Life Insurance
Survivor Protection
Providing funds for surviving spouses and dependents.
Human Life Value
This approach is a measure of the projected future earnings and services of a person at risk in the event of a premature death. The objective is to provide the proper amount of coverage as determined by the value of the individual to his/her dependents using the following factors: The individual's age and gender The individual's occupation The individual's annual wage The individual's planned retirement age Inflation
A generic brochure was developed by the ________ to assist prospective buyers of life insurance, which includes descriptions of all the basic types of life insurance and comparisons of their relative costs. A. NAIC B. FIO C. SEC D. FINRA
A
Why have many states prohibited STOLI transactions? A. It is a violation of the insurable interest rule B. Consumers are not reporting the cash received as taxable income C. Mostly the investors are not licensed to conduct such a transaction D. The amount the policyowner obtains is too little in relationship to the death benefit
A
An applicant submits the initial premium at the time of application and is provided a conditional receipt requiring a medical exam to determine insurability. The applicant is killed in a car accident before the medical exam can be performed. Which of the following statements regarding coverage is correct: A. Coverage is dependent on the insurer completing the underwriting process to determine if the policy would be issued as applied. B. There is no coverage. C. Coverage is effective on the date of the application. D. Temporary term insurance is used to pay the death benefit.
B
Which of these modes would result in the insured paying the least amount per year for life insurance? A. Quarterly B. Annual C. Semi-annual payroll deduction D. Monthly automatic bank draft
B
In a policy summary all of the following must be shown on both a guaranteed and non-guaranteed basis, except: A. Interest rates B. Premiums C. Cash values D. Dividends
D
Any attempt by the existing insurer or agent to deter a policyowner from the replacement of an existing life insurance or an annuity is called: A. Anti-consumerism B. Intimidation C. Conservation D. Servicing
C
Cash Accumulation
Life insurance other than term may develop cash value over time, which may later be borrowed or withdrawn prior to the death of the insured.
When an insurer requires that an insured be subjected to a medical examination, who pays for the medical exam? A. The Insurer B. The Applicant C. The Producer D. The Insured
A
Third-Party Ownership
A policy owned by a person other than the insured.
Nonmedical Application
An application used when a policy requested does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required initially. On the basis of answers provided in a nonmedical application, the underwriter may order additional medical testing, such as collection of blood and urine, EKG, physician exam, etc., prior to accepting the proposed insured.
Replacement
Any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be: Lapsed, forfeited, surrendered, or terminated Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values Amended to reduce the benefit or term in which the coverage would remain in force Reissued with a reduction in cash value Pledged as collateral or subjected to borrowing for amounts in the aggregate exceeding 25% of the loan value set forth in the policy
An insurance policy's face amount can also be called? A. The cash value B. The limit of liability C. The cash surrender value D. The maximum loan value
B
What information must appear on the policy summary provided to a life insurance client? A. The producer's agency's name and address B. The producer's name and address C. The producer's name and home address D. A copy of the producer's license
B
What is earned by a life insurer for each day a life insurance policy is in force? A. Interest and dividends B. Premiums C. Commissions D. Respect and trust
B
Regarding insurable interest which one of the following is false? A. A creditor has an insurable interest in one of their debtors B. A parent has an insurable interest in his/her son or daughter C. An insurable interest exists in cases where a financial or economic loss by the insured results in the event that the policy owner dies D. An individual has an insurable interest in his or her own self
C
When producer Pete delivers a policy, he should also do which of the following? A. Collect any amounts due for postage and handling B. Demand the balance of the annual premium C. Explain the policy, provisions, riders, and any exclusions D. Collect at least 3 referrals
C
A personal use of life insurance does which of the following? A. Creates an insurable interest B. Compensates a business for the death of a key person C. Provides protection against living too long D. Creates an immediate estate
D
Effective Date
The date when insurance coverage begins.
Expiration Date
The date when insurance coverage ends.
Viatical /Life Settlements
An individual selling an owned insurance policy to a third party for less than the death benefit but more than the cash values in order to obtain funds when no other sources are readily available.
