Chapter 2 - Life Insurance Basics Flashcards
Once a viatical contract has been established, how long does the viator have to rescind the contract?
15 calendar days
The mode of premium payment
Is defined as the frequency and the amount of the premium payment
In order to become licensed to become a viatical settlement provider, an application must be made with
The insurance department
What is true of buy-sell agreements?
Buy-sell agreements are normally funded with a life insurance policy
When is the earliest a policy may go into effect?
When the application is signed and a check is given to the agent
An applicant wants to buy a life insurance policy in which he can count on receiving the same benefits as stated in the contract. Which type should he buy?
Fixed policy, which offers minimum guaranteed or fixed benefits stated in the contract.
Who must have insurable interest in the insured?
Policyowner
What method of calculating the amount of life insurance needed takes into account the insured’s wages, years until retirement, and inflation?
Human life value approach
Are insurance company underwriters allowed to discriminate?
Yes, but not unfairly. The company will discriminate in favor of good risks and not of poor risks; it cannot discriminate unfairly by using factors such as race or national origin
What is the best reason to purchase life insurance rather than annuities?
To create an estate
What best describes gross annual premium?
Net premium plus expenses
When an employer offers to give an employee a wage increase in the amount of the premium on a new life insurance policy, this is called…
An executive bonus
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?
Variable life policies vary in value, because the value is based on the stocks that support the policy.
If an insurer issued a policy based on the application that had unanswered questions, what happens?
The policy will be interpreted as if the insurer waived its right to have an answer on the application.
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 the agreement?
Any form of insurance
What rule would apply if an agent knows an applicant is going to cash an old policy and use the funds to purchase new insurance?
The replacement rule
An applicant wants to buy a policy that has a cash value element which type should she buy?
Permanent, provides lifetime death protection and a savings or cash value option.
Are insurance company underwriters allowed to discriminate?
Yes, but not unfairly.
An underwriter may obtain information on an applicant’s hobbies, financial status, and habits by ordering an…
Inspection Report
An insurer invests the money it receives from premiums paid by its insureds. What happens with the interest earned on these investments?
They are used to lower premiums.
Who effectuates viatical settlement contracts?
Viatical settlement providers
If a viatical settlement provider transfers ownership of an insurance policy, how long does the insurer have to inform the insured of the change?
20 days
An insurer wants to begin underwriting procedures for an applicant. What source will it consult for majority of its underwriting information?
Application
What is the purpose of the buyer’s guide?
To allow the consumer to compare the costs of different policies.
Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called…
Suitability, which ensures that, to the best of their belief, the purchase, sale or exchange of a policy is in the best interest of the insured
A corporation is the owner and the beneficiary of the key person life policy. If the corporation collects the policy benefit, then…
The benefit is received tax free.
Why should the producer personally deliver the policy when the first premium has already been paid?
To help the insured understand all aspects of the contract.
If a policy includes a free-look period of at least 10 days, the Buyer’s Guide must be delivered to the applicant…
With the policy
What would be the best option to help a surviving spouse of an insured put her child through daycare after the insured’s death?
Life insurance proceeds
What is the purpose of a conditional receipt?
It is intended to provided coverage on a date earlier than the date of the issuance of the policy.
Insurable Interest
A relationship between the policyowner and the insured based off of love, affection, or money. Must exist at the time of application.
Survivor Protection
Providing funds necessary for the survivors of the insured to be able to maintain their lifestyle after the insured’s death.
Liquidity
The policy’s cash values can be borrowed against at any time and used for immediate needs
Viatical Settlements
Allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed
Viator
Refers to insured; owner of a life insurance policy
Chronically Ill
Unable to perform 2 activities of daily living
Terminally Ill
Expected to result in death within 24 months
Viatical Settlement Broker
A licensed person that negotiates viatical settlement contracts between viator and viatical settlement providers.
Viatical Settlement Provider
A person who enters into or effectuates a viatical settlement contract.
Viatical Settlement Purchaser
Anyone who gives a sum of money a consideration for a life insurance policy or interest in the death benefits of a life insurance policy; a person who owns, acquires or is entitled to a beneficial interest in a trust
Viatical Settlement Providers must obtain…
A witness document, a document giving the insured’s consent to the release of medical records, a document giving the insured’s consent to the tolling of the running of the policy’s contestable period until after the insurer completes its good faith investigation
Licensure in Viatical Settlements
A license may be obtained by applying to the Department; for licensure as a provider, there’s a $300 fee and for licensure as a broker, there’s a $100 fee
Human Life Value Approach
Human life value approach gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured
Needs Approach
Based on the predicted needs of a family after the premature death of the insured, such as income, the amount of debt, investments, and other ongoing expenses.
Cross Purchase
Each partner buys a policy on the other
Entity Purchase
Used when the partnership buys the policies partners; business pays for policy, business is beneficiary
Stock Purchase
Each stockholder buys a policy buys a policy on each of the others
Stock Redemption
Corporation buys one policy on each shareholder
Executive Bonus
Wage increase for your own personal policy; tax deductible to the employer and income taxable to the employee
Term Life Insurance
Temporary life insurance for a specific period of time. Also known as pure life insurance.
Permanent Life Insurance
Whole life policies that remain in effect to age 100, as long as the premium is paid. Provides a savings element (cash value)
Fixed Life Insurance or Annuities
Contracts that offer guaranteed minimum or fixed benefits that are stated in the contract.
Variable Life Insurance or Annuities
Contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance. Invested in stock market; no guarantees on your money
Individual Life Insurance
Written on a single life
Group Life Insurance
Written as a master policy covering the lives of more than one individual; Group receives certificate
Solicitation of Insurance
Means an attempt to persuade a person to buy an insurance policy, done orally or in writing
Replacement
A practice of terminating an existing policy or letting it lapse, and obtaining a new one; Put into effect to avoid fraud
Duties of Replacing Producer
Present applicant with Notice Regarding Replacement that is signed by both the applicant and the producer; Obtain a list of all existing life insurance and/or annuity policies to be replaced; Leave the applicant with the original or a copy of written; Submit to the replacing insurance company
Duties of the replacing insurance company
Require from the producer a list of the applicant’s life insurance or annuity contracts to be replaced; Send each existing insurance company a written communication advising of the proposed replacement
Guaranty Associations
Protect policyowners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers
