to terminally ill insured
What is true regarding taxation of accelerated benefits under life insurance policy?
Joint Policy
What is written on one contract for two people and is payable on the first death?
Participating Life Insurance Policy
What kind of insurance policy issued by a mutual insurer provides a return of divisible surplus?
Both life insurance and a securities license
What license or licenses are required to sell variable life annuities?
Life income with period certain
What life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?
Exclusion
What limits a company's liability to provide insurance coverage?
Only the insurer is legally bound
What makes an insurance policy an unilateral contract?
Buyer's Guide and Policy Summary
What must be presented before an applicant submits a premium?
Deferred compensation option
What option enables an employee to defer their current receipt of income and have it paid at a later date?
Option B
What option for Universal Life allows the beneficiary to collect both the death benefit and cash value upon the death of the insured?
100%
What percentage of a company's employees must take part in a noncontributory group life plan?
401(k)
What plan allows employer to make tax-deferred contributions to the participant?
Insuring Clause
What policy component contains the company's promise to pay?
Face amount
What policy component decreases in decreasing term insurance?
Survivorship Life Insurance
What policy is helpful in estate planning because it provides funds to help pay taxes?
Universal Life- Option A
What policy would have an IRS required corridor or gap between the cash value and the death benefit?
Annual
What premium payment mode will incur the lowest overall payment?
Speculative Risk
What presents the chance for both loss and gain? Ex. Gambling
Spendthrift Trust Clause
What protects proceeds from the beneficiaries creditor?
Automatic premium loan
What protects the insured from an unintentional policy lapse due to a nonpayment of premium?
Fixed Annuities
What provides a fixed guaranteed payout, payments that do not vary from one payment to another and guaranteed min. rate of interest?
Life Annuity Certain
What provides a guaranteed min. number of benefit payments, whether the annuitant lives or dies?
Annuity
What provides income for a specific number of years or for life and protects a person against outliving their money?
Non-forfeiture Provision
What provision allows a policy owner to terminate the policy in return for a reduced paid-up policy of the same type?
Debtor in Creditor
What relationship is not an example of insurable interest?
Consumer reports
What reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources?
Grace period
What required provision protects against unintentional lapse of the policy?
Roth IRA
What retirement plan does NOT qualify for a federal income tax deduction?
Roth IRA
What retirement plan does not qualify for federal income tax deduction?
Suicide is excluded for a specific period of years and covered thereafter.
What statement about a suicide clause in a life insurance policy is true?
Buy-sell agreements are normally funded with a life insurance policy
What statement is true concerning buy-sell agreements?
McCarran Ferguson Act
What states that while the federal government has authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level.
Life expectancy
What term means a result of calculation based on the average number of months the insured is projected to live due to medical history and mortality factors?
Life Annuity
What type of annuity stops all payments upon the death of the annuitant?
Express Authority
What type of authority gives an agent authority in writing?
Whole life
What type of insurance policy would perform the function of cash accumulation?
Policy summary
What usually includes information about premium amounts, cash values, surrender values, and death benefits for specific policy years?
Mortality Cost
What would be an expense factor in an insurance program?
Buy-Sell agreement
What would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount?
Keogh Plans
What's the plan for self-employed people such as doctors, farmers, lawyers, or other sole proprietors?
Has a tax benefit for both employer and employee
What's true of a qualified plan?
Interest only
When a beneficiary receives payments consisting of both principal and interest portions, which part are taxable as income?
Risk Pooling: (Loss sharing)
When a large group of people spread a risk for a small certain cost. It transfers risk from an individual to a group.
Equal to the original policy for as long a period of time that the cash values will purchase
When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount
Equal to the original policy for as long as a period of time that the cash values will purchase
When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount..
Contract of Adhesion
When a persons only options for a contract are on a take it or leave it basis; prepared only by the insurer.
Test topic
When a policy owner, while still alive, terminates a cash value life insurance policy, surrenders it to the insurance company and receives the proceeds, he/she is usually considered to be first recovering the cost basis in the cash value life insurance policy
Nonforfeiture Options
When a policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining he must use one of the following nonforfeiture options:
Defamation
When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of?
GAINS
When a qualified plan starts making payments to its recipient, which portion of distribution is taxable?
All of these statements concerning whole life insurance are false EXCEPT Policyowner can take out a policy loan up to the face amount When a whole life policy is surrendered, income taxes may be owed Coverage is normally temporary The death benefit is not affected by outstanding loans
When a whole life policy is surrendered, income taxes may be owed
Purchase a single premium policy for a reduced face amount
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be use to..
Changes on an application
When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase or white out on an application for insurance.
31 days
When an employee terminates coverage under group insurance policy, coverage continues in force for how long?
When withdrawn
When are traditional IRA's taxable?
Conditional
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is..
After the first premium payment is paid
When does an immediate annuity begin making payments?
When does a life insurance policy typically become effective? * When the policy is issued * When initial premium is collected and policy is issued * When the application is completed and signed * When the completed application is signed and initial premium is collected
When initial premium is collected and policy is issued
When the application is signed and a check is given to the agent.
When is the earliest a policy may go into effect?
When death occurs within a specified period of time after the policy was issued
When may an insurance company use suicide as a defense against paying a death claim?
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
The earliest a policy may go into effect?
When the application is signed and a check is given to the agent
Fixed amount
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?
Fixed amount
When the policyowner specifies dollar amount in which installments are to be paid, he/she has chosen which settlement option?
Discrimination
When twin brothers applied for life insurance from company a, the company found that while neither of them smoke and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered?
When the insured reaches age 100
When would a 20-pay whole life policy endow?
When the insured reaches age 100. "A limited-pay whole life policy, just like straight-life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years."
When would a 20-pay whole life policy endow?
If it is intentional and material
When would a misrepresentation on the insurance application be considered fraud?
Premium receipt
Whenever the agent collects premiums, the agent must issue a PR. The type of receipt issued will determine when coverage will be effective. Most agents attempt to collect the initial premium and submit it along with the application to the insurer. This will increases the chance that the applicant will accept the policy ones it is issued.
If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about
Whether an insurable interest exists between the individuals
Third-party ownership
Which insurance arrangement will be appropriate for a parent buying a life insurance policy on a child where the parent is the policyowner?
Life income with period certain
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original dies, the payments will continue to a designated beneficiary?
Results
Which military service exclusion clause would pay upon the death of an active duty serviceman who was killed in an accident while home on leave?
Extended term
Which nonforfeiture option has the highest amount of insurance protection?
Reduced paid-up
Which nonforfeiture option provides coverage for the longest period of time?
Issuing the policy
Which of the following activities is not performed by an insurance producer?
Failing to meet sales goals
Which of the following acts would not get an insurance producer terminated "for cause"?
Making derogatory oral statements about another insurer's financial condition
Which of the following best describes the unfair trade practices of defamation?
Notice regarding replacement
Which of the following documents must be provided to the policyowner or applicant during policy replacement?
Subrogation
Which of the following is the reimbursement of benefits for the treatment of a beneficiary's injuries caused by a third party?
Prelicensing course is must be approved by the commissioner, applicants must complete 20 hours of training for each line of authority, online and the classroom courses are allowed
Which of the following is true regarding pre-licensing education requirements for insurance producers in the state?
Business entity
Which of the following may obtain a producer's license, but may not sell, solicit, or negotiate a contract of insurance in Tennessee?
A person who negotiates insurance contracts
Which of the following persons is required to hold a producer license?
Policy loan
Which of the following provisions would NOT be found in Term Life Insurance?
is less restrictive
Which of the following statements BEST describes how a policy that uses the "accidental bodily injury" definition of an accident differs from one that uses the "accidental means" definition?
It requires the policyowner to pay all overdue premiums with interest before the policy of reinstated.
Which of the following statements about the reinstatement provision is true?
Disability income policy premiums are tax-deductible
Which of the following statements does NOT accurately describe the tax treatment of premiums and benefits of individual Accident and Health insurance?
premiums paid for Disability income policies are tax-deductible
Which of the following statements does NOT accurately describe the tax treatment of premiums and benefits of individual Accident and Health insurance?
Defamation
Which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance?
Term life
Which of the following would NOT have a policy loans provision?
Implying that the agent is the insurer
Which of the following would be considered false advertising?
A salaried employee who advertises and solicits insurance
Which of the following would be required to be licensed as an insurance producer?
A nonresident life insurance producer who is planning to transact property insurance
Which of the following would be required to complete pre-licensing education?
The Reduction of Premium Dividend Option
Which option allows a policy owner to use the dividends to pay all or part of the next premium due on the policy?
Face Amount
Which policy component decreases in decreasing term insurance?
Equity Indexed Annuity and Fixed Annuities
While equity indexed annuities earn higher interest rates than fixed annuities, both types of annuities guarantee a specific minimum interest rate
purpose and function of annuities
While life insurance protects against the risk of premature death, annuities protect against the risk of living too long.
The Insurer
Who assumes the investment risk with a fixed annuity contract?
An individual not covered by an employer-sponsored plan who has earner income
Who can make a fully deductible contribution to a traditional IRA?
Policyowner
Who can request changes in premium payments, face value, loans, and policy plans?
A policyowner who is not the insured
Who is a third-party owner?
The individual making the contract on behalf of the on authorized insurer is liable
Who is personally liable for all contracts of insurance unlawfully made with in Tennessee on behalf of an unauthorized insurer?
Determines if the insurance policy is an MEC.
Who is the main purpose of the seven-pay test?
The employer is the owner and beneficiary
Who is the owner and who is the beneficiary on a key person life insurance policy?
The employer is the owner and the beneficiary
Who is the owner and who is the beneficiary on a key person life insurance policy?
Gatekeeper
Who typically authorizes treatment from a specialist?