A group plan is designed to insure all of the following, except: A. Employees B. Creditors C. Members D. Debtors
B
Life insurance applications generally ask for all of the following types of information, except: A. Ownership B. Personal C. Level of Education D. Beneficiary
C
A producer must include their name and address on which of the following? A. An insurance policy's cover page B. A buyer's guide C. Any policy amendment or rider D. A policy summary
D
A producer provided a conditional receipt to an applicant who paid the first premium with the application. The applicant died before a policy was issued. If the insurer denies the claim, which party would have to prove the reasons for its actions if the claim was challenged? A. The beneficiary B. The insured C. The agency D. The insurer
D
If a client chooses to pay premiums other than annually, what can he or she expect? A. Higher surrender charges on some policies B. Lower overall total premium costs C. Better client service D. Additional charges to offset lost interest, earnings, and increased administrative costs
D
Conservation
Includes any attempt by the existing insurer or agent to deter a policyowner from the replacement of existing life insurance or an annuity. This does not include late payment reminders or reinstatement offers.
Attained Age
Insured's age at any point in time typically used at renewal or conversion.
Issue (Original) Age
Insured's age on the policy issue date
Estate Creation
Life insurance proceeds provide financial assets to create an immediate estate the insured can pass on to survivors.
Replacing insurer
The insurer that issues a new policy which is a replacement of an existing policy or annuity contract.
Existing insurer
The insurer whose policy is or will be changed or terminated through a replacement.
A life insurance applicant pays the initial premium at the time of application and receives a Conditional Receipt. If coverage is issued as applied for, when did coverage go into effect? A. The date of the application or upon the completion of any required medical exam (whichever is later) B. The day the check clears the bank C. The date the policy was delivered D. The date the policy was issued
A
An applicant for life insurance realizes several days later that she may have answered a question about a health issue incorrectly. She should do which of the following? A. Contact either her agent or the insurance company and make sure they have the correct information. B. Nothing. Answers in the application must only be true to the best of her knowledge at the time she submits the application. C. Hope that nothing happens in the first year after the policy is issued, because after that it won't matter if the answer was or wasn't correct. D. Wait to find out if she is approved for the insurance first, and then she can let the company know she may have made a mistake.
A
A STOLI transaction is best defined as which of the following? A. Beneficiaries selling the annuitized benefit they are receiving for immediate cash B. Inducing insureds who do not need and cannot afford life insurance to buy a policy and sell it for cash C. Electing a settlement option for the beneficiaries at time of application D. Beneficiaries choosing one of the settlement options the policy provides
B
Geographic location or personal information such as occupation, marital status, and relationship of insured to beneficiary or known or suspected homosexuality or bisexuality cannot be used to require a(n): A. Dental exam B. HIV test C. Eye exam D. Foot exam
B
In a STOLI transaction, what are the insureds basically doing? A. Borrowing the necessary funds from a third party in order to acquire the amount of insurance they need B. Selling their mortality to another for up-front cash C. Committing a misdemeanor punishable by monetary fine and forfeiture of the policy issued D. Overinsuring themselves
B
All of the following are acceptable methods of policy delivery, except: A. Registered or certified mail with a signed receipt of delivery B. Personal delivery, with signed receipt of delivery C. Leaving it with a neighbor if they are not at home at their scheduled delivery appointment time D. Delivered by reasonable means, as determined by the Commissioner, Director, or Superintendent of Insurance
C
All of the following are things a producer should do when meeting with the client after the policy has been issued, except: A. Go over the benefits and ratings B. Review any endorsements and riders C. Disclose the amount of commission earned on the sale D. Explain the policy to the applicant
C
Expense loading ___________ from company to company. A. Is the same B. Is lower C. Varies D. Is higher
C
Mortality cost ______ interest (investment earnings) = equals the pure rate. A. Plus B. Divided by C. Minus D. Multiplied by
C
A(n) ________ report is a general report of the applicant's finances, character, morals, work, hobbies, and other habits. A. Attending physician's B. Agent's C. Motor vehicle D. Inspection
D
An application is submitted without the initial premium. Upon delivery of an issued policy, the producer is responsible for all of the following, except: A. Collecting the premium B. Explain the benefits, ratings, riders, and exclusions C. Obtaining a Statement of Good Health D. Perform a medical exam
D
Who is required to sign a completed application? A. The beneficiary B. The producers manager C. Any insurance company officer D. The producer and applicant
D
Information required
In California, life insurance applications generally ask for the following types of information: Personal - Includes name, address, driver's license number, Social Security number, income, employment, tobacco use, number of dependents, etc. Ownership - Establishes who will actually own the policy and be responsible for paying the premiums. Product - The policy, riders, and options for which application is being made. Beneficiary - Who will receive the benefit and the payout order (primary vs. contingent). Business Coverage - Used only if the policy is being purchased for business uses. Premium - How premiums will be paid (direct bill, electronic transfer, etc.) and how often they will be paid (annually, quarterly, etc.) Existing Coverage - Any insurance policies already covering the proposed insured. Limited Temporary Life Insurance Eligibility - Determines if the proposed insured is eligible for coverage until the policy is issued. If not, no policy will be issued and any payment made will be refunded. Nonmedical Questions - Information regarding foreign travel, high risk occupations, and hazardous hobbies. It also determines if the applicant has already applied for coverage, been rejected for coverage, or applied for bankruptcy.
