LIFE, ACCIDENT AND HEALTH, CODE AND ETHICS Flashcards
What is a hazard?
Anything that increases the chance of loss A broken promise Any possibility of financial loss A peril or loss of property
Anything that increases the chance of loss
Complete the definition. A risk is:
A peril Certainty of loss Proximate cause Uncertainty of loss
Uncertainty of loss
A pure risk involves a chance of:
Neither Loss nor Gain Loss Gain Both Loss and Gain
Loss
The insurer’s right to recover its claim payment to an insured from a negligent 3rd party is known as:
Arbitration Subrogation Liberalization Assignment
Subrogation
The main purpose of insurance is to:
Reduce perils Reduce the risk Avoid hazards Transfer the risk
Transfer the risk
What does insurable interest mean in life insurance?
Benefits that the policy will develop over the policy life Financial interest in having the life of the insured continue Amount of loss must be large enough to cause a hardship Financial benefits of the policy that the beneficiary will receive
Financial interest in having the life of the insured continue
In life insurance insurable interest must exist:
When the insurance takes effect and the loss occurs When the loss occurs When the insurance takes effect and the loss occurs, but need not exist after the loss occurs When the insurance takes effect, but not at the time of death
When the insurance takes effect, but not at the time of death
Insurance contracts are __________________________ in that contractual performance depends upon an uncertain event.
Voidable Unilateral Conditional Aleatoric
Aleatoric
Which of the following is true regarding STOCK companies?
None of the choices are correct Stock companies are a special type of non-profit organization authorized to insure members and their families against the possibility of accident, sickness, or death. Stock companies are corporations owned by individuals who contribute capital to the company through the purchase of shares of stock. Stock companies are owned by policyholders who contribute capital through the purchase of policies.
Stock companies are corporations owned by individuals who contribute capital to the company through the purchase of shares of stock.
Which of the following best descibes a “Captive Agency System”?
The agent is a representative of a single insurer and is obligated to submit business only to that company, or at minimum give that company the “first right-of-refusal.” Is the term given to the process of searching for potential customers, selling policies, and servicing existing contracts. A person enters into agency agreements as an independent contractor and potentially represents more than one company at a time. All of the choices are correct
The agent is a representative of a single insurer and is obligated to submit business only to that company, or at minimum give that company the “first right-of-refusal.”
What is the Law of Large Numbers?
The larger the number of individual, but different, risks that are combined into a group, the easier it is to predict losses for that group over time. The larger the number of individual, but similar, risks that are combined into a group, the more difficult it is to predict losses for that group over time. The larger the number of individual, but similar, risks that are combined into a group, the easier it is to predict losses for that group over time. The smaller the number of individual, but similar, risks that are combined into a group, the easier it is to predict losses for that group over time.
The smaller the number of individual, but similar, risks that are combined into a group, the easier it is to predict losses for that group over time.
What is the process called whereby insurers decide which customers to insure and what coverage to offer?
Underwriting Rate making Adverse selection Marketing
Underwriting
The concept of spreading the financial loss which was created by one person’s death among a large number of people, thus minimizing the cost for each individual in the group refers to:
The principle of risk The principle of life insurance The principle of insurance The principle of indemnification
The principle of life insurance
Which of the descriptions below would best describe “insurable interest” in reference to life insurance?
Interest paid in excess of the premium by the policy Having a financial interest in the insured’s life to continue There must be a loss large enough to create economic hardship Financial benefits that arise out of the policy when the insured dies
Having a financial interest in the insured’s life to continue
Which best describes a plan where the insured members pay a part of the premium for a group policy?
A “mixed plan” policy A participating policy A contributory plan A reimbursement policy
A contributory plan
Which of the following is a true statement regarding the Social Security program?
The program is fully funded With only a few exceptions, this is a voluntary program The actuarial value of each person’s contributions are closely related to the actuarial value of each person’s benefits The program provides only a minimum floor of income. Individuals are expected to supplement this with their own personal programs
The program provides only a minimum floor of income. Individuals are expected to supplement this with their own personal programs
Which of the following are benefits of Life insurance?
Replacement of large possible losses with small known losses and security, peace-of-mind and reduction of uncertainty Motivating and stimulating disciplined savings and encouraging loss controls and providing investment capital which is significant to the economy. All of the choices are correct. Keeping families and businesses intact and providing a basis for credit.
All of the choices are correct.
What is the BLACKOUT PERIOD?
None of the choices are correct. The period of time following the youngest child’s 26th birthday until the surviving parent is eligible for benefits (age 60). During this time there are no Social Security benefits payable to the surviving parent. The period of time following the youngest child’s 21st birthday (or up to age 24 if still in school) until the surviving parent is eligible for benefits (age 60). During this time there are no Social Security benefits payable to the surviving parent. The period of time following the youngest child’s 18th birthday (or up to age 19 if still in school) until the surviving parent is eligible for benefits (age 60). During this time there are no Social Security benefits payable to the surviving parent.
The period of time following the youngest child’s 18th birthday (or up to age 19 if still in school) until the surviving parent is eligible for benefits (age 60). During this time there are no Social Security benefits payable to the surviving parent.
Which of the following are components to be considered in the process of Estate Planning?
The amount of life insurance needed to cover these costs. All of the choices are correct How to best administer the estate based on the objectives of the estate owner and the amount of potential taxes, fees and other expenses The needs of the beneficiaries and heirs of the estate the type and amount of property in the estate
All of the choices are correct
Which of the following is a true statement?
When someone dies without a will, it is called dying “intestate” and property can only be transferred as an intestate distribution under state laws For Estate Planning purposes, the two main methods that may be used in order to calculate the proper amount of life insurance are 1. Human Life Value Approach 2. Needs Analysis All of the choices are correct The proper objective of any life insurance program is to provide the amount and type of insurance the prospect needs at a premium he or she can reasonably afford.
All of the choices are correct
When buying Life Insurance, a BASIC ILLUSTRATION must include?
Credit Life Insurance An Annuity The name of the insurer, the name of the proposed insured, and a brief description of the policy being illustrated, including a statement that it is a life insurance policy. Variable Life Insurance
The name of the insurer, the name of the proposed insured, and a brief description of the policy being illustrated, including a statement that it is a life insurance policy.
Which of the following will not cause the premiums to go up?
Scuba diving Parachuting Rollerblading Rock Climbing
Rollerblading
All of the following are required on a life insurance application except?
Health history. Age of the insured. The amount of disability income in force. Amount of life insurance in force.
The amount of disability income in force.
What has to accompany the request for an attending physician’s statement?
Signed authorization from the insured Policy illustration Signed application Underwriting criteria
Signed authorization from the insured
The Medical Information Bureau (MIB) is a non-profit organization supported by:
Insurance companies All of the choices are correct State governments The federal government
Insurance companies
Which of the following would have the lowest premium?
Standard Risk Substandard Risk Preferred Risk Classified Risk
Preferred Risk
Which of the following is used to establish life insurance rates?
Mortality, interest, and expense Morbidity, interest, and payments Mortality, savings, and expense Morbidity, interest, and expense
Mortality, interest, and expense
A way for insurers to avoid having to pay for large or catastrophic losses is:
Underwriting Reinsurance Claims handling Avoidance
Reinsurance
Which of the cases below is a common practice when using a non-medical application for life insurance?
If answers given on the health statement do not meet underwriting standards the insurer may require a medical examination No medical examination is required by the insurance company They are used for any amount of insurance and any age of proposed insured There is no limit as to the amount of insurance, but the insured must qualify by age
If answers given on the health statement do not meet underwriting standards the insurer may require a medical examination
When determining the amount of premium that must be charged for a life insurance policy, which will not be taken into consideration?
The death benefit Interest received The number of policyholders expected Interest received
The number of policyholders expected
The type of premium in which the insured pays an averaged amount that is more than enough to meet the cost of the contract in the early years and less than is necessary in the later years to meet the cost of the contract is called?
Natural premium Level premium Gross premium Net premium
Level premium
What does the acronym W.E.T. stand for?
1. Whole Life 2. Endowments 3. Term 1. Waivers 2. Endorsements 3. Trusts 1. Whole Life 2. Endowments 3. Trusts 1. Whole Life 2. Endorsements 3. Term
- Whole Life 2. Endowments 3. Term
Term Life insurance is classified as __________________ insurance because it provides protection for a designated period of time.
Permanent Designated Temporary Level
Temporary
Renewable term can be best described as:
Level death benefit; increasing premium Decreasing death benefit; level premium. Level death benefit; decreasing premium Increasing death benefit; level premium.
Level death benefit; increasing premium
Which of the following statements regarding advertisements TERM INSURANCE for AGED 55 or OLDER is true?