Family Income Policies
Whole life and decreasing term insurance (begins date of purchase). Provides monthly income to a beneficiary if death occurs during a specified period after date of purchase. If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance expired.
Family Maintenance Policy
Whole life and level term (begins date of death). Provides income to a beneficiary for a selected period of time if an insured dies during that period. At the end of the income- paying period, the beneficiary also receives the entire face amount of the policy. If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.
Which of these would be the best example of a limited pay life insurance policy? Whole life policy that pays out its cash value over a 20 year period Whole life policy with premiums paid up after 20 years Term life policy that returns cash value after 20 years Term life policy with premiums paid up after 20 years
Whole life policy with premiums paid up after 20 years
Because dividends are considered to be a return of premium
Why are dividends from a mutual insurer not subject to taxation?
It has a guaranteed minimum interest rate
Why is an equity Indexed annuity considered to be a fixed annuity?
Substandard Risk
Will result in having to pay the highest premium due to health, history, habits, etc.
common disaster provision
With a common disaster provision, a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.
Managerial System
With the managerial system, branch offices are established in several locations. Instead of a general agent running the agency, a salaried branch manager is employed by the insurer. The branch manager supervises agents working out of that branch office. The insurer pays the branch manager's salary and pays him a bonus based on the amount and type of insurance sold and number of new agents hired.
Personal Producing General Agency System
With the personal producing general agency (PPGA) system, agents work for an independent agency selling policies from several insurance companies. Unlike the career agency system, agents are not employees of the insurance company. Instead, they work for the PPGA. Furthermore, personal producing general agents primarily sell insurance, instead of recruiting and training new agents as in the career agency system.
10%
Withdrawals under a qualified retirement plan made by the employee prior to age 59 1/2 are assessed an additional ______% penalty tax.
Timeframe for filing relevant Suspicious Activity Reports
Within 30 days of INITIAL DISCOVERY
All of these are examples of a business use for life insurance EXCEPT Workers Compensation Buy-sell funding Key person Partnership entity plan
Workers Compensation
Concurrent review
_____ review involves monitoring the insured's hospital stay to ensure everything is going as plan.
Coordination of Benefits
_______ allows the secondary payor to reduce their benefit payments so that no more than 100% of the claim is paid.
Roth IRA's
_____________ are designed so that withdrawals are received income tax-free.
Mutual Insurance Company
________________ are owned and controlled by their policyholders. Any surplus money is returned to the policyholders as dividends.
annuity
a contact/policy that guarantees to pay income for a specified period of time or for the life of the annuitant. designed to prevent people from outliving their savings.
Three business partners individually agree to acquire the interest of a deceased partner and own life insurance on each of the other partners in the amount of his or her share of the business's buyout value. What is described here is an entity buy-sell plan a stock redemption buy-sell plan a cross-purchase buy-sell plan a 401(k) plan
a cross-purchase buy-sell plan (Under the cross-purchase buy-sell plan (the more common approach to a buyout) the partners individually agree to purchase the interest of a deceased partner. The executor of the deceased partner's estate is then directed to sell the interest to the surviving partners.)
insurable interest
a financial interest in the life of another person. in a position to lose something of value if the insured should die.
Buyers guide
a generic publication that explains life insurance in a way that average consumers can understand. doesnt address specific product or policy being considered agent is required to deliver to the applicant a life insurance buyers guide and a policy summary usually before the agent accepts the applicants initial premium
substandard risk
a high risk; requires special conditions to be included in the policy or issued a rated policy
joint life
a joint life policy would be the least expensive because the premiums are based on the average age, and the death benefit would be paid out at the first death.
agency agreement or agency contract
a legal document containing the terms of the agreement between the agent and the insurance company. it clearly defines what an agent can and cannot do and how he/she will be compensated.
fixed amount annuity
a life annuity that guarantees a fixed dollar payment at regular intervals during the lifetime of the annuitant.
life annuity w/ period certain
a life annuity that guarantees to provide income payments for a minimum period of time or life. payments will continue to beneficiary should the annuitant die during the specified period.
variable universal life insurance (VUL)
a life insurance policy that combines the flexibility of universal life with the investment of the cash values in separate accounts from variable life
When would a 20 pay whole life policy endow?
a limited pay whole life policy would endows for the face amount at age 100. the premium is completely paid off in 20 years.
If a life insurance policy develops cash value faster than a 7 pay whole life contract, it is
a modified endowment contract
insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is
a mutual insurer
consideration
a necessary element of a contract; something of value exchanged for the transfer of risk. insured's consideration is payment of premiums and truthful statements on the application. insurer's consideration is promises contained in the contract.
roth ira
a non tax deductible individual retirement account which grows tax free after 5 years
The president of a manufacturing company has offered one of the company's officers a special individual annuity plan that is unaavailble to lower echelon employees. this plan would be funded with before tax corporate dollars, and it does not meet government approval standards. This annuity plan is subject to:
a nonqualified annuity plan Nonqualified plans are perfectly legal for selected employees to receive certain types of benefits. Before tax corporate dollars can be used for these plans, and they are not subject to government standards. Nonqualified plans are not tax deductible
standard risk
a normal or average risk; no special conditions are required in the policy
A life insurance company that shares its surplus earnings with its insureds is known as a participating company a fraternal organization an association an admitted company
a participating company
absolute assignment
a permanent and irrevocable transfer of rights and/or benefits by the policyowner
professional
a person in an occupation requiring an advanced level of training, knowledge, or skill
free look provision
a policy provision required by state law that establishes a set number of days (usually 10) for the policyowner to review a newly issued policy. the policyowner may return the policy to the insurer during this time for any reason and receive a 100% refund. also known as refund provision, exchange provision, or right to examine.
lapsed policy
a policy that is no longer in force due to unpaid premiums. also known as forfeit, surrender, cancel or terminate
grace period
a prescribed period of time during which the policy stays in force without the payment of premiums. mandated by state law and is usually 30 or 31 days
Term Illustration means
a presentation of depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years
individual retirement account (IRA)
a qualified retirement plan for any individual with earned income.
keogh plan (HR10)
a qualified retirement plan for self-employed people and their eligible employees. contributions are tax deductible and interest earned is deferred until withdrawn.
401k
a qualified retirement plan in which the employee can set aside a portion of their income with pre-tax dollars
tax sheltered annuity (403B)
a qualified retirement program for employees of non-profit organizations. contributions are made through a salary reduction program
non-qualified retirement plan
a retirement plan that does not qualify for special tax treatment by the IRS
guaranty association
a state mandated association of all insurance companies designed to protect consumers from impaired or insolvent companies
incontestable clause
a state mandated provision that limits the amount of time that an insurer can rescind a policy or contest a claim due to misrepresentation or concealment
proof of insurability
a statement about or evidence of a person's physical and/or mental health, personal character, occupation, living habits...etc. Used by the insurance company in assessing whether to accept the person's risk
collateral assignment
a temporary and/or revocable transfer of benefits by the policyowner
annual renewable term
a term life insurance contract which gives the policyowner the option to renew the policy each year without showing proof of insurability. premiums increase at each renewal
agent's report
a written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured's risks
Policy Summary
a written statement describing the features and elements of the policy being issued.
retirement income policy
accuulates sum of money for retirement while also providing a death benefit pas income such as $10 per $1000
the two types of assignment
absolute and collateral
The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n) sickness suicide accident war
accident
All of these are common exclusions to a life insurance policy EXCEPT accidental death military service aviation hazardous occupations
accidental death
All of these are valid options for what a policyowner may do with policy dividends EXCEPT cash outlay to the policyowner accumulate without interest reduction in policy premium buy additional insurance coverage
accumulate without interest
specialized forms of policy
advantages -can be used to match specific need -cost may be lower than ordinary whole life disadvantage -may become obsolete if they need change over time -may incur negative tax consequences if not set up carefully
A non-contributory health insurance plan helps the insurer avoid adverse selection state compliance the underwriting process tax deductions
adverse selection (Because all eligible employees are usually covered, noncontributory plans are desirable from an underwriting standpoint because adverse selection is minimized.)
incontestability clause
after a specific period of time (2 years) the insurer may not dispute or contest the validity of the contract or statements the insurer may not claim that any misstatements in the application were made with the intent of the PO to defraud also beneficiary will not have t substantiate any statements that were made on the application
insuring clause
agreement that insurer will provide life insurance for named insured which will be paid to a designated beneficiary when death occurs policy face lists name of company, insrured, amount of insurance carried, mode and amount of premium and when coverage is effective
convertible term policy
allowed to convert or exchange temporary protection for some form of permanent protection dont have to show evidence of insurability' must be made prior to expiration of term based on age when converted
facility of payment provision
allows insurer to select beneficiary if named beneficiary is a minor, dead, or cannot be found most common in group life insurancve and industrial life policies normally immediate family member is selected
flexible policies
allows policyowner to change premiums, cash values, and face amounts in response to changing needs
guaranteed insurability
allows purchase of specified amounts of additional insurance without evidence of insurability issued at standard rates based on age when option is exercised usually begins nearest insureds 25th birthday and terminates 40th birthda equal face value or $10,00 whichever is less additional dates like marriage or birth are provided
facility of payment
allows the insurance company to pay all or part of proceeds to someone not named in the policy that has a valid right. This is usually done on behalf of a minor or when the named beneficiary is deceased.
