Life Insurance

Question 1

Automatic insurable interest

Answer 1

• Individuals in themselves
• Spouses in eachother
• Parents in their children
• Children in their parents or grandparents

(or someone else in the case of financial dependency)

Question 2

Term Life Insurance

Answer 2

Temporary Coverage
(1 to 20 years)
(Does not build cash value)

Question 3

Permanant Life Insurance

Answer 3

Provides coverage for insured’s entire life
(builds a cash value that belongs to the policyowner and is accessible while the insured is alive.)

Question 4

Term: Master Policy

Answer 4

In a group life policy, the Master Policy indicates the sponsor as a policy owner nad premium payer

Question 5

“Natural Group”

Answer 5

• Employer
• Labor Unions
• Trade and professional association group

Question 6

Term: Association Group

Answer 6

Comprised of members of associations, such as independent school districts, cities and towns.

Question 7

Joint life insurance

Answer 7

Permanant coverage that insures two persons under one policy.
The policy pays the death benefit when the first insured dies.

Question 8

Third-party ownership

Answer 8

In a life insurance policy, when the insrured and policyowner are not the same person.

Question 9

Common examples of permanant life insurance

Answer 9

• Whole life insurance
• Universal life insurance
• Variable life insurance

Question 10

Participating Policy
(Par)

Answer 10

A class of life (or health) insurance policy in which the owner is paid a divident out of the insurance company’s earnings that are available for distribuiton (the divisble surplus).

Commonly issued by mutual insurance companies

Question 11

No-participating policy
(nonpar)

Answer 11

A class of life (or health) insurance policy in which the owner is not entitled to be paid a dividend.
(Generally individual health insurance is non-participating)

issued by stock insurance companies

Question 12

Ordinary life insurance

Answer 12

Generally issued in face ammounts of $25k or more
Premiums are payable
* Monthly
* Quarterly
* Semiannually
* Annually

Question 13

Industrial Life Insurance

Answer 13

“Burial Insurance”
A class of individual life insurance that offers coverage in small ammoutns, usually around $1-2k

Premiums are paid frequently - weekly is common

Question 14

Factors for life insurance premiums

Answer 14

• Mortality charge
• Interest credit
• Expense charge

Question 15

Net premium is calculated

Answer 15

[Mortality charge] - [Interest credit]

Question 16

Gross premium

(Charged to policy owner)

Answer 16

[Net premium] + [Expense charge]

Question 17

Term: Premium mode

Answer 17

Frequency of paying premium
* Monthly
* Quarterly
* Semiannual
* Annual

Chosen by policyowner

Question 18

Term: Mortality

Answer 18

The risk of death posed by the applicant

It is a charge

Question 19

Interest charge

Premium factor

Answer 19

The amount the insurer can expect to earn on invested premiums

it is a credit

Question 20

Expense charge
(aka: load factor)

Premium factor

Answer 20

Insurer’s cost of doing business
* Taxes & fees
* Safety margin
* Profits/surplus

Question 21

NAIC

Answer 21

National Association of Insurance Commissioners

Question 22

CSO

C

Answer 22

Commissioners Standard Ordinary

Question 23

CSO table

Answer 23

Statistical table on which rates are based off of
(all policies issued since 2009 must be based on the 2001 CSO table

Question 24

Level premium payment plan

Answer 24

The premium is fixed over the term of the policy.

Types of policies:
* Whole life insurance
* Variable life insurance

Question 25

Flexible premium payment plan

Answer 25

The policyowner can change the premium payment amount at will within a range set by the insurer.

Types of policies:
* Adjustable life insurance
* Universal life insurance
* Variable universal life insurance

Question 26

When a third-party arrangement is used for estate planning purposes, the owner of the life insurance policy is usually:

Answer 26

• An irrevocable life insurance trust (ILIT) created by the insured
• An adult child of the insured

Question 27

Bring-back rule

Answer 27

If the insured dies within 3 years of transferring the policy, it is included (oor brought back) in the insured’s estate