Insurance Flashcards
Mastery of terms and knowledge of insurance
Are there any prerequisites to the insurance licensing exam?
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.
What topics are covered on the exam?
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.
Successful Test Taking Tips Include:
- Read the full question
- Avoid jumping to conclusions
- Interpret the unfamiliar question
- Identify the intent of the question
- Memorize key points
- Beware of changing answers
- Pace yourself
The Role Of Insurance:
Economic protection from death, illness, and accident
Life Insurance:is for the purpose of
Guarantees a specific amount of money upon death of the insured creating an immediate estate
Annuities:
Provide an income stream for a specified period or for life
Risk Pooling:
Transferiing risk from an individual to a group
Law Of Large Numbers:
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.
Loss inherent in a risk is characterized by
a lessening or disappearance of value
Speculative Risk
Involves the chance of Loss or Gain, like betting
Pure Risk
Involves only the chance of Loss. Only Pure Risk is insurable
Term Insurance may be defined as
Pure protection for a specified number of years that furnishes the maximum amount of protection for the lowest annual cost
Level Term Insurance means
The premium and face amount of the policy remain the same
Decreasing Term Insurance means
The premium stays the same but the face amount decreases
Increasing Term Insurance means
Face amount that grows over time and is often used as a rider
Return Of Premium Insurance means
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
Who is the Policyowner
The individual who pays the premiums and has other rights e.g. naming the beneficiary, receiving the dividends,and borrowing from the cash value.
Who is the Beneficiary
The person, organization or trust which will receive the benefits upon death of the insured.
Industrial Life Insurance qualities
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
Adverse Selection is
a case of increased risk
Renewable Term Insurance allows
renewal without proof or evidence of insurability
Convertible Term Insurance allows
conversion of a Term Policy to a Whole Life Contract without evidence of insurability using either Attained Age or Original Age premium calculation
Whole Life Insurance is designed to
provide coverage for the whole of life to age 100 and is sometimes called Permanent Insurance
Features of Whole Life include
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
Whole Life Cash Value buildup features
a Guaranteed Interest Rate and accumulation of Cash Value and Interest on a tax deferred basis
Ordinary or Straight Whole Life premiums are
level throughout the insured’s lifetime
An Endowment is
a Policy that after a specified number of years pays a stated amount to the Insured or, if deceased, to the Beneficiary
MEC’s are
Modified Endowment Contracts
Once a MEC always a MEC means
Once a Policy is classified as a MEC, any subsequent policy received in exchange for it will also be classified a MEC
Funds withdrawn from a MEC are taxed at LIFO rates which means
Last In First Out which assumes the investment or earnings portion is withdrawn first making it fully taxable as Ordinary Income
If MEC funds are withdrawn prior to age 59 1/2
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.
A Policy is classified as a MEC if it fails
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.
Limited Pay Policies are
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
Single Premium Life Policies are
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
Adjustable Life Insurance features
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.
Universal Life Insurance features
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.
Contract Rate is
the minimum guaranteed interest rate
Option A is
Death protection decreases as Cash Value increases
Option B is
Death Benefit increases as Cash Value increases keeping death protection more level than Option A
Variable Life Insurance (VLI) features
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.
Variable Universal Life (VUL)) or Flexible Premium Life features
Blends features of both Universal Life and Variable Life. These include:
Premium Flexibility
Cash Value investment control
Death Benefit flexibility
How is Cash Value managed in a VUL Plan?
In a separate account
Earnings and losses are also subject to stated charges and fees
How are Policy loans handled in a VUL Plan?
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.
Current Assumption Whaole Life (CAWL) is an Interest Sensitive Whole Life featuring
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.
The Corridor is
the difference between Cash Value Accumulation and the Death Benefit.
Equity Indexed Life features
Rate Of Return based on an Index but also with a guaranteed minimum rate.
Joint Life Insurance is
written on two or more lives and ceases after the first death.
Survivorship Life Insurance is
payable upon death of the last of two lives.
Juvenile Life Insurance features
various types of Joint Life