Level term insurance
also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal.
variable life insurance
also developed in response to the low returned earned by traditional cash value policies guaranteed minimum death benefit cash values that are not guaranteed regulated as securities since variable contracts are equity products they are subject to regulation by securities and exchange commission, the financial industry regulatory authority (finra) and other fed bodies and state departments in order to sell variable ins the agent must be lisenced and must pass securities exam
face amount
amount payable in the event of death of the insured. also called face value, death benefit, policy proceeds, coverage, stated amount, indemnity amount or proceeds to the beneficiary.
universal life insurance (UL)
an "interest sensitive" flexible premium life insurance policy. a combination of ART and cash value. has two death benefit options (A & B) and develops cash value
A provision in a life insurance policy that provides for the early payment of some portion of the face value should the insured suffer from terminal illness is called
an accelerated benefit provision can be made in a lump sum or in monthly installments over a specific period of time. this provision is given without an increase in premium
contingent beneficiary
an alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured
join and survivor annuity
an annuity that makes payments to two or more annuitants throughout their lifetimes. payments normally reduce at the death of each annuitant and stop altogether upon the death of the last annuitant.
An individual most likely will have an insurable interest in insuring a person's life if an economic interest exists for the continuance of the insured's life a financial interest exists at the time of insured's death there is any blood relationship with the insured a business relationship exists
an economic interest exists for the continuance of the insured's life
A partnership owns, pays for, and is the beneficiary of life insurance policies on the lives of its individual partners. This is known as an entity buy-sell plan a stock redemption plan a cross purchase plan a Keough plan
an entity buy-sell plan (With an entity buy-sell plan, a deceased partner's interest is purchased from his or her estate by the partnership. This interest is divided among the surviving partners in proportion to their own interest.)
accidental death benefit
an extra cost rider that requires the insurance company to pay an additional benefit in the event that the insured dies within 90 days of an accident as a direct result of the accident
A change in an insurance application requires an initial made by the producer an initial made by the applicant approval by the insurer submitting a new application
an initial made by the applicant
stock insurer
an insurance company publicly owned and controlled by its stockholders who elect a board of directors to manage it
multi-line insurer
an insurance company selling more than one life of insurance
group insurance
an insurance policy that covers multiple people (who have a common interest). a master policy is issued to the policyowner and the individual insureds receive Certificates of Insurance
conditional receipt
an interim insuring agreement under which the insurance company agrees to start coverage on the later of either the date of application or the fate of the medical example IF the proposed insured is found to be insurable on that date
The type of insurance most frequently used in group life plans is annually renewable term. 10-year renewable term. limited pay whole life. single-premium whole life.
annually renewable term. (Annual renewable term insurance gives the insurer the right to increase the premium each year (based on the group's rating) and gives the policyholder the right to renew coverage each year.)
Fixed period settlement options are considered to be a form of a(n) cash value loan variable life policy annuity Endowment
annuity
modified endowment contract (MEC)
any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract and therefore loses the tax advantages of life insurance
$1000 for each violation
any person acting as an insurance producer without a valid license may be fined up to
agent/producer
anyone who sells or aids in the selling of insurance. legally represents the company
rebating
anything of value given by an agent to a client as inducement to buy insurance
hazard
anything that increases the likelihood that a loss will occur (faulty wiring)
MIB can be used only
as in aid in helping insurers know what areas of impairment they might need to inverstigate further. An applicant cannot be refused simply because of some adverse information discovered through the MIB.
SUBSTANDARD (High Exposure) risk
applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. These policies are also referred to as "rated" because they could be issued with the premium rated-up, resulting in a higher premium.
Declined Risks
applicants who are rejected. Risks that the underwriters assess as not insurable are declined.
Independent Rating Services
are credit rating agencies that rate or "grade" the financial strength and stability of insurers based on claims, reserves, and company profits. The nationally recognized statistical rating organizations that rate insurers are A. M. Best, Moody's, Standard and Poor's, and Fitch Ratings. Each rating service has its own rating system, but most use an A to F letter grading scheme.
Adjustable Life Policies (non trad)
are distinguished by their flexibility that comes from combining term and whole life insurance into a single plan. • The policyowner determines how much face amount protection is needed and how much premium the policyowner wants to pay • Adjustable life insurance allows you to vary your coverage as your needs change without requiring evidence of insurability • Consequently, no new policy needs to be issued when changes are desired • Adjustable life has all the usual features of level premium cash value life insurance
commercial insurers
are in the business of selling insurance for a profit. (2 main groups: stock & mutual)
annuities
are ways of providing a stream of income for a guaranteed period of time. • Simply stated, an annuity is started with a large sum of money that will be paid out in installments over a period of time or until the money is all gone. • The monthly amount of benefit an annuitant receives is based on factors such as: principle amount, rate of interest the annuity earns, and length of payout period.
The Agent's Report
as a field underwriter, the agent (or producer) can be considered the most important source of information available to the company underwriters. The agent's report provides the agent's personal observations concerning the proposed insured. The agent's report does not become a part of the entire contract, although it is a part of the application process.
Life insurance can be used in business in all of the following ways EXCEPT as a funding medium as a profit sharing plan as a form of business interruption insurance as an employee benefit
as a profit sharing plan
The full premium was submitted with the application for the life insurance, and the policy was issued two weeks later as requested. When does coverage become effective?
as of the application date if the full premium was submitted with the application and the policy was issued as requested, the policy effective date would generally coincide with the date of application.
assessment insurers
assess policyholders a premium only when losses are incurred
A type of group that has a constitution and bylaws and has been organized for purposes other than obtaining insurance is called a(n) employer group employee group association or labor group multiple coalition
association or labor group (They are organized and maintained in good faith for purposes other than obtaining insurance.)
A Renewable Term Life insurance policy can be renewed at a predetermined date or age, regardless of the insured's health only if the insured provides evidence of insurability anytime at the policyowner's request typically with no change in premium
at a predetermined date or age, regardless of the insured's health
appointment
authorization of an agent/producer by an insurer to represent the company
A policy owner fails to pay the premium on his whole life after the grace period passes but the policy remains in force. THis is due to the
automatic premium loan added to contracts with a cash value at no additional charge. this is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of a premium
Which of these factors is NOT taken into account when determining an applicant's life insurance needs? Social Security automobile savings pension
automobile
Which of these factors help determine an insured's life insurance premium? insured's salary marital status place of residence avocation (hobby)
avocation (hobby)
Accidental Death and Disbursement
ay be added to a life insurance policy. Pays benefits for dismemberment and accidental death. Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes.
Buyer's Guide Provide
basic generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance. Explains how a buyer chooses the amount and type of insurance to buy, and how to save money comparing similar policies. Insurers must provide a buyer's guide to all prospective policy applicants prior to accepting their initial premium.
increasing term policies
begin with little or no insurance face amount increases over time uncommon but can be sold as a rider to another type of policy in order to provide an additional death benefit equal to total premiums paid or some other value
Insurance policies ensure that after a loss proceeds will go to the
beneficiary the beneficiary is the person who receives the benefits from the insurance policy
misstatement of age or sex
benefit payable will be adjusted to an amount that the premium would have purchased at the correct age. any inaccuracy regarding applicants sex would be handled in the same manor
personal delivery
best way to ensure delivery if a conditional receipt has not been issued, the insurer may require the producer to obtain a statement of good health at the time of policy delivery regardless is personal delivery is required it is recommended because it gives the agent an opportunity to enhance the agent-client relationship
Preferred risk policies with reduced premiums are issued by insurance companies because the insured has a higher face amount than average a better ability to pay premiums over a long period of time worse than average mortality or morbidity experience better than average mortality or morbidity experience
better than average mortality or morbidity experience
The period in which there are no Social Security benefits for the surviving spouse is called the blackout period elimination period ineligible period dependency period
blackout period (The blackout period begins when the youngest child turns 16 and continues until the spouse reaches age 60, at the earliest. If there are no eligible children with the surviving spouse when the breadwinner dies, the blackout period starts immediately.)
per stirpes
by the root beneficiary share of proceed will be passed down to the living children of beneficiary goes through bloodline so doesnt have to be names
revocable beneficiary
can be changed by PO without beneficiary consent
beneficiaries
can be; individuals businesses trusts estates charities minors classes as beneficiaries ; rather than specifying one or more beneficiaries by name PO can designante a class or grouop for EX; 'my children'
irrevocable beneficiary
cannot be changed without consent and signiture of beneficiary PO needs signiture from irrevocable beneficiary in order to exercise ownership rights like borrowing cash values, assigning, or cancelling the policy
The annual addition to an employee's account in a qualified retirement plan can be any amount as determined by the end of year to year must be the same dollar amount for every full time employee cannot exceed the maximum limits set by the Internal Revenue Service usually reflects the employee's individual work performance each year
cannot exceed the maximum limits set by the Internal Revenue Service
captive vs active agent
captive:work for only one insurer independent: works for themselves or several insurers
how life insurance policy proceeds can be paid
cash settlement option can be selected when policy is purchased or it may be left up to the beneficiary as to which option is selected. even if the insured had chosen an option the right to change it to another one bay be given to beneficiary
non forfeiture loan
cash value belongs to policy owner some or all of the cash value may be withdrawn from the policy but will reduce face value and cash value available
What defines a peril
cause of loss A peril is a specific cause of loss
Which of the following defines a peril?
cause of loss A peril is a specific cause of loss insured in a policy.
conditional
certain conditions must be met in order for policy to pay-out
a tax sheltered annuity is a special tax favored retirement plan available to
certain groups of employees only a tax sheltered annuity is a special tax favored retirement plan available only to certain groups of employees (nonprofit, education, other 501c3 organizations, including all employees in public education.)
