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Money > Insurance > Flashcards

Insurance Flashcards

Mastery of terms and knowledge of insurance

1
Q

Are there any prerequisites to the insurance licensing exam?

A

In a number of states specific pre-licensing educational requirements have been prescribed for certification of completion prior to testing.Contact your state’s Department Of Insurance.

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2
Q

What topics are covered on the exam?

A

A broad range of topics are covered in the exam generally available in an outline available from the test administrator. The outline will indicate the number of questions and relative weight of each section in the exam.

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3
Q

Successful Test Taking Tips Include:

A
  1. Read the full question
  2. Avoid jumping to conclusions
  3. Interpret the unfamiliar question
  4. Identify the intent of the question
  5. Memorize key points
  6. Beware of changing answers
  7. Pace yourself
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4
Q

The Role Of Insurance:

A

Economic protection from death, illness, and accident

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5
Q

Life Insurance:is for the purpose of

A

Guarantees a specific amount of money upon death of the insured creating an immediate estate

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6
Q

Annuities:

A

Provide an income stream for a specified period or for life

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7
Q

Risk Pooling:

A

Transferiing risk from an individual to a group

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8
Q

Law Of Large Numbers:

A

Based on probability, mortality and morbidity statistics. The larger the number of individual exposures in a group the more certain the amount of the loss.

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9
Q

Loss inherent in a risk is characterized by

A

a lessening or disappearance of value

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10
Q

Speculative Risk

A

Involves the chance of Loss or Gain, like betting

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11
Q

Pure Risk

A

Involves only the chance of Loss. Only Pure Risk is insurable

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12
Q

Term Insurance may be defined as

A

Pure protection for a specified number of years that furnishes the maximum amount of protection for the lowest annual cost

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13
Q

Level Term Insurance means

A

The premium and face amount of the policy remain the same

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14
Q

Decreasing Term Insurance means

A

The premium stays the same but the face amount decreases

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15
Q

Increasing Term Insurance means

A

Face amount that grows over time and is often used as a rider

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16
Q

Return Of Premium Insurance means

A

A portion of the premium will be returned if the insured does not die. Premiums will be higher based on the percentage to be returned

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17
Q

Who is the Policyowner

A

The individual who pays the premiums and has other rights e.g. naming the beneficiary, receiving the dividends,and borrowing from the cash value.

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18
Q

Who is the Beneficiary

A

The person, organization or trust which will receive the benefits upon death of the insured.

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19
Q

Industrial Life Insurance qualities

A 
Face Amount generally $2500 or less and never more than $10,000
Uses the next birthday for age
No Suicide Clause
No Medical
No Free Look
Agent collects at home
Most expensive coverage
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20
Q

Adverse Selection is

A

a case of increased risk

21
Q

Renewable Term Insurance allows

A

renewal without proof or evidence of insurability

22
Q

Convertible Term Insurance allows

A

conversion of a Term Policy to a Whole Life Contract without evidence of insurability using either Attained Age or Original Age premium calculation

23
Q

Whole Life Insurance is designed to

A

provide coverage for the whole of life to age 100 and is sometimes called Permanent Insurance

24
Q

Features of Whole Life include

A

an advancing Cash Value
a decreasing amount of Net Insurance
At Maturity the Cash Value = the Face Amount and Net Insurance is 0.
At Maturity (age 100) the Policyowner receives the Cash Value (Maturing) or the Beneficiary receives the Face Amount upon the death of the insured (Endowing), never both
More expensive than Term Life Insurance

25
Q

Whole Life Cash Value buildup features

A

a Guaranteed Interest Rate and accumulation of Cash Value and Interest on a tax deferred basis

26
Q

Ordinary or Straight Whole Life premiums are

A

level throughout the insured’s lifetime

27
Q

An Endowment is

A

a Policy that after a specified number of years pays a stated amount to the Insured or, if deceased, to the Beneficiary

28
Q

MEC’s are

A

Modified Endowment Contracts

29
Q

Once a MEC always a MEC means

A

Once a Policy is classified as a MEC, any subsequent policy received in exchange for it will also be classified a MEC

30
Q

Funds withdrawn from a MEC are taxed at LIFO rates which means

A

Last In First Out which assumes the investment or earnings portion is withdrawn first making it fully taxable as Ordinary Income

31
Q

If MEC funds are withdrawn prior to age 59 1/2

A

in addition to paying income tax on the withdrawn funds a 10% penalty will be imposed as, like an annuity, cash value buildup accumulates tax-deferred until withdrawn.

32
Q

A Policy is classified as a MEC if it fails

A

the 7 Pay Test. The amount of premium paid in the initial seven years of the policy is more than it would have been on a seven year level annual premium basis for the same period.

33
Q

Limited Pay Policies are

A

policies allowing the owner to pay premiums for only a specific period or until a specified age. The policy has not matured and continues in force to age 100. Example: 20 Pay Whole Life

34
Q

Single Premium Life Policies are

A 
paid at inception.  Advantages are
Tax free build up of cash value at desirable rates
Minimal Sales Commissions
Below market rates on borrowing
Gifting opportunities
35
Q

Adjustable Life Insurance features

A

the option to adjust
Face Amount with evidence of insurability
Premium
Type and/or length- Whole or Term
Insured selects only two of these
Allows for conversion from one type of insurance to another with a corresponding adjustment of premiums.

36
Q

Universal Life Insurance features

A

Also known as Flexible Premium Adjustable Life
Possesses Cash Value and Death Protection.
Premium payments pay Cost Of Insurance & Loading with the remainder to the Cash Value.
The Policyowner may increase or decrease the Death Benefit subject to insurability requirements.
Premium payments may be changed.
Interest earned will vary subject to a guaranteed minimum.
Tax Free Cash may be taken out through a Partial Surrender which is a Cash Withdrawal reducing the total Cash Value and not subject to interest.
If a withdrawal is later repaid it is treated as a premium payment.
If Cash Value is not large enough to support monthly deductions the Policy Terminates.

37
Q

Contract Rate is

A

the minimum guaranteed interest rate

38
Q

Option A is

A

Death protection decreases as Cash Value increases

39
Q

Option B is

A

Death Benefit increases as Cash Value increases keeping death protection more level than Option A

40
Q

Variable Life Insurance (VLI) features

A

benefits payable under death or surrender vary with the investment performance of the underlying portfolio of securities subject to a guaranteed minimum death benefit. Not flexible.

41
Q

Variable Universal Life (VUL)) or Flexible Premium Life features

A

Blends features of both Universal Life and Variable Life. These include:
Premium Flexibility
Cash Value investment control
Death Benefit flexibility

42
Q

How is Cash Value managed in a VUL Plan?

A

In a separate account

Earnings and losses are also subject to stated charges and fees

43
Q

How are Policy loans handled in a VUL Plan?

A

Policyowner may tap the Cash Value without incurring indebtedness.
Withdrawals affect future earnings.
Effect on the Death Benefit depends on the Option selected.
Withdrawals in early years may be subject to Surrender Charges.

44
Q

Current Assumption Whaole Life (CAWL) is an Interest Sensitive Whole Life featuring

A

An Accumulation Account credited from premium, less charges, plus interest based on current rates.
A Surrender Charge
A fixed Death Benefit and maximum premium level which prevents the policy from becoming an MEC.

45
Q

The Corridor is

A

the difference between Cash Value Accumulation and the Death Benefit.

46
Q

Equity Indexed Life features

A

Rate Of Return based on an Index but also with a guaranteed minimum rate.

47
Q

Joint Life Insurance is

A

written on two or more lives and ceases after the first death.

48
Q

Survivorship Life Insurance is

A

payable upon death of the last of two lives.

49
Q

Juvenile Life Insurance features

A

various types of Joint Life

Money (4 decks)

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