Key Facts Life Flashcards
__________ is defined as the transfer of PURE risk to the insurance company in consideration for a premium.
Insurance
The chance of loss without any chance of gain is called ________
pure risk.
_______ risk has the possibility for gain or loss and is not insurable
Speculative
_______is defined as the chance of loss
Risk
A condition that could result in a loss is known as an _________
exposure
A __________ is something that increases the chance of loss.
hazard
The presence of a _______________ increases the chance of a loss occurring.
physical hazard
A__________ is defined as a cause of loss, such as fire
peril
To be _______________, losses must be calculable
insurable
The ______________ allows insurers to predict claims more accurately
law of large numbers
The law of large numbers applies to ___________, not to individuals. The more people in the group, the more accurate the predictions are.
groups of people
Most insurers buy reinsurance to protect themselves in the event of a
_________ loss
catastrophic
Insurance laws are _______required to be uniform from one state to another
not
A__________ insurer may pay dividends to its shareholders (stockholders), but they
may not be guaranteed
stock
A ____________ insurance company is managed by an attorney-in-fact
reciprocal
An unincorporated association of individuals who insure each other is known as a __________ insurer
reciprocal
The__________ offers insurance primarily based upon social needs, such as
flood insurance and worker’s compensation, but does not offer insurance for the purpose of preventing fraud.
government
A __________ company has their home office in another state
foreign
An insurer incorporated outside of the U.S. who sells in the U.S. is an _______
company
alien
A producer may be personally _________ when violating the producer’s contract
liable
Producers represent the____________, not the insured
insurance company
Independent producers own their own accounts and are not________
employees
insurance company
Producers have express, implied and apparent ____________
authority
The authority a producer has that is written in his or her contract is known as
_________ authority.
express
A producer’s binding authority (if any) is expressed (written down) in the
______________ with the insurer the producer represents.
producer’s contract
The authority not expressly (written) granted, but is actual authority the producer
has to transact normal business activities, is known as ________ authority
implied
The elements of a __________ may be remembered by the acronym C-O-A-L
(consideration, offer, acceptance, legal purpose and legal capacity).
legal contract
A requirement for a valid contract is ___________, or mutual agreement
offer and acceptance
Advertising the availability of insurance is ____________ considered to be an offer
not
A specific and definite proposal to enter into a contract is known as an _______
offer
The ____________ on a policy need not be equal
consideration
A policy may not be __________ due to unequal consideration.
voided
Under the _______________, something of value must be exchanged
consideration clause
Because insurance contracts are contracts of adhesion, policy ambiguities always
favor the ______________
insured
Insurance policies are considered to be unilateral contracts, in that only one party
makes an __________promise the insurer
enforceable
The principle of_____________ states the purpose of insurance is to restore the
insured to the same position as before the loss occurred
indemnity
The principle of _____ _____ ____ states that all parties to an insurance
transaction are honest
utmost good faith
A ____________ is defined as the truth to the best of one’s knowledge
representation
A ___________is defined as a sworn statement of truth, guaranteed to be true
warranty
A breach of ____________ may void a contract
warranty
____________ is defined as the failure to disclose a material fact
Concealment
When an insurer voluntarily gives up the right to obtain information that they are
entitled to, they have made a _____________
waiver
Insurable interest must exist at the time of ___________, but not necessarily at the
time of a claim
application
Insurable interest may be based on ________ or family relationships
economics
An insurable interest exists if someone would __________ if another person continues
to live.
benefit
Buying a___________ creates an immediate estate
life insurance policy
When life insurance is used to pay estate taxes it is known as estate
____________.
conservation
A life settlement contract is between the life insurance ____________ and a third
party
policyowner
The human life ___________ approach was created to establish what a family would lose in income upon the death of the sole or chief income provider.
value
The_________ approach to life insurance does not consider future earnings.