Under a group life policy, the insurer will issue an individual _____ to the policyowner for delivery to each person insured. policy certificate application rider
certificate
Abbey's employer recently made group insurance available for its employees as a benefit. After filling out her enrollment card, she is given a(an) policy receipt certificate of insurance application
certificate of insurance (This summarizes the coverage terms and explains the employee's rights under the group contract. In these cases, the employer is the applicant and contract policyholder.)
ownership rights
changing beneficiary receiving dividends if any are paid borrowing funds fro the cash value if the exist assigning of some or all the rights of the contract to another party
policy retention
clients needs change at times such as marriage, birth of child, and death producer acts as the representative of the company in changing beneficiaries, adding amounts of insurnce, and facilitating payment of claims effectiveness of producer at these times will lead to retention of the account for a lifetime of client and often over generations
A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n) automatic premium loan nonforfeiture option collateral assignment irrevocable assignment
collateral assignment
Ownership of a life insurance policy may be temporarily transferred with a(n) collateral assignment absolute assignment transferable assignment beneficiary assignment
collateral assignment
family maintenance policy
combines life insurance and level term insurance affords payment of monthly income during stated period of 10, 15, or 20 years or up to age 65 level term designed to provide a period of monthly income following the death of insured if death occurs during specific period
endowment life insuraance
combo of pure endowment and term insurance for specified period provided living benefit and death benefit
multiple protection policies
combo of whole life and term amount of protection is higher in early years of policy and less in later years
Life insurance policies will normally pay for losses arising from commercial aviation war suicide hazardous jobs
commercial aviation
reasons for delay in death claim payment
company has not been properly notified of death formal proof of death of some type and a death certificate completed by physician or coroner is required when isured dies, agent should complete any proof of death form the company requires, have it signed by necessary parties, and forward it to the company asap with a death certificate
A waiver of premium rider allows an insured to waive premium payments if the insured is temporarily disabled unemployed completely and permanently disabled experiencing financial hardship
completely and permanently disabled
reinstatement clause
contained in the policy this clause described how a policy can be restored to its original condition. it states the conditions, period of time and necessary steps to reinstate the policy
insuring clause
contains the company's promise to pay
separate account
contains the investments of an insurance company. these investments have no guaranteed rate of return and are regulated by the SEC and NASD
general account
contains the regulated or guaranteed funds of an insurance company
Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident? primary beneficiary's estate contingent beneficiary insured's estate children of the insured
contingent beneficiary
straight life
continuous premium whole life, charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit. it build cash value. straight life has the lowest annual premium among whole life policies.
Insurance
contract in which one party (the insurance company) agrees to indemnify (make whole) the insured party against loss, damage or liability arising from an unknown event.
Group insurance plans that require employees to pay a portion of the premium are called underwritten contributory participatory shared
contributory
An employee under a group insurance policy has the right to name a beneficiary and the right to remain on the group plan in the event of employment termination cash surrender the existing policy change the policy provisions convert to an individual policy in the event of employment termination
convert to an individual policy in the event of employment termination
When a policy is surrended for its cash value
coverage ends and the policy cannot be reinstated Once the cash surrender option is selected, the coverage is terminated, and the policy cannot be reinstated.
credit insurance
covers the life of a debtor
testamentary trust
created after the grantors death according to grantors will
Which of the following will NOT be an appropriate use of a deferred annuity?
creating an estate Deferred annuities grow tax deferred, and are best suitable for accumulating retirement income or funds for children's college education.
What kind of insurance covers the life of a debtor in connection with a credit transaction
credit insurance Credit life insurance covers the life of a debtor in connection with a specific loan or other credit transaction
which is the following provisions make a contract complete
entire contract
face value
death benefit
suicide clause
death by suicide not covered for first 2 years if suicide does happen in initial 2 year period; premiums are refunded but no face amount is paid after 2 year period coverage is provided for suicide
mortgage redemption policy or rider
decreasing term insurance benefit amount of term element is intended to be sufficient to pay off the unpaid remainder of mortgage loan if insured dies before paying it off
family income policy
decreasing term insurance combined with whole life insurance income payments begin to beneficiary when insured dies and continues for specific time
The least expensive option to pay off a 30-year mortgage balance would be convertible term life decreasing term life adjustable term life increasing term life
decreasing term life
The amount that an employer pays for accidental death and dismemberment insurance for its employees is normally deductible to the business included in taxable income for each covered employee recovered upon receipt of the insurance proceeds considered unnecessary as a business expense
deductible to the business
An example of a tax-qualified retirement plan would be a(n) equity compensation plan defined contribution plan executive index plan 1035 exchange plan
defined contribution plan
other insurance provision
defines how each policy will pay
policy loan provision
describes the conditions by which a policy owner can borrow from the policy's cash value
Matt is applying for life insurance and requests a double indemnity rider. A double indemnity benefit will be payable to Matt's beneficiary if Matt is killed while committing a felony dies of a stroke dies instantly from a car accident is injured in a skiing accident and dies 18 months later
dies instantly from a car accident
withdrawals and partical surrenders
difference between them; loan is presumed to be repaid whereas a withdrawal is not only universal life and variable life permit withdrawals
All of these are standard exclusions found in a life insurance policy EXCEPT hazardous occupations aviation disability war
disability
dividends
distributions paid out by insurance companies. stock insurers pay dividends (portion of profit) to stockholders and they are taxable. mutual insurers pay dividends (return of unneeded premiums) to policyowners and they are not taxable. dividends are never guaranteed.
mutual insurance company
dividend checks
Nonparticipating insurers do not allow their policyowners to receive which of the following? cash advances dividends preferred premium rates stock options
dividends
license
documentation issued by a state's department of insurance to an individual verifying that he/she is qualified to engage in the insurance business
return of cash value
dooesnt return cash value, it pays additional amount of insurance equal to cash value
Accidental death double indemnity
doubles face value if insured dies do to accident death must occur within 90 days of accident doesnt cover; illegal activities war aviation activities where accident was involved in conjunction with illness, disease, or mental infirmity limited to 60,65 and few cases 70
If an employee in poor health is part of a large group that is acceptable for group life insurance, that employee is ineligible for coverage under the plan eligible for coverage, but on a rated basis eligible for the same type of coverage as other employees ineligible until good health is restored
eligible for the same type of coverage as other employees
Which of the following is NOT among the primary ways deductibles for major medical plans can be paid?
en embedded deductible. Deductibles for a major medical plans can be paid in one of the following primary ways: a FLAT dollar deductible, a PER CAUSE deductible, and a MAXIMUM annual deductible FM PC
Once an agent has met the requirements to sell long term care insurance, how often must he or she complete the 4 hours of training?
every 2 years
Once an agent has met the requirements to sell long-term care insurance, how often must he or she complete the 4 hours of ongoing training
every 2 years every agent who sells, solicits, or negotiates long term care insurance in Minneosta must be licensed as an insurance producer for life and disability and complete a one time training course and the ongoing training every 24 months
Under a non-qualified annuity, interest is taxed after the deposits have been made death of the annuitant distribution of payments exclusion ratio has been calculated
exclusion ratio has been calculated (The taxable and non-taxable portions of annuity payments are determined by the exclusion ratio.)
Which nonforfeiturue option has the highest amount of insurance protection
extended coverage The extended term nonforfeitfture option has the same face amount as the original policy but for a shorter period of time
industrial life insurance
fequent payments benefits are less than $2k premiums are collected by agent from insureds home sales made in premium units all family members ae covered from birth to age 65 or 70 medical exam not required 31 day grace period application is not required to be part of the policy med exam not required cash values do no accumulate sufficiently settlement options do not apply suicide provisions are not included in the poliocy nonforfeiture provisions do not allow the cash option until premiums have been paid for 5 years (3 ears for ordincary policys) dividends used to reduce premium pament or purchase paid up additions
hazardous occupation or hobby exclusion
few applicants are denied life insurance because of their oppupations instead underwriters focus on the applicants hobbies if an insured has dangerous hobbies their premiums may be higher
fiduciary responsibility
fiduciary: a person in a position of financial trust (atttornys, accountants, trust officers, and insurance producers) producer has an obligation to act in the best interest of the insured as well as know and comply with the staes insurance laws
producer responsobilities upon insureds death
first notify the company immediatly. than contact the beneficiary or beneficiary legal representative and help them complete proof of death form and send it to company with a death certificate important thing at this point is to render the best possible service to the beneficiary
settlement options
five ways that the proceeds of a policy can be paid upon maturity. 1. cash 2. interest only 3. fixed period 4. fixed amount 5. life income
If a beneficiary wanted a guarantee that benefits paid from principal and interst would be paid for a period of 10 years before being exhausted, what would a beneficiary select?
fixed period. the beneficiary would determine how long benefits would be paid. The insurer would determine how much would be paid in each installment.
interim term
for a person who wants immeditate protection and is thinking about starting a permanent insurance policy in the near future used to cover term before permanent insurance starts usually converts no longer than 11 months written on an automatically convertible basis premium based on age at application
substiture insured rider (exchange privlege)
for example if employee is insured for benefit of coorperation and quits, this allows insurance to be switched over to replacement same face amount, premiums calculated on new insureds age, sex and other factors
An applicant intentionally lying to an insurance company on an application in order to obtain a cheaper premium is an example of rebating coercion fraud twisting
fraud
deferred annuity
life annuity contract where the first pay-out is made 12 months after it is purchased. can be purchased with either a single premium or with continuous premium payments.