Estate Conservation
Provides money to pay any estate taxes or loans which must be satisfied upon the death of the insured, preserving the insured's estate.
An insurer is required to deliver a life insurance policy to the owner in order to start the: A. Free look period B. Coverage C. Probationary period D. Grace period
A
California law requires that the purchaser of life insurance be provided with a copy of the Buyer's Guide to Life Insurance not later than: A. The time of policy delivery B. One month following the first premium due date C. The date of application D. The first policy anniversary
A
If a client is unsure about whether or not he/she can obtain coverage or how much it would cost, what can the producer suggest to see what the insurer can do without tying up any of the client's funds? A. Submit a trial application B. Issue a binding receipt C. Submit a whole life application D. Submit a term life application
A
The insurance company must meet requirements under the _____ when gathering information about an applicant from a third party. A. FCRA B. SEC C. NAIC D. FINRA
A
The process of calculating life insurance net premium requires consideration of all of the following, except: A. The morbidity rates to be used B. The insured's gender C. The insured's age D. The rate of interest assumed
A
Under California life insurance replacement legislation, conservation is defined as: A. An attempt by the existing insurer or agent to keep a policy in force where replacement is contemplated B. An attempt on the part of the replacing insurer to have one of their policies replace 2 of the existing insurer's policies C. Replacing an existing policy with a new policy in order to reduce premium D. Any transaction in which new life insurance is to be purchased and it is known to the agent that existing insurance will be forfeited, lapsed, or surrendered
A
What is the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid? A. There must be an insurable interest B. They must be married C. They must be dating D. They must work together
A
When determining an appropriate amount of life insurance, an agent takes into consideration the existing mortgage and other debt, future education expenses for the client's children and continuing income for his surviving spouse. This approach is known as: A. Needs Analysis B. Human life value C. The DIME method of insurance planning D. The NAIC mode
A
Which of the following is not a major source of underwriting information? A. Past life insurance owned B. Attending Physician's Statement C. Medical exams D. The application
A
In a replacement transaction, the insurer that is having its policy replaced is known as the _______ insurer. A. Replacing B. Existing C. Insolvent D. Conserving
B
Which of the following best describes producer field underwriting? A. Obtaining the applicant's medical records, conducting a credit history check, and logging in to the MIB B. Taking the time to probe beyond the stated questions on the application based upon the applicant's responses C. Interviewing the applicant's neighbors about the applicant's morals and character D. Conducting blood pressure readings, taking the applicant's pulse, and drawing blood
B
Which of the following transactions is not defined as a replacement? A. Any transaction in which the proposed life insurance is to replace life insurance issued by the same insurer B. Any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be subjected to borrowing for amounts in the aggregate exceeding 25% of the loan value set forth in the policy C. Any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values D. Any transaction in which new life insurance or an annuity is to be purchased and it is known that the existing contract will be lapsed, forfeited, surrendered, or terminated
A
Pre-need Plan
A type of coverage with a small face amount ($50,000 or less), typically purchased to pay the burial expenses of the insured.