Television or radio advertisement for Term Life insurance directed to individuals 55 years of age or older must, in the spoken text, contain the statement “policy (or certificate) benefits and limitations should be carefully examined prior to purchase.” Clearly distinguish basic life insurance benefits from supplemental benefits such as accidental death benefits. Prominently note any condition affecting the policy or certificate holder’s continued insurability. If Term coverage terminates at a stated age, or at the end of any designated period, that fact and the specified age or designated period must also be disclosed. All of the choices are true.
All of the choices are true.
Whole Life insurance is permanent insurance provides a _________ death benefit combining __________ insurance protection and __________ cash value.
Level, Increasing, Decreasing Increasing, Level, Increasing Decreasing, Increasing, Level Level, Decreasing, Increasing
Level, Decreasing, Increasing
Which of the following choices are TRUE regarding Modified Endowment Contracts (MEC)?
All of the choices are correct If an insured-policyholder fails, the “seven-pay test” the result is full income taxation of any monies withdrawn or borrowed from the cash value of the policy exceeding the original cost. There is also a 10% penalty on these amounts if they are received before the age of 59½ (i.e. they are treated similarly to IRAs). This classification of policies has virtually eliminated sales of Single Premium Whole Life. Since 1988, any life insurance policy that is paid-up in fewer than seven payments or sooner than seven years (or if any unscheduled premium deposits exceed the seven-year limit) automatically becomes a MODIFIED ENDOWMENT CONTRACT (MEC). It is the responsibility of insurers to notify insureds when policies exceed the Seven-Pay Test and consequently become MECs. It is the responsibility of the producer to understand the law and its implications, as well as providing a full explanation of the ramifications of the law to prospects and clients.
All of the choices are correct
A flexible benefit cash value policy which earns a current rate of interest with flexible premiums is:
MEC Adjustable life Universal life Endowment
Universal life
One of the unique features of a Universal Life contract is its UNBUNDLED design; the contract will clearly define the internal components of the policy. This means that the policy specifically designates which portion of each premium dollar paid is allocated toward the ___________________________________ and how much towards commissions, acquisition costs, underwriting and administrative costs (expense loading). The balance is held in a ________________________________, earning a current interest rate that is guaranteed annually and subject to a minimum called a CONTRACT RATE.
Company Expenses, Savings account Insurance element (mortality), Contract fund (cash value) None of the choices are correct Life of the insured (mortality), Trust (cash value)
Insurance element (mortality), Contract fund (cash value)
A security-based life insurance policy in which the insured chooses how the cash values are invested:
variable life term life indexed universal whole life
variable life
The WAIVER OF PREMIUM provision prevents:
A policy from lapsing in the event the policyholder cannot pay due to a disability. In the event of a total and permanent disability the company will waive any premium payments after a specified period of time (usually six months). A policy from lapsing in the event the policyholder cannot pay due to a temporary disability. Has an initial face amount of fifteen thousand dollars ($10,000) or less that are designated by the purchaser for the payment of funeral and burial expenses Has an initial face amount of fifteen thousand dollars ($15,000) or less that are designated by the purchaser for the payment of funeral and burial expenses.
A policy from lapsing in the event the policyholder cannot pay due to a disability. In the event of a total and permanent disability the company will waive any premium payments after a specified period of time (usually six months).
Which of the following are TRUE regarding Accidental Death Benefit riders?
Accidental Death Benefits automatically double the face amount of the policy Accidental Death Benefits are generally for older people (beyond the age of 55) None of the answers are correct Accidental Death is loosely defined as death resulting from an illness or accident
None of the answers are correct
Which rider gives the insured the option of obtaining additional insurance on their own life at certain selected dates in the future, at certain policy intervals or at specified ages. There is no evidence of insurability required at the time the option is exercised.
GUARANTEED INSURABILITY OPTION (GIO) COST-OF-LIVING ADJUSTMENT (COLA) LIVING NEEDS/ACCELERATED DEATH BENEFIT RETURN OF PREMIUM RIDER
GUARANTEED INSURABILITY OPTION (GIO)
In what form of insurance listed below will you find insurance protection combined with cash accumulation?
Term insurance Temporary insurance Extra insurance Permanent insurance
Permanent insurance
Choose the best description of “Universal Life”:
A policy which includes fixed premiums, cash value paying a fixed rate of return and insurance protection A policy which includes fixed premiums for a stated period of time, cash value paying a flexible rate of interest and insurance protection A policy which includes flexible premiums, cash value paying a current rate of return and insurance protection A policy which includes fixed premiums, cash value with a flexible rate of interest and insurance protection
A policy which includes flexible premiums, cash value paying a current rate of return and insurance protection
Which best describes an Endowment Policy?