Underwriters can acquire information from all of the following sources EXCEPT Medical Information Bureau (MIB) consumer reports attending physician's statements genetic testing
genetic testing
medical examination and autopsy
gives insurer the right to examine an insured while a claim is pending and at the event of death to perform an autopsy
reentry term policy
gives oppurtunity for the insured to show evidence of insurability qualify for a policy with reduced premium rates better price than renewable term policy
All of the following business arrangements can use "insured buy-sell agreements" to assure the orderly continuation of a business EXCEPT partnership forms of business close corporations sole proprietorships government entities
government entities
graded premium whole life policies
gradual increase in premiums usually increases for 5 years than remains the same
All of the following are considered Social Security Benefits EXCEPT
group Social security provides 3 types of benefits: Retirement, Disability and Survivors
noncontributory plan
group insurance plan in which the employer pays all the premiums for the policy
contributory plan
group insurance plan under which the employees contribute to the payment of premiums
Index whole life insurance contains a securities component that acts as a(n) hedge against inflation premium stabilizer means to lowering taxes on earnings incentive to purchase more coverage
hedge against inflation
minimum deposit or financed insured
high cash and loan value whole life policy first 2 premium payments must be paid by policy owner than loans may be used but only if during the first 7 years of the policy 4/7 annual premiums are paid from funds other than policy loans interest paid on policy loans used to finance premium payments still may be deductible administration is complex
deposite term ins
higher first premuim than all future premiums access front end premium (deposit) is then set aside to earn interest those dollars plus interest will be used to reduce fututre paments
home service insurers
home insurance: industrial insurance sold by debt life insurance companies face amounts are small: $1-2000/ weekly paid premiums
policy summary
identifies the specific product being presented for sale as well as the insurer, the policy, and each rider. includes info about premiums,dividends,benefit amounts, cash surrender values, policy loan interest rates and life insurance cost indexes
effective date of coverage
identifys when coverage is effective and establishes the date by which future annual premiums must be paid date the receipt (conditionasl or binding) was issued in exchange for payment of initial premium will generally be the policy effective date if premium deposit is not given with the application, the policy effective date is usually the date the policy is issued by the insurance company. however, the policy wont truly be effective until it is delivered to the applicant , first premium is paid, and statement of good health is obtained
uniform simultaneaous death act
if insured and primary beneficiary are killed in the same accident with no evidence to show who died first, policy proceeds are distributed as if insured died last if no contingent name, esate received proceeds
return of premium
if you die within speciic time we return all premiums paid
Should the Commissioner request information from a certificate holder, licensee, or other person under the jurisdiction of the commissioner. If no time specified they must comply
in 30 days. state law provides that if a time is not specified, the person shall comply with the request within 30 days and shall provide all documents ot material to the Commerissionar has qr
common disaster provision
in case of death in a common accident, the insured will be presumed to have survived the beneficiary this prevents the payment of the insurance proceeds to estate of beneficiary proceeds instead go to any contingent beneficiaries only goes into effect if the insured and primary beneficiary are in same accident death of primary beneficiary must occur within 30-90 das
financial needs approach
in determine how much life insurance is needed the needs of the surviving family are the focus. using needs analysis worksheets, and amount is determined to meet the needs of the surviving family regardless of the earnings of the insured
human life value approach
in determining how much life insurance is needed the worker's annual earnings are multiplied by the number of years remaining until he/she retires. from the resulting figure taxes and expenses are subtracted.
Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's surrender charge death benefit cash refund income period
income period
stock companies
incorporated companies owned by their stockholders
The conversion privilege under a group life plan allows an employee to convert to a(n) family plan with another insurer individual plan with another insurer that has better rates individual plan upon employment termination individual policy in the spouse's name
individual plan upon employment termination
contingent beneficiary
individual who will be paid the policy proceeds if primary beneficiary dies before the insured if no contingent beneficiary is present proceeds are left to estate
Credit life insurance is issued on a decreasing term when the debt to the creditor is being repaid on an
installment basis
What are the two components of the universal policy?
insurance and cash account A universal policy has two components: an insurance component and a cash account The insurance component of a universal life policy is always annually renewable term insurance. The cash account accumulates on a tax deferred basis each year and earns either the guaranteed contract rate or the
consideration clause
insurance coverage is granted in consideration of the application and payment of initial premium insurers consideration is the promise to pa face amount of the contract upon death of insured
whole life insurance provides permanent protection
insurance is covered for life, as long as the policy premiums are paid. Premiums and death benefits are both guaranteed, and they will remain level, as long as the policy is in force
Industrial Life
insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.
policy payment method: continuous premium
insurance or an annuity that is paid for continuously throughout the duration of the policy. requires the smallest payments amounts and grows cash value the slowest
policy payment method: limited pay
insurance or an annuity that is paid for over a specified period of time after which no further premium payments are required during the duration of the policy. known as Life Paid-Up or x-Pay Life policies
policy payment method: single premium
insurance or an annuity that is paid for with a single lump-sum payment. no further premium payments are required during the duration of the policy. requires the largest payment amount of any type of policy. grows cash value the fastest.
Term Life Insurance
insurance provides pure death protection since it only pays a death benefit if the insured dies during the policy term. • Term life insurance does not accrue cash value. • Term life is meant for those who need the greatest amount of life insurance for a specified period of time at the lowest premium • The initial premium of term insurance is lower than for an equivalent amount of whole life insurance
Whole Life Insurance
insurance that provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.
Group Life
insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.
amendments
insurer may amend policys terms depending on results of the underwriting process. For example, the insurer may amend the policy to exclude certain losses or conditions or may classify the applicant as a substandard risk for which it will charge a higher premium applicant is not obliged to accept the amended policy and may withdraw the application
the provision stating the insured duty duty to pay death benefits upon the death of the insured and to whom the benefits will be paid
insuring clause
Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary? interest only dividends only extended interest fixed period
interest only
Equity indexed annuities
invest on an aggressive basis in order to yield higher results. they have guaranteed minimum interest rates they are less riskier than variable annuities
HIPAA Health Insurance Portability and Accountability Act
is a federal law that protects health information. HIPAA regulations provide protection for the privacy of certain individually identifiable health information(such as demographic data that relates to physical or mental health condition, or payment information that can identify the indidivual) referred to as protected health information.
Stranger-originated life insurance (STOLI)
is a life insurance arrangement in which a person with no relationship to the insured (a stranger) purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements.
Speculative Risk:
is a risk that presents both the chance for loss or gain. Gambling is an example. Speculative risks are not insurable.
A tax sheltered annuity
is a special tax favored retirement plan available only to certain groups of people (educational, religious, public education)
variable universal life insurance
is a type of life insurance that builds cash value. It combines all the characteristics of a universal life and variable life. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The 'variable' component in the name refers to the ability to invest in separate accounts whose values vary—they vary because they are invested in stock and/or bond markets. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. This provides the policyowner with flexible premiums, adjustable death benefits, a guaranteed minimum death benefit and gives the insured growth potential for higher returns, but also potential for loss. Evidence of insurability can be required for an individual covered by a variable universal life policy when the death benefit is increased.
Universal Life Insurance (non trad)
is a variation of whole life insurance, characterized by considerable flexibility. • Changes may be made with relative ease by the policyowner with these flexible-premium policies • Unlike whole life (with its fixed premiums, fixed face amounts, and fixed cash value accumulations) universal life allows its policyowners to determine the amount and frequency of premium payments which will adjust the policy face amount • Basic characteristics of a universal life policy are flexible premiums, flexible benefits, no minimum death benefit, and cash value withdrawals • Cash value accumulations are subject to a minimum interest guarantee • Any surrender charges of a universal policy must be disclosed
(IOLI) Investor-owned life insurance
is another name for a STOLI, where a third party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone whith no insurable interest in the insured and who hopes to make a profit upon de death of the insured or annuitant.
Credit Life Insurance
is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid. It is normally issued in an amount not to exceed the outstanding loan balance and is usually paid entirely by the borrower. A decreasing term policy is most often used.
life with period certain payout option
is designed to pay the annuitant guaranteed payments for the life of the annuitant or for a specific period of time for the beneficiary. It provides that benefit payments will continue for a minimum number of years regardless of when the annuitant dies. • For example, if an annuitant has a 20 year period certain and dies after 10 years, the beneficiary will receive payments for another 10 years.
Pure Risk:
is the only insurable risk and present a potential for loss only, such as injury, illness, and death.
backdating
is the process of predating the application a certain number of months to achieve a lower premium. A lower age results in a lower premium. A backdated application results in a backdated policy effective date, if approved by the insurer. Applications usually can only be backdated up to 6 months. This process is also known as "saves age".
level term policy
issued for fixed amount of time remains the same during the term of coverage issued for annual period, specific number of years, or until certain age level premium, level term
decreasing term policies
issued for initial face amount declines during the term period and reaches 0 when expires EX 20 year decreasing term policy issued for $100k may only provide a death benefit of $50k after 10 years ideal for insurance needs that decrease over time like protecting the unpaid balance of a mortgage
Misrepresentations is
issuring, publishing or circulating any illustration of sales information that is false, misleading or deceptive to policy benefits or terms. This includes oral statements
uniform simultaneous death act
it directs that in life insurance if the insured and the primary beneficiary die at the same time the policy benefits are payable as if the insured outlived the beneficiary.
Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary
it will decrease the benefits paid
twisting
knowingly making misleading statements or making fraudulent comparisons in order to induce a client to drop a policy with an existing insurer and start a new one with a different company
when replacement occurs existing life insurance or annuities will be;
lapsed, forfeited, surrendered, or terminated converted to reduced paid-up insurance, continued as extended term insurance, or reduced in value by the use of nonforfeiture benefits or other policy values amended to produce a reduction in the benefits or in the term for which coverage would otherwwise remain in force or for which benefits would be paid reissued with a reduction n cash value
estoppel
legally preventing someone from asserting or reasserting a known right that they have previously waived.
mailing the policy
legally the policy is considered deliverd when it is mailed to or turned over to the policyowner or someone acting on the policy owners behalf
preferred risk
less risky than normal. usually issued policies on a discounted basis
decreasing term policy
level premium and a death benefit that decreases each year of the policy. Most commonly used with mortgage
increasing term policy
level premium, as do all policies, but the face amount increases every year of the policy term
When a decreasing term policy is purchased, it contains a decreasing death benefit and increasing premiums level premiums decreasing premiums variable premiums
level premiums
participation company
life insurance company that shares its surplus earnings with its insurers. no participating companies do not
A permanent life insurance policy where the policyowner pays premiums for a specified number of years is called a(n) adjustable policy limited pay policy level term policy variable universal policy
limited pay policy
A life insurance policy that has premiums fully paid up within a stated time period is called stated payment insurance limited universal insurance stated modified insurance limited payment insurance
limited payment insurance (Limited payment insurance is characterized by premiums that are fully paid up within a stated period, after which no further premiums are required.)
prohibited provisions
limits time for bringing a lawsuit against the insurance company to less than one year after the reason for lawsuit occurs allows forfeiture of policy because failure to repay any loan or interest owed provision making the soliciting agent the agent of the person insured under the policy backdrafting; insurer may not backdate a policy for more than 6 months before the original application was made to preserve age and reduce premium
An insurer's ability to make unpredictable payouts to policyowners is called investment values liquidity assets capital
liquidity
living benefit provision
long term care; reimburses health and social service expenses incurred in a convalescent or nursing home elimination periods of 10-100 days benefit periods 3-5 years or longer prior hospitalization of 3 days requires benefits triggered by impaired activitied in daily living LTC= 70-80% death benefit terminal illness option-90-95%
reinsurers
make arrangements w other insurance companies to transfer a portion of their risk to the reinsurer. company transferring the risk: ceding company company assuming the risk: reinsurer
Binding receipt (unconditional receipt)
makes the company liable for the risk from the date of application, regarldess of their insurability. lasts for 30-60 days or until insurer issues the policy if app is rejected, coverage terminates at the end of the specified period rarely used in life insurance... more common for auto/ homeowners
reinstatement
many contracts permit reinstatement if effected within 3 years of policy lapse proof of insurability may be requested all owed premiums and outstanding loans must be paid reinstatement app must be completed. this means statement by the policy owner are contestable for 2 years advantage of reinstating a policy instead of purchasing a new one is the insured original issue age is used when reinstated; lower premium
issuing the policy
may be issued as applied for, modified, or even amended as long as the applicant meets the underwriting standards the insurer may issue a policy with a waiver attached stating death by a particular event (perhaps due to occupation or recreational exposure) will not be covered in other cases an insurer might issue a more limited form of coverage or a policy with lower limits than those applied for by applicant
A guaranteed issue insurance policy has no initial premium requirement incontestable period waiting period medical underwriting
medical underwriting
Lloyds of london
members of the association form syndicates to underwrite and issue insurance like coverage. group of investors who share in unusual risk
Insurers require that a minimum number of trade association member employees participate in a group insurance plan in order to maximize premium income minimize adverse selection calculate valid loss ratios lower plan expenses
minimize adverse selection (The larger the group to be insured, the more predictable will be the expected losses from the group.)
The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and with interest during the last 12 months minus indebtedness and without interest during the last 6 months
minus indebtedness and without interest
On its advertisement, a company claims that it has funds in its possession that are in fact, not available for the payment of losses or claim. The company is guilty of
misrepresentation
what is the term for how frequently a policeowner is required to pay the policy premium
mode is the manner or frequency that the policyowner pays the policy premium
The premium payment mode that results in the highest overall cost would be monthly quarterly semi-annual annual
monthlymonthly
results type clause
much less restrictive than status type. does not cover death that was result of military exercise but does cover if individual is home and has a nonservice related death
Companies that sell more than one type of insurance are multi-line insurers property and causalty mutual company life company
multi-line insurers
groups formed when several similary related small companies join forces to create a large pool of people insurance will accept as a group
multiple employer trust formed when several similary or related small companies join forces to create a large pool of people that insures a group. The MET purchases a single benefit plan that covers the employees of each of the companies involved.
Two months
must ensure a pair that's benefit claim after receiving the product of death?
A type of insurer that is owned by its policyowners is called domestic mutual stock in-house
mutual
risk retention groups
mutual companies formed by a group of people in the same industry or profession ex: dentists or engineers
reasons a new policy might not be in the insureds best interest
new insurance requires prove of insurability premiums may be higher new policy provisions will have to be complied with, such as a new incontestable period existing policy provisions ma be more liberal than new provisions generally a new policy will not have current cash values
extended term insurance
nonforfeiture option where cash value is used to make a single premium payment on a terms insurance policy of the same face amount as the original policy. original policy can be reinstated. not available on rated policies.
reduced paid-up insurance
nonforfeiture option where cash value is used to make a single premium payment to purchase as much of the same type of insurance as possible. face amount of the new policy would be less than the original policy but no further premium payments would be necessary. policy can be reinstated
A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n) insuring clause payor provision reinstatement provision nonforfeiture provision
nonforfeiture provision
stockholders are called
nonparticipating insurers- don't receive dividends.
A nonparticipating policy will provide a return of premium provide tax advantages not pay dividends give policyowners special privileges
not pay dividends
endowments
not really sold today because of tax consequenses retirement endowment; most common. issued to mature at age 65. face value is payable as death benefit at maturity the full face amount became payable in monthly installlments
duties of producer during replacement
obtaining application, a signed statement from applicant confirming replacement, and submitting statement to the insurer also; -list all existing life insurance policied to be replaced -give the applicant a Notice to Applicants Regarding Replacement of Life Insurance -give insurer a copy of any proposals made and the name of the insurer and the policy that is to be replaced
Determining a person's economic value through the human life value approach does NOT consider the effects of investments savings earnings occupation
occupation
constructive delivery
occurs when the insurer mails a policy to its producer for actual delivery to the policyowner becuase the insurer has issued the policy and released it for delivery a legal delivery has not yet occured if the insurer requires personal delivery for verification of good health at the time of delivery or if the policy is being provided to the applicant merely to review and inspect at that time and not necessarily to buy
policy review
once policy is delivered the producer should thoroughly explain all coverage provisions, particularly the exclusions and any riders
single premium whole life
one premium lump sum payment that amount with interest it will earn will be able to cover all future premium payments paid for at time of purchase accumulate immediate cash value cost of one payment will be much less than cost of multiple payments over the years
single premium whole life
one time lump sum premium payment to provide a level death benefit to the maturity of the policy. Single premium policies generate immediate cash value due to the size of the lump sum premium payment.
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as
one year term option the dividend is utilized to purchase one year term insurance.
unilateral
one-sided promise. only one party makes a legally enforceable promise. the insurance company promises to pay the policy proceeds at some future date or event
modifications
only an executive officer of the insurer can change the contract, not the agent
Which option is being used when the insurer accumulates dividends at interest, plus interest and then uses the accumulated dividends plus interest and the policy cash value to pay the policy up early?
paid up option
adjustable life insurance
option to adjust face amount, premium, type of protection, and/or length of protection without having to complete a new application or exchange policies allows conversion from one form of insurance to another and makes appropriate premium adjustments
riders
optional coverages that can be added to policies that provide additional benefits or protections. vary from policy to policy and company to company. aka addendums, additions, amendments, or additional policy benefits
payor rider
optional rider that costs extra and will pay the premiums of a juvenile policy if the owner dies or becomes disabled
guaranteed insurability rider
optional rider that enables the policyowner to purchase additional amounts of coverage at predetermined times without proof of insurability
waiver of premium rider
optional rider that requires an insurer to assume payment of premiums should the insured become totally disabled for six months for the duration of the disability
medical information bureau
organization that stores information from insurance companies and makes it available to other companies during the underwriting process. its purpose is to help prevent fraud and concealment by insurance applicants.
Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are reinvested as capital gains and used to reduce rates for policyowners paid quarterly to the corporate officers and directors as a bonus paid to the policyowners paid to the stockholders
paid to the policyowners
The insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest and the policy cash value, to pay the policy up early
paid up option
A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n) partial surrender waiver of premium automatic premium loan grace period
partial surrender
cash withdrawal
partial surrender not subject top interest so it isnt a loan will reduce the total cash value in the account rather than the face amount if withdrawal is later payed its teated as a premium payment
What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? nonparticipating life insurance policy participating life insurance policy divisible surplus life insurance policy straight life insurance policy
participating life insurance policy (A mutual insurer issues life insurance policies that provide a return of divisible surplus.)
Acme Partnership has three individual partners. The partnership itself owns, pays for, and is beneficiary of the life policies that insure the lives of the individual partners. This type of arrangement is called a partnership cross-purchase plan partnership purchase plan partnership entity buy-sell plan key person buy-sell plan
partnership entity buy-sell plan (An entity plan states that when a partner dies, that partner's interest is purchased by the partnership. The interest is then divided among the surviving partners.)