needs
Stockholders in small, privately held closed corporations often enter into __________
agreements with the corporation that are funded by life policies
buy/sell
A policy that provides for business continuation in the event that a business
partner dies is based upon a ____________ buy/sell agreement
cross-purchase
A corporation may buy a policy on a shareholder to provide for ________ _____
in the event of the shareholder’s death.
stock redemption
A stock redemption plan is an agreement whereby a corporation agrees to buy
back the stock of a ______________ _________
deceased shareholder
Examples of ___________ policy ownership include key person and partnership
insurance, as well as a policy written on the life of a spouse or minor child
third-party
Under an executive bonus, the premium paid to the employee as a bonus is
deductible by the business and the amount paid to or for the employee is
reportable as ______________ to the employee.
taxable income
When life insurance is purchased as an executive bonus for a corporate
employee, the policy belongs to ______________.
the employee
Life insurance __________ _____________ are based upon people and time
mortality tables
Life insurance ___________ are based on mortality (death) plus company expenses
minus interest earned on company investments.
premiums
Agents (producers) are also known as ___________ __________
field underwriters.
If a producer gives an applicant a conditional receipt and the underwriter rejects
the application, there is no _____________
coverage
Conditional or binding receipts are used in life and health____________. Binders are
used in property and casualty ___________
insurance
A _____________ is not given to an applicant unless the initial premium has
been paid
conditional receipt
Applicants may \_\_\_\_\_\_\_\_\_\_\_ a life insurance application for up to a specified number of months (usually 6 months) in order to obtain a lower premium.
backdate
An incomplete application is usually returned. However, should the underwriter
approve it, coverage begins and the company has ____________ its ability to contest a
claim.
waived
The earliest that coverage could start would be the day of __________, assuming
the applicant paid the first premium, had no conditions to fulfill, and had not lied
on the application
application
Coverage can NEVER begin unless the ___________ has been paid
premium
The HIV consent form states that the results of an HIV test will only be shared
with ______________, such as the underwriter
certain individuals
Life insurers may discriminate based upon ____________ (age and health) of
the applicant
physical hazards
The company ____________ determines the final rating classification, not the
producer
underwriter
A preferred risk is likely to receive a _______ discount.
premium
A _____________ is one with an average life span. Most applicants are standard
risks
standard risk
A ____________ is one issued to a substandard risk with dangerous hobbies or
health problems
rated policy
An increasing term policy’s limits increase each year. An increasing term policy is
sometimes called a ____________ policy
return-of-premium
Term insurance is renewable without a _______________, up to a certain age
physical examination
Term insurance may be converted to whole life, but not the reverse. Conversion is
based on the insured’s current ______.
age
Convertible term is convertible based upon the current or ____________ of the
insured.
attained age
On term life insurance, the re-entry option is contingent upon the insured passing
a _______________
physical exam
In a level term policy, the ____________ and the amount of coverage are level
throughout the term
premium
On an annual renewable level term policy, the premium will __________ every year,
although the face amount will remain the same
increase
The face amount of a __________ protection life insurance policy will decrease at
the same rate as the ___________ balance declines.
mortgage
It is the ____________ that decreases on a decreasing term policy, not the
premium.
face amount
______________ is the type of life insurance provided in mortgage redemption
insurance
Decreasing term
_______________ policies must contain a table showing their guaranteed cash value at the end of each year (anniversary date) for the first 20 years. It is shown per unit
(per thousand).
Whole life
Whole life benefits are bundled (packaged).____________ life benefits are transparent
(stand-alone)
Universal
Whole life and limited pay life both reach maturity at the same age________
100
In a traditional ____________ premiums are due until the insured dies or reaches
age 100. Conversely, in a limited pay policy, the premiums are paid for a shorter
period of time.
whole life policy
Straight or traditional whole life has a level ___________ and will provide coverage
until the insured dies or reaches age 100
premium
Whole life insurance will pay the ____________upon death or age 100, whichever
comes first
face amount
_____________ whole life insurance has limits that pertain either to the number of
years payments must be made, such as 20 pay-life, or the age by which all
premiums must be paid, such as life paid-up at 65.
