Basics of Life Insurance Flashcards
Life Insurance
Insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary.
Contract providing for a payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured’s death before the end of the stated period.
endowment
Multiple choice: Which of the following is NOT a component of the gross premium? A) Mortality B) Interest C) Policyholder’s age D) Expenses
C) Policyholder’s age.
What is the difference between net premium and gross premium?
Net premium is the premium excluding expenses, while gross premium includes both the net premium and all expenses.
Fill in the blank: The _______ premium is calculated by adding the expected mortality costs to the interest and expenses.
gross
True or False: The net premium is the total amount charged to the policyholder including all expenses.
False.
What are the three main components that make up the premium in insurance?
Mortality, interest, and expenses.
Which of the following is NOT a typical funding method for a buy-sell agreement? A) Life insurance B) Savings accounts C) Business loans D) Real estate investments
B) Savings accounts
What is the primary purpose of deferred compensation plans?
To allow employees to postpone receiving a portion of their income until a later date, often to reduce current taxable income.
Fill in the blank: An executive bonus plan is a type of ______ that provides additional compensation to key executives as a tax-deductible expense for the employer.
incentive plan
True or False: Key person coverage is intended to protect a business from financial loss due to the death or disability of a vital employee.
True
What is a buy-sell agreement?
A legally binding contract that outlines how a business will transfer ownership in the event of an owner’s death, disability, or other predetermined events.
business continuation plans
entity plan or cross-purchase plan
An agent may conduct a _________________ interview to get more information when using the needs approach.
data gathering or fact-finding
Final expense, debt payoff, money for college education, and creating an emergency fund would best be described as
cash needs- those that can be met with a lump sum of money
What is a key difference between the human life value approach and the needs approach?
The human life value approach is based on potential future earnings, while the needs approach is based on the current and future financial needs of dependents.
Which approach to life insurance is more focused on individual financial circumstances, the human life value or the needs approach?
The needs approach
Fill in the blank: The needs approach considers various factors such as debts, __________, and future expenses to determine the appropriate life insurance coverage.
dependents’ needs
True or False: The needs approach to life insurance focuses on the insured’s future earnings.
False
What is the human life value approach in life insurance?
The human life value approach estimates the economic value of a person’s future earnings and contributions to their dependents.
Liquidity refers to
how easily an asset can be turned into cash without loss of value.
Personal USES for life insurance are
survivor protection, mortgage payoff, estate creation or conservation, liquidity, and cash accumulation
It is assumed that you have insurable interest in yourself when
the applicant and insured are the same person.
While property and casualty require insurable interest exist at the time of loss, life insurance requires insurable interest be present
at the time of application ONLY
Business insurable interest may be between
business partners; corporations and their officers; and any business and their key employees.
In the personal insurance market, what are the common types of insurable interest?
between spouses or domestic partners; between parents and children; and among close family members
The person applying for a life insurance policy must be at risk of suffering significant loss if the insured dies. This is considered to have _________ in the life of the insured.
Insurable interest
What is third-party ownership as it relates to a life insurance policy (contract)?
When the policyowner is someone other than the insured.
