Ch. 2 (Life Insurance Basics) Flashcards
Mortality tables are used by insurance companies to predict what?
Life expectancy and death rates for specific groups of individuals.
What are the personal uses of life insurance?
Survival protection, estate creation and conservation, cash accumulation, and liquidity.
Life insurance may be used to pay state inheritance taxes and federal estate taxes, eliminating the need to sell assets from the estate. What is this process called?
Estate conservation.
When must the policy summary for a life insurance policy be delivered to the policyowner?
At the time of policy delivery.
When must insurable interest exist in a life insurance policy?
At the time of application.
Who is responsible for the contents of insurance advertisements?
The insurance company.
What is the main responsibility of an insurance company’s underwriting unit?
Risk selection.
At what point does coverage begin when an insurance company issues conditional receipt for a life insurance policy?
Either on the date of the application or the date of the medical exam (whichever occurs last).
What is the purpose of the agent’s report during the application process?
The agent’s report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.
Which document describes the specific information about a policy?
Policy summary.
What type of insurance creates an immediate estate?
Life insurance.
Who is the beneficiary on a key-person life insurance policy?
The employer.
What is included in part 2 of a life insurance application?
Medical information about the prospective insured.
A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?
The benefit is received tax free.
What term describes the fee a person pays an insurance company to receive coverage.
Premium.
What does liquidity mean in life insurance policy?
Availability of cash value.
Can insurers advertise the existence of a guaranty association during solicitation and sales of insurance policies?
No, advertising of the existence of the guaranty association for purposes of solicitation and sale of the insurance policy by insurers is an illegal business practice.
Who must have insurable interest in the insured?
The policyowner.
In calculating the amount of life insurance needed, what is the needs approach based on?
The predicted needs of the family after the premature death of the insured.
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?
The existence of insurable interest between the applicant and the insured.
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
It will decrease.
What are the three main instances when insurable interest exists in life insurance?
Insuring your own life, the life of a family member, or the life of a business partner, or someone who has a financial obligation to the policyowner.
How does the premium mode affect the total premium paid for insurance for the year?
Higher frequency of premium payments will result in higher overall premium.
What is the purpose of insurance guaranty associations?
To protect policyowners, insureds, and beneficiaries from financial losses causes by insolvent insurers.
What are illustrations in a life insurance policy?
Presentations of nonguaranteed elements of the policy.
Who must be a member of insurance guaranty associations?
All insurers authorized to write insurance within a state.
What type of life insurance offers an applicant a cash value element?
Permanent insurance (usually, whole life).
What is insurance underwriting?
The process of risk selection and classification.
What is the purpose of key person insurance?
To minimize the risk of financial loss caused by the death of a key employee.
When planning for survivor protection in life insurance, what needs to be considered?
The insured’s current assets, liabilities, and the survivor’s needs.
What are the three factors that determine the premium for a particular life insurance policy?
Mortality, interest, and expense.
What is the term that describes the frequency and the amount of the premium payment?
Premium mode.
All other factors being equal, which premium payment mode will require an over higher premium: monthly or annual?
Monthly.