Limited pay
Limited pay whole life policies, though paid up earlier, do not mature until the
insured reaches __________
age 100
On a 20-pay life, the cash value will equal the __________ at maturity.
face amount
A___________ may buy a policy that is paid up for life.
single premium
A___________ policy has an immediate cash value
single premium
An adjustable ___________policy may be suitable for someone with fluctuating
income
whole life
Adjusting the ___________ paid on an adjustable whole life policy will affect the face
amount, and vice versa.
premium
Universal life insurance is different from whole life because it has a ___________ that
is flexible
premium
Universal life insurance policies permit their owners to take partial _____________.
surrenders
Taking a ____________ on a universal life policy allows the policy owner to
withdraw some of the cash value without paying tax on the interest
partial surrender
Universal life insurance is also known as ___________ whole life.
interest sensitive
Universal life is a combination of 1-year _____________ and a cash value account
renewable term
Universal life offers __________ and a minimum guaranteed rate of return
flexible premiums
Loans are_____________ on universal life policies.
allowed
Variable whole life allows the insured to self-direct the ____________ investment.
cash value
Variable products have no ____________ and are not backed by the guaranty fund
guarantees
Investing in variable products is considered a hedge against _____________.
inflation
A universal life policy that has an investment component is called _________
universal life
variable
A life insurance policy that invests its cash values in ____________ is known as variable life
equities
A life insurance policy that has a flexible premium and allows the policy owner to
self-direct their cash values into equities is known as ____________ life.
variable/universal
An agent must be registered with __________ in order to sell a variable product
FINRA
A joint life policy pays only when the_________ dies
first insured
A joint and survivor life policy pays only when the ____________ dies.
second insured
Survivorship life insurance is commonly used in estate planning so the death
benefit of the policy can be used to _____________ when due.
pay estate taxes
Survivorship life pays when the surviving ________ dies.
insured
A ____________ life insurance policy is a life insurance policy written on the life of a
minor.
juvenile
On ________________, the employees receive a certificate of insurance that
summarizes coverage and lists the employee’s beneficiary
group life insurance
In group insurance the policy owner, who is usually an ___________, is issued the
master policy.
employer
In a contributory group life insurance policy, 75% ___________ must enroll.
eligible employees
In a ______________ life plan (employer pays total premium), 100% of all
eligible employees must participate
noncontributory group
Individual policies are usually _________ expensive than group
more
On group life, the employer may require an employee to pay the ___________ for
dependent’s coverage
premium
Group insurance ____________requirements help to avoid adverse selection
participation
A group ___________be formed just to buy insurance
cannot
Experience rating is for large groups only. Rates are based on _________ experience
of the group
claims
Conversion from a group life policy to an individual policy when employment is
terminated is permitted for ____________, regardless of health
31 days
On group credit life, the creditor is both the______________ and the beneficiary
policyholder
The type of policy used to provide credit life insurance is _____________ term
decreasing
Although it is a type of decreasing term, credit life is usually NOT used for
______________ protection
mortgage
The policy limits on credit life cannot exceed the ___________of the loan
amount
Although producers must sign the application, they are not a party to the
________________.
contract
It is the responsibility of the ______________ to explain the policy provisions,
riders, and exclusions to the applicant
producer
The owner’s rights section of a life policy states who has the right to change the
______________, who can take a loan, and who can take cash surrender.
beneficiary
____________of life insurance policies may temporarily assign their life insurance policy to a bank as collateral for a loan, which is known as a collateral assignment
Owners
The policy is the sole ______________ for a policy loan. Policy loans are not taxable.
collateral
The owner of a life insurance policy may transfer his or her ownership to another
person by making an ______________
absolute assignment
Policy ____________ must be in writing and signed by a company officer
modifications
Ordinary life insurance has a ____________ period of 30 days
grace
A life insurance policy provision that allows _____________ to continue even if the
premium is not paid on time is known as the grace period
coverage
If a _______________ dies within the grace period of his or her employer
provided group life policy without converting, the full death benefit will be paid to
the beneficiary
terminated employee
When an insured dies during the grace period without paying the premium due,
the face amount will be paid to the beneficiary, less the ____________.
overdue premium
A life insurance policy that has been surrendered for ____________ may not be reinstated.
cash
New life insurance policies are contestable for material misrepresentation for the
first __ years.