That which will liquidate a sum of money by the payment of principal and interest That which will pay a face amount if either the insured dies during a specified number of years or, if the insured lives, pays the face amount at the end of the same period That which will pay a face amount if the insured dies at any time That which will pay a face amount if death occurs only within a stated time
That which will pay a face amount if either the insured dies during a specified number of years or, if the insured lives, pays the face amount at the end of the same period
Mr. Reeves purchases a home with a 20-year mortgage and wants to purchase a guarantee that his mortgage will be paid if he should die while the mortgage is in force. Which of the insurance types below would best satisfy this need?
A 30-year Endowment Policy A 20-year Level (end) Policy A 20-year Limited Payment Whole Life Policy A 20-year Decreasing Term Policy
A 20-year Decreasing Term Policy
A typical suicide clause states:
If the insured dies by suicide within the first two years of the policy period the contract is void and the insurance company is only liable for the amount of premiums paid. After two years the insurer will pay the full death benefit in the case of suicide. If the insured dies by suicide within the first five years of the policy period the contract is void and the insurance company is only liable for the amount of premiums paid. After five years the insurer will pay the full death benefit in the case of suicide. If the insured dies by suicide within the first year of the policy period the contract is void and the insurance company is only liable for the amount of premiums paid. After one year the insurer will pay the full death benefit in the case of suicide. If the insured dies by suicide within the first three years of the policy period the contract is void and the insurance company is only liable for the amount of premiums paid. After three years the insurer will pay the full death benefit in the case of suicide.
If the insured dies by suicide within the first two years of the policy period the contract is void and the insurance company is only liable for the amount of premiums paid. After two years the insurer will pay the full death benefit in the case of suicide.
Which of the following are common exclusions?
AVIATION CLAUSE All of the choices are correct HAZARDOUS ACTIVITIES CLAUSE WAR CLAUSE
All of the choices are correct
Who has the right to change life insurance policy beneficiaries?
The insurer B. The beneficiary The insured The policyholder
The policyholder
The complete transfer by the existing owner of all rights in an insurance policy to another person is:
Non-forfeiture Absolute assignment Collateral assignment Endowment
Absolute assignment
A Life Settlement Broker is:
A person who, on behalf of a beneficiary, and for a fee, commission, or other valuable consideration, offers or negotiates life settlement contracts between the owner and insurance providers. A person who, on behalf of an insurer, and for a fee, commission, or other valuable consideration, offers or negotiates life settlement contracts between the owner and insurer. A person who, on behalf of an owner, and for a fee, commission, or other valuable consideration, offers or negotiates life settlement contracts between the owner and insurance providers. None of the choices are correct
A person who, on behalf of an owner, and for a fee, commission, or other valuable consideration, offers or negotiates life settlement contracts between the owner and insurance providers.
If the insured has misstated his or her age, and that fact is discovered after the death of the insured, what will the company do?
Refuse to pay the claim Pay the face amount less 10% penalty Pay the face amount equal to that which the premium would have purchase at the correct age. Pay the face amount less 25% penalty
Pay the face amount equal to that which the premium would have purchase at the correct age.
If death occurs during the grace period:
The claim is denied. The death benefit is paid minus the premium due plus an additional 10% penalty. None of the choices are correct The death benefit is paid minus the premium due.
The death benefit is paid minus the premium due.
Which of the following is a type of Nonforfeiture Provision?
Extended Term Insurance Reduced Paid-up Insurance Cash Surrender All of the choices are correct
All of the choices are correct
Must one pay income tax on policy dividends?
Yes, because they are a type of interest earned No, because they are looked upon by the federal government as a return to the policyholder of excess premium charged. No, because they are never reported by the company Yes, because they add to the income of the policyholder
No, because they are looked upon by the federal government as a return to the policyholder of excess premium charged.
On a life policy when a settlement option has not been specified, the usual method of distribution is:
Lump sum payment Reduced paid-up Extended term Life income
Lump sum payment
All of the following statements about the election of a life insurance policy’s settlement options are true EXCEPT:
The use of a settlement option instead of a lump sum can create a steady stream of income for a person who does not have the ability, time, or inclination to manage a large amount of money. Beneficiaries can only make a choice of option if the policyholder has not already chosen it for them When no settlement option is chosen, the proceeds are automatically paid to the policy owner’s estate Settlement options are chosen at the time of application and can be changed by the policyholder before the insured’s death.
