Life Insurance

Question 1

Insurance Policy

Answer 1

a social device, legal contract, or policy for the transfer of financial risks

Question 2

Transfer of Risks

Answer 2

through insurance individuals transfer to insurance companies financial risks they cannot individually afford

Question 3

Pooling of Risks

Answer 3

when a large group of people contribute money to a fund out of which their losses can be paid. the larger the gouup, the better it works financially

Question 4

Premium

Answer 4

the money paid by the policyowner to the insurance company in exchange for the policy. the premium must be sufficient to pay sales commissions and other marketing costs, pay administrative costs, and provide a loss reserve from which claims are paid

Question 5

A lapse

Answer 5

when a policy is terminated to non-payment of premiums

Question 6

Policyowner

Answer 6

the person or organization to whom benefits are payable at the insured’s death

Question 7

The insured

Answer 7

the person at whose death the insurance company pays benefits to the beneficiary

Question 8

Beneficiary

Answer 8

the person or organization to whom benefits are payable at the insured’s death

Question 9

Rider

Answer 9

is a form that can be added to an insurance policy. it is usually added for an extra premium charge to add coverage. It can, however, sometimes be added to limit or restrict coverage

Question 10

Actuarial tables

Answer 10

statistical tables that are used when calculating premium rates and mortality loss reserves. They tell insurance companies how many claims are likely to be made each year enabling the insurance companies to estimate what their losses will be

Question 11

Mortality actuarial tables

Answer 11

actuarial tables that tell the insurance companies how many people of each age and sex are likely to die each year

Question 12

Mortality loss reserve

Answer 12

is the money set aside by the insurance company to pay life insurance claims

Question 13

the law of large numbers

Answer 13

indicates that the larger the group, the more accurate the mortality actuarial tables will become and the losses will become more predictable and manageable.

Question 14

Premature death

Answer 14

a. is dying before the normal age according to the mortality actuarial tables
b. also defined as dying with unsatisfied responsibilities

Question 15

Through life insurance policies, which are issued by life insurance companies, insureds transfer to insurance companies the…

Answer 15

financial risks of premature death in a defined amount

Question 16

Four premature death risks

Answer 16

1. loss of income
2. unsatisfied major obligations
3. incomplete financial goals
4. final expenses

Question 17

Loss of income

Answer 17

the face amount of life insurance is determined as a multiple of income (such as 6, 7, 8 times income) depending on the age of the insured’s children, the insured’s family circumstances, other benefits such as employment provided group insurance benefits, and social security benefits.

Question 18

Unsatisfied major obligations (debts)

Answer 18

home, vehicles, credit cards, investments

Question 19

Incomplete financial goals

Answer 19

childrens educations, family financial security, husband and wife’s financial independence at old age

Question 20

Final expenses

Answer 20

a. funeral expenses
b. burial expenses
c. last illness or injury expenses
d. taxes
e. unpaid bills
f. legal expenses
g. family readjustment expenses
h. estate taxes

Question 21

Final expenses can be paid at an individual’s death four ways:

Answer 21

1. In cash out the deceased’s person’s savings
2. by borrowing
3. by liquidating property
4. with life insurance benefits

Question 22

Cash out of the deceased’s person’s savings

Answer 22

since no one knows when they are going to die, most people do no accumulate enough money before death. When people do have enough savings, it is usually invested and there are penalties for withdrawal

Question 23

By borrowing

Answer 23

often not all heirs have the credit or are willing to incur the debt. when expenses are paid by borrowing, the loans have to be paid back PLUS INTEREST INCREASING THE COST of death

Question 24

by liquidating property

Answer 24

or investments or business interests. when property, investments, or business interests are liquidated within a limited time period under adverse circumstances, usually the seller realizes a substantial loss

Question 25

With life insurance benefits

Answer 25

a. timely - life insurance provides the sum of money needed at exactly the time that it is needed
b. immediate estate - if the insured were to die the next day after purchasing the policy, the full face amount would be paid. if the individual were to provide for family loss of income, unsatisfied major obligations, incomplete financial goals and final expenses through a savings or investment program, the full amount needed usually would not be available until after several years of saving or investing
c. discounted dollars - the totals premiums paid on a life insurance policy are usually less than the benefits paid at the insured’s death
d. life insurance benefits can be set up to avoid probate- life insurance benefits are usually set up to be paid by the insurance company directly to a beneficiary without going through the legal and court process called probate. The beneficiary receives the benefits quicker and without legal expense
3. Tax advantages

Question 26

Life annuity

Answer 26

a life annuity contract which is issued by a life insurance company protects an individual agains the financial risk of outliving a normal life expectancy according to the mortality actuarial tables and running out of money in old age

Question 27

How long does a life annuity pay out?

Answer 27

it guarantee monthly income benefits to the annuitant for the rest of their life no matter how long they live

Question 28

Power of compounding interest

Answer 28

interest and/or earnings on annuities company without any withdrawal for taxes (tax deferred). the policyowner makes continuing contributions and does not withdraw moneys during the accumulation period. this allows the value of a life insurance company issued annuity to increase at a fast rate during the accumulation period.

Question 29

Policyowner of annuity

Answer 29

person who applies for the plan and pays the premium

Question 30

annuitant

Answer 30

person to whom monthly income benefits are paid

Question 31

Insurable interest

Answer 31

to buy an insurance policy, a person must be in a position where they will lose money should loss occur

Question 32

in the case of a life insurance policy, the policyowner must be in a position where they will…

Answer 32

lose money should the insured die prematurely

Question 33

parties who have insurable interest

Answer 33

a. the insured
b. family members
c. an employer
d. a business partner
e. a creditor
f. anyone else who proves a financial interest

Question 34

the policyowner must be in a position of insurable interest when?

Answer 34

only at the time the policy is issued

Question 35

tax qualified plans

Answer 35

contributions can be tax deducted

Question 36

non qualified plans

Answer 36

contributions cannot be tax deducted

Question 37

tax deferred plans

Answer 37

tax on the interest and/or earning is postponed as it compounds and accumulates until it is withdrawn

Question 38

tax free

Answer 38

when there is no tax on benefits

Question 39

cost basis

Answer 39

the total contributions made to a plan

a. on a cash value life insurance policy, cost basis is the total premiums that have been paid
b. when a policy owner, while still alive, terminates a cash value life insurance policy, surrenders it to the insurance company and receives the proceeds, he/she is usually considered to be the first recovering the cost basis in the cash value life insurance policy. there is usually no tax on the cost basis which is recovered (tax free)
c. proceedds that exceed cost basis are called gain. there is usually tax only on the gain

Question 40

Premiums paid on individual life insurance policies usually cannot be…

Answer 40

tax deducted (non qualified). there is usually no tax on the benefits paid to the beneficiary at the insured’s death (tax free)

Question 41

premiums on group life insurance policies paid by an employer on face amounts up to $50000 usually can be tax deducted by who?

Answer 41

the employer (tax qualified). there still is usually no tax on the life insurance benefits when paid to the beneficiary at the insured’s death (tax free)

Question 42

Some insurance policies, but not all, pay…

what are those type of plans called?

Answer 42

dividends. participating policy. there is no tax on dividends paid to the policyowner on participating policies (tax free)

Question 43

Cash value interest and/or earning are..

Answer 43

tax deferred

Question 44

Because the interest on cash value is tax deferred, dividends are tax free and life insurance benefits paid to a beneficiary at the insured’s death are tax free, some people have used cash value life insurance as tax shelters. The IRS has written rules that define when a life insurance policy does have a real, valid life insurance purpose and is in substance an investment or savings plan.. what is this plan called?