The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of any interest payable from an outstanding policy loan balance past due premiums that have not been paid by the end of the grace period the outstanding policy loan balance any surrender charges owed by the policyowner
past due premiums that have not been paid by the end of the grace period
limited payment whole life insurance
pay entire contract over shorter period of time or younger age EX 20 payment life and life paid up at age 65 not matured , but will provide protection and cash value accumulation until age 100 higher payments than continuous because similar value paid in shorter cash value is higher than continious shorter the pay period higher the premium
universal life
pay higher interest rates (8-12%) during inflationary times also alows policyowners to adjust the death benefits and/or premiums death protection is a one year renewable term insurance and the cash account grows according to current interest rates developed in response to the low interest rates (3.5-5%) earned by traditional whole life insurance cash values premium payments are separated and paid toward insurance protection; the loading cost and remaining balance is used to build the cash value with interest PO csn increase or decrease the death benefit subjec to insurability requirements premium pa
A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n) waiver of premium rider payor rider automatic premium loan rider juvenile waiver rider
payor rider
straight life income payout options
pays the annuitant a guaranteed income for the annuitant's lifetime. When the annuitant dies, no further payments are made to anyone. This offers protection against exhaustion of savings due to longevity.
return of premium rider
pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.
per capita
per person or by the head. paid only to naed beneficiaries who are living. proceeds go to named beneficiary
free look provision
permits PO to take specified number of days to examine the contract. if PO decides not to go with it the entire pemium is refunded by insurer vary in each state and range from 10-20 day periods (longer for senior insurance products) beings when PO recieves policy
policy change provision
permits insured to exchange policy for another type of policy permitted by the company if exchanged to higher premium, insured pas the higher premium and no proof of insurability is required if exchange is to lower premium, proof of insurability may be required
policy owner
person in an insurance contract that has all the rights contained in the policy; designated on the application and may or may not be the insured
primary beneficiary
person to receive face amount upon insureds death
spendthrift clause
person who spends money extravagantly protects proceeds of insurance against spendthift beneficiary proceeds will be paid in some way other than lump sum payments are protected from beneficiarys creditors also prevents beneficiary from transferring the proceeds, commuting proceeds, encumbering the proceeds
estate as beneficiary
polic proceeds may be payable to his executors, administrators, or assignees to pay estate taces, expenses or past illness, funeral expenses, and any other outsatanding debts
status type clause
polic will not pay in the event of death while insured is in military regardless of the cause of death even if the are home on leave and death had nothing to do with military
beneficiaries assignment rights
policy beneficiary can assign portion of the proceeds. however unless he is named irrevocable there is little to assign
accelerated death benefit
policy provision that allows full or partial payment of the policy's death benefit before the insured's death if he/she is terminally ill
cash nonforfeiture option
policyowner receives a lump-sum payment of the current cash value of the policy upon surrender of the policy. the policy cannot be reinstated.
expressed agent authorities
power or authority specifically granted in writing to an agent by the insurance company in their agency agreement.
implied agent authorities
power or authority that is not expressly granted by the company but that an agent can assume or that are implied he/she has in order to transact insurance business
apparent agent authorities
power or authority that the public reasonably assumes an agent has based upon his/her actions
modified whole life
premiums are lower than whole life during first few years (3-5) and than higher thereafter
graded premium policy
premiums for the policy increase regularly for 5 to 20 years and then level off. death benefit remains level.
characteristics of all whole life polcies
premiums remain level face amount remains level and will not change while policy is in effect guaranteed cash values non forfeiture value
level term life insurance
premiums remain the same thoughout the life of the policy
The major difference between participating and nonparticipating policies is the interest assumption premium payment method settlement options presence of policy dividends
presence of policy dividends
minor as beneficiary
presents problems minor wouldnt be legally able to recieve payment if insured dies before minor comes of age insurance company may hold onto the proceeds and pay interest, or company may insist that a trustee or guardian be appointed for the minor
accidental death & dismemberment
principal sum = death or loss of 2 or more primary parts capital sum= loss of one primary part
according to conditional rec. what could happen if the insured dies before policy is issued
proceeds will be paid to beneficiary if the company would have issued the policy to the proposed insured if he had been living proceeds will NOT be paid to the beneficiar if the company would not have issued the policy; instead the premium will be returned however, if applicant is found to be a substandard risk, the conditional receipt is null and void and no coverage would be effective until the substandard policy was delivered and the additional premium paid
payment of claims
producers responsibility to make sure the comapny is notified asap usually little to no delay in payment when company is given proper forms (usually a few days, required to pay within 60 days) policy is in force, beneficiary is available, no evidence of suicide within limitations of suicide clause and so on
cost of living
protect against inflation doesnt require proof on ins increase amount tied in with inflation index consumer price index
automatic premium loan (APL)
protects against lapsing of the contract if value is sufficient, a loan in the mount equal to the premium due is subtracted from cash value most caes this provision must be requested at time of application and cannot be added later
Decreasing term life insurance is often used to provide retirement funds provide coverage for a home mortgage accumulate cash value provide coverage for estate taxes
provide coverage for a home mortgage
In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST remit all past-due premiums within the grace period provide evidence of insurability to the insurer resubmit a new life insurance application provide a valid reason for the lapse
provide evidence of insurability to the insurer
The two major actions required for a policyholder to comply with the Reinstatement Clause are provide evidence of insurability, agree to a new incontestable period provide evidence of insurability, pay past due premiums pay past due premiums, agree to a new incontestable period pay past due premiums, agree to a reduction in coverage
provide evidence of insurability, pay past due premiums
Term insurance
provide insurance for specific tier called policy term (1 year, 5 year, 30 year etc... or til certain age) pay death benefit if insured dies during time of coverage do not accumulate cash value
payor rider
provides a continuance of insurance coverage on the life of a juvenile in the event of the death or disability of individual responsible of payment of premiums premiums will be waived until insured attains a specified age or maturity date of contract, whichever is earlier
temporary insurance agreement
provides applicant with the immediate life insurance coverage whether or not the individual is found insurable, while underwriting process is taking place insurer has right to cancel this coverage if the applicant fails to meet companys normal underwriting requirements however claims incurred during the underwriting period will be paid whether or not the app would have been approved
Fair Credit Reporting Act
provides individuals privacy protection and fair and accurate credit reporting. Insurance companies are required to notify applicants if a credit check will be made on them.
whole life insurance
provides insurance up to age 100 (althugh some mortality tables have been adjusted to 120) AKA permanent insurance consists of a type of savings element (advancing cash value) and a decreasing amount of net insurance when a whole life policy reaches its maturity date (100) or the insured dies the cash value would be the face amount
term insurance advantages
provides substantial coverage at minimum cost allows person with limited income to purchase more coverage that other wise affordable. (less expensive offers no cash value) EX husband has small whole life policy and becomes father of twins. now there is a need for large amounts of additional life insurance. term insurance would be helpful because lets sa he gets a 20 year limited term policy... when the term is up his kids will be old enough to start supporting themselves. often the additional insurance is added to the existing policy bu means of a rider
commissioner
public official in charge of the state's department of insurance. charged with regulating the insurance industry in his/her state by enforcing the insurance laws.
An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability. which policy provision allow this?
reinstatement provision
A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the mutual insurer reinsurer reciprocal insurer participating insurer
reinsurer
What is the automatic continuance of insurance coverage referred to as? renewal reinstatement resumption renovation
renewal
Statements made by an insurance applicant on an application are considered to be irrevocable warranties representations guarantees
representations
endorsement method
requires beneficiary change be typed or affixed directly to the policy. insured must make written request and mail the request with policy to insurance company
aviation exclusion
restrics coverage in event of death from aviation activites except when insured is a fare paying passenfer. found in double indemnity (accidental death) as well restrics coverage for military pilots and crew members. also deaths of test pilots, stunt pilots, student pilots or crop dusting pilots are not covered comercial airline pilots and crew members are usually covered at standard rates
self insurers
retain risks and must have a larger number of similar risks and enough capital to pay claims
An annuity is primarily used to provide retirement income disability income long-term care benefits death benefits
retirement income
qualified retirement plan
retirement plan that meets certain federal requirements and therefore qualifies for special tax treatment. plans must be 1. for the exclusive benefit of employees 2. in writing 3. nondiscriminatory 4. either defined benefits or defined contributions & 5. permanent
A life insurance policyowner does NOT have the right to change a beneficiary select a beneficiary take out a policy loan revoke an absolute assignment
revoke an absolute assignment
1944 United States v. South-Eastern Underwriters Association
ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation.
limited pay whole life
specifies a set number of years during which the policyowner must pay premiums. After premium is paid up, the policy remains in force for the insureds lifetime. Limited pay policies have higher premiums than straight life policies because the premium payment period is condensed.
guaranteed cash values
savings element that is guaranteed specified intrest rate little to no cash value in first couple years accumulate in 3rd year cannot be forfeited after accumulating cash value policy loan: when insured borrows cash from his cash value. -paid back with interest in order to restore policy values -amount borrowed and any acummulated interest due become an indebtedness againt the policy if the insured dies before the loan has repaid, and indeptednedd will reduce the face amount
Equity indexed annuities
seek higher returns these are not securities. They invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the equity indexed annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poohs 500
Term insurance is appropriate for someone who seeks living benefits for themselves seeks a policy that builds cash value seeks temporary protection and lower premiums seeks permanent protection and higher premiums
seeks temporary protection and lower premiums
ethics
setting a standard of conduct or behavior based on established values
Participating insurers allow their policyowners to share in any company earnings and receive a dividend receive preferred premium rates determine what type of insurance programs are offered skip premium payments without penalty
share in any company earnings and receive a dividend
adhesion
sine the insurer created all the documents of the contract, any ambiguities in the contract will be settled in favor of the insured. Since the insurer wrote the contract they are stuck with it.
government insurance
social insurance provides protection against universal risks by redistributing income to help people who cannot afford the cost of incurring such losses themselves
types of govt insurance
social security Medicare Medicaid SGLI- life insurance for military tri care- health insurance for military
Insurance transaction includes
solicitation, negociations, sale, advising and individual concerning coverage or claims
fraternal benefit societies
special types of mutual companies:nonprofit religious, ethnic or charitable organizations that provide insurance only to that members ex: knights of Columbus
nonrenewable term policy
specific term cannot be renewed an insured may always apply for a new policy but there arent any guarantees the risk will be accepted based on current underwriting standards
renewable term policies
specific term (EX 1 year renewable term insurance) may be renewed without evidence of insurability renewables have a limited age or number of renewals where you cannot renew any further premium is based on insureds age at time of renewal so they will increase every term annual renewal term (ART) is a less expensive form of term insurance
survivorship
surviving beneficiary will continue receiveing 2/3 of the beenfi paid when both were alive
The type of policy which pays on the death of the last person is called joint life survivorship life dual life shared life
survivorship life
The type of multiple protection coverage that pays on the death of the last person is called a(n) joint life policy survivorship life policy annuity joint policy dual life policy
survivorship life policy
inter vivos trust
takes effect during the lifetime of the grantor
For an individual who is not covered by an employer sponsored plan, IRA contributions are
tax deductible
FICA tax is applied to an employee's income up to a certain income amount. This amount is called average monthly wage taxable wage base average indexed monthly earnings primary insurance amount
taxable wage base
Paul v. Virginia case of 1869
the U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce.
law of agency
the actions of an agent/producer within the scope of the authority granted to him/her by the insurer become the actions of the company
equity indexed annuity
the annuity that has a guaranteed minimum interest rate and allows the annuitant to invest money in an index (i.e.: S&P 500). the investments grow as the index grows
Policy summary must include
the name and address of the insurer, and the generic name of the basic policy and each rider.