2
When a policyowner lists a group of people as beneficiaries, it is known as a __________
designation
class
Waiver of premium is a ___________ that will pay the premium on behalf of a disabled
insured, after a short waiting period, until the insured either recovers or dies
rider
The waiver of premium rider does not pay a ____________to the insured.
cash benefit
If a parent paying the premium on a child’s life insurance policy dies, the provision
that allows the premium to be waived is known as _____________, NOT waiver of
premium
payor benefit
On a term life rider added to a parent’s policy to cover the life of a child, the child’s
coverage _____________when the child reaches age 18, unless the child converts the
rider to permanent coverage
terminates
The guaranteed insurability rider is also known as the _____________ _________
benefit
guaranteed purchase
The guaranteed insurability rider allows the insured to ________________
periodically without a physical exam
increase coverage
The extended term option is a ____________ option
nonforfeiture
When the reduced paid-up nonforfeiture option is selected, the amount of coverage in the new policy is reduced from that of the ____________ policy.
original
A contract that will pay a specified indemnity to its owner over a period of time is
an ______________
annuity
Annuity tables are different than mortality tables since there is no_____________.
insurance protection
Insurers take the money from _________ who die too soon and pay it to those who live too long
annuitants
If an insured dies during the accumulation period of an annuity, the account value will be paid to the insured’s ___________, who is responsible for taxes on interest earned
beneficiary
The rights of ownership on an annuity become effective as of the ________ date
contract
The ___________ is the party whose life the benefits are based upon
annuitant
Although annuity benefits paid to a beneficiary are usually taxable upon the death of the owner/annuitant, beneficiaries who are ___________ may continue the contract on a tax deferred basis as the contingent owner
spouses
Endowments provide ___________ protection. Annuities do not
life insurance
Annuities are the opposite of life insurance. Life insurance creates an estate. Annuities systematically ___________ an estate over a period of time
liquidate
All annuities are _________ products, although often sold by bankers with Life insurance licenses
insurance
Annuities are often used as life insurance _________ options
settlement
An immediate annuity begins paying out immediately after the_________ ____________ is paid
initial premium
The premium for a $100,000 immediate annuity is $100,000, regardless of the annuitant’s age, health or gender. It is the ____________ that depends on these factors. Single premium immediate annuities (SPIAs) are often purchased with a lump sum upon retirement.
payout
In order to be considered a single-premium deferred annuity, there must be a period longer than one benefit payment interval before __________ begin
payments
A flexible-premium fixed deferred annuity has a flexible premium, minimum guaranteed rate of return and a death benefit equal to its __________.
cash value
Deferred annuities are purchased by making periodic __________ over a period of time
payments
A deferred annuity can only be surrendered for cash during its ________________ period.
accumulation
The owner of an ___________ is responsible for paying the premium
annuity
When a policy owner surrenders an annuity for cash, they have exercised a _____________ option
nonforfeiture
During the surrender period of an annuity, the surrender value is less than the contract’s __________
cash value
The surrender charge on an annuity is sometimes referred to as a_________ load
back-end
Annuities waive __________charges for death or disability
surrender
The _____ ______ on an annuity during the accumulation period is equal to its cash value
death benefit
If the owner of a life income annuity with a 10-year period certain dies 13 years after he or she annuitized the contract, the beneficiary will receive __________
nothing
One cannot outlive the income from a_________ annuity.
life
A life income annuity (straight or pure life annuity) has no __________, and is the riskiest choice.
beneficiary
A life annuity does not start making payments at death. Payments ________ at death
stop
On a joint life annuity, ____________ stop when the first annuitant dies
payments
A __________ annuity has the least amount of risk
refund
An annuitant would select the ______________ annuity pay-out option if the annuitant wanted payments to continue to a beneficiary after the annuitant’s death.