Answer 44

Modified Endowment Contract

Question 45

In addition to tax on gains withdrawn there is a tax penalty on all amounts withdrawn if the withdrawal is prior to age ___ on cash value life polices that have been classified as ____ ______ ______. Similar tax penalties apply to moneys withdrawn prior to age ___ from annuity contracts and some retirement plans

Answer 45

59.5 and Modified Endowment Contract

Question 46

Underwriter

Answer 46

an insurance company employee who reviews applications and additional information and decides whether the applicant is acceptable and what the correct premium rate should be.

Question 47

Application, medical reports, errors and changes to app, Attending physician statement (APS), Medical information Bureau (MIB) report, credit report, and inspection report are items that the underwriter may want to see when?

Answer 47

when underwriting the policy

Question 48

Age, gender, occupation, dangerous recreational activities, aviation, smoking, and agent’s report are all included in what?

Answer 48

the application

Question 49

What two things go with each other for underwriting?

Answer 49

application and medical reports

Question 50

HIPAA states that insurance producers and insurance companies must keep applicants medical information ____

Answer 50

confidential

Question 51

What are the reasons for the inspection report? 2

Answer 51

to verify the producer completed the application correctly and accurately AND to determine if the applicant has any moral or character risks

Question 52

Insurance companies must give notice as to whom the medical information may be disclosed to all ___

Answer 52

applicants

Question 53

insurance applicants must be given notice as to their ____. they must also be given notice of the ____

Answer 53

Privacy rights AND right to refuse dissemination of medical records

Question 54

Fair credit reporting act

Answer 54

applicant’s right to information

Question 55

Under the fair credit reporting act, what are some of the applicant’s rights? 5

Answer 55

1. right to be advised that there might be information collected from outside sources
2. right to the name and address of the inspecting firm if rated or rejected
3. right to see the inspection report
4. right to have the medical information sent to their physician
5. right to dispute information in the inspection report to the inspecting firm
   * ** NEVER REQUIRED TO SEND A COPY OF THE REPORT TO THE APPLICANT

Question 56

Representations are statements in an application upon which the insurance company can contest the policy within the first two years of the policy if the statement is: (3)

Answer 56

1. Concealed or false AND
2. Material AND
3. Intentional

Question 57

When speaking of material, it needs to be significant and it woudve ____

Answer 57

changed the underwriter’s decision on acceptability or the premium rate

Question 58

Specific, GUARANTEED STATEMENTS in an application attachment regarding extra risks upon which the insurance company can contest the policy within the first two years of the policy if the statement is in any way CONCEALED OR FALSE

Answer 58

Warranties

Question 59

Contesting the policy
- if within the first two years of the policy, while the insured is still alive, the insurance company discovers a false representation or false warranted statement, the insurance company can do what?

Answer 59

rescind the policy and refund the premiums that have been paid

Question 60

Contesting the policy
- if within the first two years of the policy, the insured dies and the insurance company discovers false representation or false warranted statement, the insurance company can do what?

Answer 60

refuse to pay the claim and refund the premiums that have been paid

Question 61

Required by law, provides that after the policy has been in effect for 2 years, the insurance company cannot contest a policy (either rescind or refuse to pay a claim) due to any misstatement or concealment in the application

Answer 61

Incontestability Clause

Question 62

When a policy is executed is the same as…

Answer 62

when the policy takes effect

Question 63

Situation: the application, including the medical report of physical is completed, the premium paid and a conditional receipt issued, the policy takes effect….

Answer 63

Immediately. upon completion of the application including the medical report or physical that is required to subject to the condition that the underwrite would have found the insured acceptable at the premium rate according to the insurance company’s standard practices

Question 64

in order to be legally binding, a contract must have both an ____ and ____

Answer 64

offer and acceptance

Question 65

the applicant makes an offer by….

Answer 65

filling out an application including whatever medical report is required and paying a premium

Question 66

the insurance company conditionally accepts the offer by…

Answer 66

issuing a conditional receipt

Question 67

the insurance company can ratify the condition acceptance by ____ . or it can reject the offer thereby rescinding the ____. or it can also make a ____

Answer 67

issuing a policy. conditional acceptance. counteroffer

Question 68

if the insured dies before the owner has accepted the counteroffer, there is no offer and acceptance and therefore no binding contract. What will the insurance company then do?