All of the following factors are used in the needs approach for determining the amount of required life insurance EXCEPT the monthly income the emergency fund period the education fund the percentage of future income
the percentage of future income (The percentage of future income is not used in the needs approach for determining the amount of required life insurance.)
blackout period
the period of time between the youngest child turning 16 and the widow(er) reaching retirement age during which no Social Security Survivor Benefits are paid to the surviving spouse.
annuitant
the person that buys an annuity; may or may not be an annuity's policyowner
The free-look provision gives the policyowner the right to return the policy for a partial refund within a specified number of days the right to contest the terms of the policy the right to change a policy provision the right to return the policy for a full refund within a specified number of days
the right to return the policy for a full refund within a specified number of days
Under an extended term nonforfeiture option, the cash value is converted to
the same face amount as in the whole life policy Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy
reinsurance
the sharing of risk between insurance companies. one insurance company sells part of its risk to another insurance company.
adverse selection
the tendency for less favorable risks to seek or continue insurance to a greater extent than more favorable risks
distribution system
the ways insurance products are marketed and sold to the public
Which of the following is TRUE about a nonforfieture values
they are required by state law to be included int he policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the pollicyowner. A table showing the nonf for the next 20 years must be included.
A field underwriter's main task is assign a risk classification to the insured report medical information to the Medical Information Bureau (MIB) to ensure an applicant's medical information is accurate and complete to approve or decline an applicant
to ensure an applicant's medical information is accurate and complete
indemnify
to make financially whole again; restore to the condition enjoyed before a loss was suffered; to replace what was lost. insurance is not designed for parties to profit from a loss
assignment
transfer of some or all the POs legal rights under the contract to another party does not usually grant owner/insured any rights to assign, but does set out procedures by which assignments may be made collateral, partial, conditional assignment; assigns some but not all policy right to an assignee. it transfers a portion of the ownership right temporarily. rights are returned when debt is paid. amount of assignment cannot excede amount of debt
facultative reinsurance
transferring risk from one insurance company to another on a policy-by-policy basis.
treaty reinsurance
transferring risk from one insurance company to another under a blanket agreement
mutualization/demutualization
transformation of a stock insurer into a mutual insurer (reverse)
whole life insurance
type of insurance where level coverage lasts until death or age 100 and then the policy matures and pays out either the face amount or the cash value. aka straight life, ordinary life, fixed, rigid or permanent
reciprocal insurers
unincorporated groups of individual members that provide insurance for other members through indemnity contracts. each member acts as both insurer and insured and add managed by attorney in fact.
A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called whole life group life credit life universal life
universal life
A life insurance policy that is subject to a contract interest rate is referred to as adjustable life group life term life universal life
universal life
life annuity/straight life annuity
upon maturity of an annuity contract the annuitant elects to receive fixed periodic payments for the rest of his/her life
cash settlement option
upon maturity of an insurance policy the beneficiary receives a lump-sum payment of the entire policy proceeds due.
fixed amount settlement option
upon maturity of an insurance policy the beneficiary receives periodic payments of a set dollar amount from the policy proceeds
interest settlement option
upon maturity of an insurance policy the beneficiary receives the periodic payments of the interest earned from the company's investment of the policy proceed
fixed period settlement option
upon maturity of an insurance policy, the beneficiary receives income from the policy proceeds for a stated period of time
life income settlement option
upon maturity of an insurance policy, the policy proceeds are used to purchase an immediate life annuity payable in periodic payments to the beneficiary for the rest of his/her life
Variable whole life insurance
was created to help offset the effects of inflation on death benefits. It's permanent life insurance with many of the same characteristics of traditional whole life insurance. The main difference is the manner in which the policy's values are invested. With traditional whole life, these values are kept in the insurer's general accounts and invested in conservative investments selected by the insurer to match its contractual guarantees and liabilities. With variable life insurance policies, the policy values are invested in the insurer's separate accounts which house common stock, bond, money market, and other securities investment options. Values held in these separate accounts are invested in riskier, but potentially higher yielding, assets than those held in the general account. The basic characteristics of a variable life policy are: fixed premiums, a guaranteed minimum death benefit which fluctuates over the minimum, and cash values which fluctuate and are not guaranteed.
voluntary assignment
when PO decides to gift or sell life insurance policy by assigning all rights to the assignee after assignment is made the PO has no means of recovering the surrendered rights
third party ownership
when a person(s) other than the insured purchases the insurance policy
ownership clause/applicant control
when insured is a minor, the aplicant can be the minors parent or relative/legal guardian allows parent to maintain policy until insured is of age
a trust as beneficiary
when owner of property (grantor) gives legal title of that property to another (trustee) to be used for benefit of third individual
Policy summary must be provided
when the policy is delivered
3 exceptions for payment less than face amount
when there is an outstanding loan against the cash value of a policy. amount of loan plus interest outstanding is deducted from face amount when a premium payment is due. if insured dies during grace period the amount of premium due is deducted from the face amount of the policy before payment is made when there is an error made in determing the age or gender of the insured when policy was issued. insurance company will pay the face amount that the premium would have purchased if the accurate info was used
payment of premium
when where and how premiums are to be paid usually paid in advance monthly, quarterly, semiannually, and anually
variable life insurance (VL)
whole life insurance with fixed premiums. cash value is invested in "separate accounts" a minimum death benefit is guaranteed but could increase if the investments do well
modified life policy
whole life insurance with reduced premiums during the initial years and higher premiums during later years. can be structured as term insurance during the initial years and changing to whole life in the later years
economic policy
whole life policy with a term rider that uses dividends to purchase additional paid up insurance as policy dividends are declared they are used to purchase additional paid up insurance paid up insurance is added resulting in term insurance being removed from the polciy and maintaining full face amount at no additional cost
An individual willfully violates the Fair Credit Reporting Act
will be subject to a penalty of up $2500.
Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds will no longer provide insurance protection will go to Mike's estate will be divided by probate will not be paid until the last brother dies
will no longer provide insurance protection
deferred annuities
will start providing income payments after the first year. Deferred annuities are usually purchased with either a single lump sum payment known as a Single Premium Deferred Annuity (SPDA) or from monthly payments known as Flexible Premium Deferred Annuity (FPDA). A Fixed Deferred Annuity, for example, pays out a fixed amount for life starting at a future date. Interest credited to the cash values of annuities are deferred until distribution. Other characteristics of deferred annuities include: • When a deferred annuity is cancelled during the early contract years, the insurer normally will assess a back‐end load known as a surrender charge • The "bailout" feature, sometimes found in single premium deferred annuity contracts, waives surrender charges when the interest rate falls below a stated level • Before a deferred annuity contract can be terminated for its surrender value, the insurer must first obtain authorization from the owner • The accumulation value of a deferred annuity is equal to the sum of premium paid plus interest earned minus expenses and withdrawals
when and how can you pay a premium?
• Annual • Semi-Annual • Quarterly • Monthly
Advantages of Whole Life
• Covers the entire life of the insured • Living benefits - cash value and policy loans • Fixed premiums
A renewable Term Life insurance policy allows the policyowner the right to renew the policy at anytime the policyowner chooses as many times as the policyowner chooses paying the same premium as before the renewal without producing proof of insurability
without producing proof of insurability
Loans obtained by a policyowner against the cash value of a life insurance policy are treated as taxable income would not be treated as taxable income are limited by the face amount of the policy would be subject to a Federal estate tax
would not be treated as taxable income
joint life policy
written with 2 or more persons as named insured insured amount payable on the death of the first insured
eligibility of group members for group life insurance
• Employee must be full time and actively working • If contributory, employees must approve of automatic payroll deduction • New employee probationary period is usually 1 to 6 months • The employee has 31 days during the enrollment period to sign up, otherwise they may need to provide evidence of insurability
who can be a beneficiary?
• Individuals • Businesses • Trust • Estates • Charities • Minors • Class (having a group named as the beneficiary instead, such as the children of the insured)
Death Benefit Settlement Options Lump sum interest only fixed period fixed amount life income joint and survivor
• Lump Sum: Death benefit is paid in a single payment • Interest Only: Insurance company holds death benefit for a period of time and pays only the interest earned to beneficiaries. • Fixed Period: Also called period certain. The fixed period option is when the insurer pays proceeds (including interest and principal) in minimum guaranteed dollar payments over a specified number of years. • Fixed Amount: The fixed amount installment option pays a fixed death benefit in specified installment amounts until the proceeds are exhausted. The larger the installment payment the shorter the payout period. • Life Income: The life income option provides the beneficiary with an income that they cannot outlive. Installment payments are guaranteed for as long as the recipient lives, the amount of each installment is based on the recipient's life expectancy and the amount of principal. This gives the potential for a greater return, or the potential for greater loss, based on how long the insured lives • Joint and Survivor: Benefits will be paid on a life-long basis to two or more people.
types of beneficiaries
• Primary: First in line to receive death benefit proceeds • Secondary (contingent): Second in line to receive death benefit proceeds if primary beneficiary dies first • Tertiary: Third in line to receive death benefit proceeds. If no one named, death benefit will go to insured's estate.
Drawbacks of Whole Life
• Protection is more expensive because of living benefits • Premium paying period may extend beyond the income-earning years