period certain
If an annuitant selects a pay-out option that will pay for a specified period of time, the annuitant has selected the _________ option.
fixed-period
The primary challenge faced by those that purchase fixed annuities is purchasing power risk, since the rate of ___________ is fixed
return
The rate of return that an insurer pays on a_________ _______ might not keep up with inflation
fixed annuity
Fixed annuities guarantee a fixed rate of return and are backed by the ____________
state guaranty fund
Fixed annuities are backed by the insurer’s_____________
general account
Fixed annuities usually pay an __________ that is similar to other types of conservative investments.
interest rate
An annuity which has a rate of return that is based on an index of equity products is an ____________ annuity
equity-indexed
Equity-indexed annuities (EIAs) have little purchasing power (or inflation) risk since their rate of return is based in part on an ___________, such as the S&P 500
equity (stock) index
On a market _____________, the contract will pay the specified interest rate if it is held for a specific period of time. Adjustments are only made if the contract is surrendered early
value adjusted annuity
Employers may use annuities to fund ____________ plans, but not corporate pension plans
deferred compensation
Lottery payouts and structured settlements are often funded by _______________.
annuities
A self-employed person cannot use an annuity to fund a 403(b) _____________ (TSA)
tax-sheltered annuity
A 403(b) tax-sheltered annuity (TSA) is funded by making voluntary ____________ contributions
before-tax
403(b) TSAs are owned by the____________, not the employer
employee
A corporation cannot use an annuity to build tax-deferred growth on _______________. Only individuals are entitled to tax deferred annuity earnings
corporate assets
Most _____________ are purchased by those who wish to supplement their retirement income
immediate annuities
Most annuities are used for __________ purposes and are considered to be longterm investments
retirement
One purpose of an annuity is to keep customers from outliving their ___________.
savings
When recommending a variable annuity, the agent should inquire about the applicant’s ____________.
tax status
Producers selling annuities must have reasonable grounds for believing that the transaction is ___________ based upon a customer’s financial status, tax status and investment objectives
suitable
_____________ paid to beneficiaries are tax free on all life insurance
Death benefits
Dividends which are paid out by mutual insurers are not taxable to the policy owner because they are considered to be a _____________ paid by the policy owner.
return of the premium
Dividends received by the owner of stock in a stock company are ___________ as ordinary income.
taxable
Dividends are ____________ taxed as capital gains
NEVER
A cash surrender where the amount received is more than amount paid in in premiums would cause a ___________
taxable event
Surrendering a life insurance policy for cash and using the proceeds to buy a new life insurance policy from a different insurer is a ____________ 1035 exchange
tax-deferred
On cash surrender of a life insurance policy, amounts received in ____________ of premiums paid in are taxable
excess
In _______________, benefits are NOT taxable to the beneficiary should the employee die
group life insurance
Premiums paid for individual life insurance are NOT _____, nor are
benefits taxed. This is true of key person life insurance as well
tax deductible
Life insurance policy owners who gift their policies to a charity are entitled to a __________ in the year of the gift
tax deduction
Modified endowment contracts (MECs) lose their favored ____________ as life insurance since the IRS considers them to be investments
tax treatment
A modified endowment contract that is classified as life insurance but fails the 7-pay test would have ___________ loans and withdrawals
taxable
Making a material change to a ___________ may cause the 7- pay test to be applied again and could cause the policy to be classified as a modified endowment contract
cash value life insurance policy
Modified endowment contracts have a _____________ for premature
distributions
10% IRS penalty
If a surviving spouse is the beneficiary of an IRA owner who died before
____________, the spouse may elect to treat the IRA as his or her own, by continuing it or rolling it over to a new one
distributions begin
IRAs may be funded with annuities, but NOT with ____________
whole life policies
_____________ cannot buy an IRA unless they have earned income
Children
________________ may be used to fund an IRA
Deferred annuities
If income is below a certain level, traditional _______________ may be tax-deductible even though the employee is an active participant in another qualified plan.