All of the following are true of a substandard risk, except: A. The insured may be rated as older than their actual age B. The insured may have a flat additional premium added to their base premium C. The premium would be discounted D. The coverage could be reduced for a period of time
C
A signed statement by the applicant as to whether replacement of existing life insurance or annuity is involved in a transaction is the: A. Sales proposal B. Conservation statement C. Policy summary D. Notice Regarding Replacement
D
The human life value approach in determining the amount of life insurance someone needs takes into consideration all of the following, except: A. Personal and financial information of those living at home with the insured B. Planned retirement age C. Occupation D. The number of cars the insured and family members own
D
Part 2 of the application consists of all of the following information, except: A. Date of birth, gender B. Surgeries C. Hospitalizations D. Past and present health
A
Policies that may pay dividends to the policyowner are known as: A. Participating B. Mutual C. Proactive D. Interactive
A
Which one of the following is not required to sign a life insurance application? A. The beneficiary B. The guardian of a minor applicant C. The applicant/insured D. The producer
A
If after a policy has been issued and delivered, the insurer discovers unanswered questions on the application, what can the insurer legally do at this point? A. Cancel the policy B. Nothing, the insurer has waived its right to that information C. Increase the policy's premium D. Require the applicant/insured to answer the questions and re-underwrite the policy
B
Which of the following is true? A. Any changes to a policy must be approved by both the insured and policyowner in writing B. The insured and the policyowner are usually the same, but not necessarily C. The applicant, insured, and policyowner must approve any changes to a policy in writing D. The insured and the policyowner are always the same
B
Which of the following statements correctly describes the difference between gross premium and net premium? A. Net premium is the total paid to the insurance company each month; Gross premium is described in terms of the number of dollars per $1000 a person pays for his/her insurance. B. Gross premium is the total amount paid for the policy. Net premium does not include the insurance company's cost of doing business, such as paying commissions and other expenses. C. Gross premium is what the insured pays to the insurance company each month; Net premium is what the agent's commission is based on. D. Net premium is the cost per $1,000 of insurance; Gross premium excludes insurance company expenses.
B
The needs analysis approach in determining the amount of coverage someone needs takes into consideration all of the following, except: A. Paying off the mortgage B. Providing a surviving spouse with a lifetime income C. Providing education funds for the children D. Receiving raises and bonuses by the insured over the years
D
What should a producer do if the policy applied for is issued at a higher rate than was expected? A. Immediately return the policy to the home office because the applicant will never accept it B. Deliver the policy to the applicant and have the home office reduce the commission payout to cover the higher premium C. Have the home office re-issue the policy for a reduced amount of coverage for the original premium quoted so that it will be easier to explain at time of delivery D. Personally deliver the policy, explain the rating, and reinforce the value of the policy
D
When reviewing an application, the underwriter decides to reclassify the risk. What does that mean for the client? A. The policy period could lengthen or shorten B. The death benefit could increase or decrease C. The mode could increase or decrease D. The premium could increase or decrease
D
Which of the following describes group life insurance? A. A single policy issued to a group of individuals who have formed an alliance to obtain life insurance at reduced rates. B. A single policy issued to an individual covering husband, wife and children. C. Multiple policies issued to an employer to cover a specific group of executives. D. A single policy issued to a business to cover the lives of employees.
D
Liquidity
Immediate funds available upon death to pay creditors, taxes and final expenses, as well as cash values available for policy loans, withdrawals, and full surrenders.
Solicitation
Soliciting insurance can be done through traditional forms such as advertising in local print media, on radio or television, or through direct mail. Seeking opportunities to conduct sales appointments with potential clients is also considered solicitation. Many producers also obtain referrals from new and existing clients, who lend credibility to the producer and his/her products and services. Contacting these referrals is solicitation, and is also protected by other laws which may require prior approval to contact.
Policyowner
The individual who has ownership rights in a policy. The policyowner and insured are usually the same, but not necessarily.
Insured
The individual whose life is covered under the policy. The insured's death results in the payment of the policy proceeds.
Insurable Interest
The relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid. An individual has an insurable interest in his or her own self. Insurable interest also exists if a financial or economic loss by the owner results in the event that the insured dies. Examples of insurable interest include a policy taken out on a family member, business partner, or debtor of the policyowner.
Needs Analysis Approach
This approach determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be immediate and factors the following steps into arriving at the proper amount of coverage needed: Calculate all financial needs caused by an immediate death, including debts, medical bills, and final expenses Provide lifetime income to the spouse Pay off a mortgage or other debt Provide funds for children's education An Emergency Reserve Fund may be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured Subtracts any assets available to fund financial needs after death (such as retirement plan assets, other insurance, liquid investments, separate savings)
Charities
To help fund favorite charitable organizations upon the insured's death, new or existing policies may be donated to charities.
Collecting the Initial Premium and Issuing the Receipt
Whenever possible, a producer should collect the initial premium and submit it along with the application to the insurer. The types of receipts that can be issued when a premium is submitted with the application are: Conditional Receipt - Provides that coverage is effective as of the date of application or date of completed medical exam (if required), whichever is later, as long as the insurer would have issued the policy as standard or better. This receipt provides conditional coverage even if the underwriting process has not been completed. If an applicant is a substandard risk, there is no conditional coverage. Temporary Insurance Agreement is a receipt that provides immediate coverage during the underwriting period (rather than a specified number of days) until a policy is issued or the application is declined.