Answer 68

they are only obligated to refund the premiums that have been paid

Question 69

Situation: the application is completed, no premium paid and no receipt has been issued. the policy takes effect __

Answer 69

A. a policy must be personally delivered
B. insured must still be in insurable health and must sign a statement of continuing good health
C. Premium paid

Question 70

Temporary coverage:
a. it provides temp. coverage from date of application to the date of policy delivery. coverage is subject to the condition that the underwriter would have found the applicant acceptable at the premium rate paid according to the insurance company’s standard practices
b. provides coverage in the same face amount and the same form of coverage as the policy that is to replace it
c. when the policy is issued, the insured is covered from then on subject to no conditions
What is this called?

Answer 70

conditional receipt

Question 71

Temp coverage:
A. it provides temp. term life insurance coverage from the date of application until the date the insured wants a permanent policy to take effect
B. it will pay death benefits if the insured dies prior to the effective date of the permanent policy
c. it guarantees convertibility to a permanent policy without evidence of insurability
What is this called?

Answer 71

Temporary insurance agreement (interim term insurance)

Question 72

What is this? Required by law

a. it must give the policy owner at least 10 days
b. it is from the date of receiving the policy.
c. it allows the policyowner to read the policy over and to return it to the insurance company for a full premium refund without giving a reason

Answer 72

ten day free look provision

Question 73

Consumers that do not want to be called by telemarketers can place themselves on the _____ which is maintained by the federal trade commission (FTC)

Answer 73

National do not call list

Question 74

a. this is a federal anti-money laundering law. its purpose is to protect the US against terrorists and to prevent money-laundry of funds that were obtained illegally or which may be intended for illegal purposes such as terrorism
b. it allows the US attorney general or the Secretary of Treasury to subpoena records of accounts that people have with financial institutions which includes insurance companies
c. requires financial institutions including insurance companies to clearly identify owners of financial institution accounts

Answer 74

US Patriot Act

Question 75

if a ____ ___ ____ ___ ___ is added to a policy, coverage is excluded while the insured is engaged in the excluded activities or flying as something other than a fare paying passenger on a commercial airline

Answer 75

dangerous recreation or aviation exclusion

Question 76

if an individual truthfully answers no to the dangerous recreation or aviation questions, the policy is issued, and then the individual engages in one dangerous activities, the insurance company __

Answer 76

cannot rate up or add exclusions to the policy after the policy has been issued

Question 77

What is another name for additional premium charges and what are 4 types of additional charges

Answer 77

rating up the policy

1. rated table
2. temp. surcharge - temp flat extra charge
3. graded premiums - sometimes called modified premiums.. premiums that increase by specified amounts at specified intervals until they arrive at a long term, permanent rate
4. graded benefits - benefits increase by specified amounts at specified intervals until they equal face amount

Question 78

misstatement of age provision

Answer 78

1. says that if the insured has misstated their age or gender so as to pay too low premiums, the insurance company can reduce benefits to what they would normally provide to a person of the insured’s actual age
2. applies after the two year incontestability period
3. insurance company must refund the premiums that were overpaid if applicable
4. the purpose of the provision is to allow the insurance company to issue the policy without proof of age or gender

Question 79

What is this?

1. if added for an extra premium charge, it guarantees the insured the right to purchase additional insurance at the premium rate for the insured’s attained age with evidence of insurability
2. options may be exercised at intervals such as every 3 years. usually start at age 25 with options ending at age 40.
3. if the insured marries or has a child, he or she is usually allowed to immediately move up his or her options
4. if the insured up an option and does not exercise it, it is lost and cannot be recovered.

Answer 79

Guaranteed Insurability Rider - optional and extra charge

Question 80

Accidental death coverage

Answer 80

pays benefits for death caused by injuries sustained by ACCIDENTAL means.. can be refereed to double or triple indemnity