IRA contributions
The direct transfer of ____________ from one trustee to another is not taxable.
IRA funds
Contributions made to qualified plans are generally made___________, which benefits employees.
before taxes
Qualified ______________ offer special tax advantages to both employers and employees, in that employers can tax deduct contributions (although they are not taxable to employees until distributed)
retirement plans
Qualified plans have early withdrawal penalties. The IRS levies a 10% penalty for
cash surrenders on annuities, IRAs, TSAs, and Keogh plans prior to age _____
unless the individual has died or become disabled. This penalty is in addition to
income taxes due
59 ½
Premature distributions may be made to a first-time___________ from an IRA
without incurring a 10% penalty, subject to a lifetime dollar limit
homebuyer
Premature distributions made from a deductible IRA for qualified educational
expenses are __________ from the 10% penalty, but they are not exempt from income tax.
exempt
Premature distribution penalties are not waived due to____________
bankruptcy
A Roth IRA is different from a traditional IRA because contributions are not ____________, but distributions are tax free
tax deductible
A Roth IRA is different from a traditional IRA in that a Roth IRA does not have any
required ______________
distribution date
Distributions from a Roth IRA are _________________ if the participant held the contract for at least 5 years and is at least age 59 ½
not taxable
Contributions to a traditional IRA will always be __________ if an individual and
spouse (if married) aren’t covered by a retirement plan at work
tax deductible
If a surviving spouse inherits an IRA, the spouse must start withdrawals no later
than April 1st of the year after they reach age _______
70 ½
Individuals renewing resident insurance licenses must apply ____________ for a
renewal on or before the last day of the licensee’s birth month
biennially
A licensed agent may surrender any or all licenses, unless he or she is under
___________________ of Insurance
investigation by the Superintendent
Any individual applying for a resident insurance agent license in the state of Ohio
must complete ___________ of prelicensing education for each of the following lines of authority: life; accident and health; property; casualty; and personal lines
20 hours
If an agent changes his or her home state, the agent must certify the change with
the Superintendent’s office in Ohio within _________ after making the change
30 days
If an agent makes a change to his or her home state, he or she must file a change
of address with the Superintendent’s office within _________ after making the
change, and provide certification from the new home state.
30 days
Agents must notify the Superintendent’s office of any criminal prosecution within
__________ after they appear before a judge
30 days
Within 30 days after the disposition of the criminal prosecution, the agent must
provide the Superintendent with a certified copy of the ___________, along with
any other relevant legal documents
court’s order
Resident agents must complete at least ___________ of CE in each license renewal
period, including 3 hours of ethics training
24 hours
Ongoing renewal cycles will be on the last day of an agent’s _____________, and
every two years thereafter.
birth month
An agent’s failure to receive a renewal notice or CE transcript ___________ the
agent of the responsibility to meet either obligation.
does not relieve
CE requirements do not apply to agents with___________, a ____________
license or a ____________ license
inactive status,
limited lines,
single title insurance
A person who relocates to Ohio and becomes a resident agent __________ carry over any CE credits from another state
may not
Agents may receive up to ___________ of CE credit per renewal cycle for published
articles or books directly related to the insurance industry
10 hours
An unlicensed person may make a __________ to a licensed agent, provided that the person does not discuss specific insurance policy terms and conditions.
referral
No insurer or agent may pay a commission to an unlicensed person for any
referral, unless the fee is a______________for each referral, and the referred
person is not mandated to buy an insurance product.
fixed dollar amount
An appointed agent may pay a ___________ to another who is licensed for the
same line of business, but not appointed with the same company
commission
An agent may charge a_______________as long as it is separately identified from
the premium and not calculated as a percentage of the premium
consumer a fee
A fee may not be charged for _______________ for coverage with
any one insurer, or different programs with the same insurer
submitting an initial application
When appointing an agent, an insurer must file a notice to the Superintendent
within 30 days of the agency contract being ___________
executed