When no settlement option is chosen, the proceeds are automatically paid to the policy owner’s estate
Which settlement option allows only the death benefit earnings to be paid to the beneficiary?
Interest only option Fixed period option Cash option Fixed amount option
Interest only option
Who is the only party in a life insurance policy who has rights after the death of the insured?
The insured The policy owner The applicant The beneficiary
The beneficiary
A beneficiary that only receives proceeds if there are no living beneficiaries is called?
contingent beneficiary survivorship conditional beneficiary straight life settlement option
contingent beneficiary
The beneficiary class designation that means beneficiaries who are surviving will receive equal amounts of the death benefit is:
Per capita Per stirpes Class beneficiaries, equal shares Per diem
Per capita
The Uniform Simultaneous Death Act:
Is used when the time of death of the insured and beneficiary cannot be determined. Pays both the primary and the contingent beneficiary. Allows the money to go to the beneficiary’s estate. Prevents the insurer from paying the death benefit.
Is used when the time of death of the insured and beneficiary cannot be determined.
What is the purpose of “key person” insurance?
To give a key employee the ability to purchase the business. To cover decreased business earnings due to the death of a key employee. To give retirement benefits to key employees To provide health insurance benefits to key employees.
To cover decreased business earnings due to the death of a key employee.
The policy provision which prevents an insurer from voiding a policy for misstatements after two years is:
Misrepresentation Incontestability No loss, no gain Indemnity
Incontestability
A life insurance policy may be reinstated within certain time limits after it has lapsed for non-payment of premiums. How can this be done?
Upon submission of evidence of insurability plus payment of past due premiums The overdue premiums are paid, interest is paid, an application is submitted and evidence of insurability is provided Any past due premiums are paid plus any interest due The insured must submit a written request and pay all overdue premiums. No evidence of insurability is required
The overdue premiums are paid, interest is paid, an application is submitted and evidence of insurability is provided
Which of the following plans are life insurance ownership arrangements between two or more individuals or entities, whereby the premium payments, ownership rights, cash value and death benefit proceeds are split among the parties involved
Key-Employee insurance All choices are correct Deferred Compensation Split Dollar insurance
Split Dollar insurance
Which of the following has a vested interest in the proceeds of an insurance policy?
The contingent beneficiary The revocable beneficiary The irrevocable beneficiary The ineligible beneficiary
The irrevocable beneficiary
If a person is receiving Social Security retirement benefits, some members of their family also can receive benefits. Those who can include:
Wives or husbands who are younger than 62, if they are taking care of their child who is under age 16 or disabled. All of these are true Disabled children, even if they are age 18 or older Wives or husbands, if they are age 62 or older.
All of these are true
What is true about annuities?
They create an immediate estate. They only may be purchased by someone who is 59 ½. They liquidate an estate over a period of time. They liquidate an estate in a lump sum.
They liquidate an estate over a period of time.
In an annuity, which settlement option will pay the annuitant the greater amount over a period of time?
Period certain annuity. Joint and last survivor annuity. Straight life. Cash refund annuity.
Straight life.
A life annuity with a 10-year period certain:
Will pay the annuitant only for 120 months. Is guaranteed to pay for a minimum of 120 months or a maximum of the life of the annuitant. Will pay the annuitant for 10 years and continue to pay the annuitant after 10 years but the amount will be less. Will pay the annuitant for life and the beneficiary for 10 years after the death of the annuitant.
Is guaranteed to pay for a minimum of 120 months or a maximum of the life of the annuitant.
What is true about a variable annuity?
The number of annuity units changes. The value of the annuity unit may change. The value of an annuity unit is immaterial. None of the above.
The value of the annuity unit may change.
A variable annuity applicant requests that the premium be immediately invested in a stock portfolio. The annuity contract is returned to the insurer within the cancellation period. What is the applicant entitled to receive?
The contract value amount on the date the contract was delivered to the insured. A refund of the premium minus the surrender charge. The contract value amount on the date the returned contract was received by the insurer. A refund of the entire amount paid.
The contract value amount on the date the returned contract was received by the insurer.
Ed has annuity for which he has paid $50,000 in after tax dollars over the last 20 years. At 65 he will receive $4,000/year annual income based on a life expectancy of 25 years which will yield $100,000. The amount of taxable income will be:
Nothing $4,000 $800 $2,000
$2,000
