Life Insurance Flashcards
1
Q
Insurance =
A
transfer of risk
2
Q
Risk =
A
uncertainty
3
Q
Speculative risk means possibility of ____ and ____
A
of loss and gain, will not insure
4
Q
Pure risk means only ____
A
possibility of loss
5
Q
Loss = value ____ minus value ____
A
value before loss minus value after loss
6
Q
Exposure is the risk assumed by the insurer and ____
A
amount they are responsible to pay out
7
Q
A peril is a _____
A
cause of loss
8
Q
Insurers agree to cover ____ perils
A
specified
9
Q
A hazard is anything that ____ a loss will occur
A
increases the chance
10
Q
The three kinds of hazards are
A
- physical, 2. moral and 3. morale
11
Q
____ is another way to think of a moral hazard
A
dishonesty
12
Q
An example of morale hazard is _____
A
leaving the doors unlocked, living carelessly
13
Q
STARR is an acronym for handling risk, and means
A
Sharing, Transfer (insurance), Avoidance, Retention, Reduction
14
Q
The law of large numbers allows insurers to predict
A
losses
15
Q
Risks that can be insured have similar characteristics, using the acronym CANHAM meaning
A
Calculable, Affordable, Non-catastrophic, Homogeneous, Accidental, Measurable
16
Q
Adverse selection is when _____
A
higher-risk individuals get and keep more insurance than average risk people
17
Q
To avoid adverse selection, insurers _____ policies
A
underwrite
18
Q
A ceding insurer is the one ____ reinsurance
A
buying
19
Q
The insurer selling reinsurance is the _____
A
reinsurer
20
Q
Facultative reinsurance is when a reinsurer considers ____ before taking on responsibility
A
considers each risk
21
Q
Treaty reinsurance is when the reinsurer _____
A
accepts all risks of a certain type
22
Q
A stock insurer is a business formed as a public or private corporation and is _____
A
owned by shareholders
23
Q
Policies issued by stock insurers are called _____
A
non-participating (non-par)
24
Q
The board of directors for a stock insurer are chosen by
A
the stockholders/shareholders
25
Stock insurers may distribute ____
dividends
26
A mutual insurer is owned by its ______
policy holders
27
Mutual insurer dividends are considered to be _____
non-taxable return of excess premiums
28
Policies issued by mutual insurers are called
participating (since the policyowners participate in the operating results of the company)
29
Fraternal benefit societies issue policies called ____
certificates, holders are certificate holders
30
Fraternal benefit society policies are also called
open contracts
31
Reciprocal insurers are groups of people that agree to pay each other's losses, members are known as
subscribers
32
For reciprocal insurers, administration, underwriting, sales promotion, and claims are handled by the
attorney-in-fact
33
A risk retention group only provides
liability insurance to its policyholders
34
Policyholders of a risk retention group must all be members of the same
type of business
35
LLoyd's Associations are not insurance companies, they provide a hub for the exchange of information among member underwriters who actually transact the insurance. They underwrite ____ risks
unusual (like athlete's body parts)
36
Self-insurance is setting aside
cash to cover losses on your own (or by a business)
37
The residual market is insurance from ___ or ____
federal or state government
38
A domestic insurer is
one that operates in the home state where it is incorporated
39
A foreign insurer is
one that operates in a state that it is not headquartered in
40
An alien insurer is
an insurer formed under the law of any country other than the USA
41
A state license to sell insurance for an insurer is called
a certificate of authority, you are admitted or authorized
42
Some states allow companies to sell insurance to certain types of risk (surplus) without a license, they are called
nonadmitted, unauthorized, nonapproved
43
Surplus lines insurance is for _____ and is placed with ____
for exceptionally large or specialized risk, placed with a non-admitted carrier by a surplus lines agent; can't be sold just for a cheaper rate than licensed/admitted insurers
44
The ratings agencies for insurers are
AM Best, S&P Insurance Rating Services, Moody's Duff & Phels, and Weiss Ratings
45
Best ratings for each rating agency
A++ = AM Best; AAA = Fitch, Aaa = Moody's; AAA = S&P
46
Exclusive or captive agents only respresent
one insurer
47
General agents or managing general agents
hire train and supervise other agents with a geographical region
48
Direct-writing companies
pay salaries to employees who sell the insurance from a company office
49
In direct response marketing, there is no
producer or agent, sold directly to public
50
Agency is when one person is
authorized to represent or act for another person or corporation
51
Express authority is
made explicit in a producer's written agency agreement with an insurer
52
Implied authority is
not written in the agency contract, but is assumed to be granted in accordance with general business practices
53
Apparent authority is
authority that others believe the agent has
54
Acronym CLOAC is for elements of a legal contract and means
Consideration, Legal Purpose, Offer, Acceptance, Competent Parties
55
Adhesion in a contract means
that one party writes the contract and the other has to adhere to them (if any ambiguity, courts will favor the adhering party - the insured)
56
Aleatory contracts means
that the value received from the contract by each party may be unequal
57
Life and health contracts are not ____, unlike property - casualty contracts
are NOT personal
58
A misrepresentation is a representation that is actually
false
59
For a contract to be void, a misrepresentation has to be
material
60
Estoppel is a legal doctrine that prevents a party from _____ if it had been accepted previously
denying an action
61
Agent/producer is known as the ____ underwriter
field underwriter
62
Corrections on an application must be accompanied by the insured's _____
initials
63
Most state laws allow life insurance applications to be backdated up to ____
6 months
64
Required signatures on an application are:
insured
producer/agent
application/owner (if not insured)
65
The producer/agent report includes information on the insured's
financial status, habits, and character
66
The producers report is never seen by the
insured
67
Applicants must be given advance notice of who is authorized to
disclose personal information
68
If no first premium is paid, the coverage is ____
delayed until the premium is paid for the issued policy
69
If the insured becomes uninsurable or dies between time with application is submitted and first premium is collected, the policy will
not pay a benefit
70
Once first premium is paid, producer must provide the applicant with a _____
receipt
71
If you send your premium in with your application and die with a conditional receipt, if the insured meets underwriting requirements a death benefit ____
will be paid, if not insurable, will not be paid and premium will be sent back to the policyowner or beneficiary
72
Conditional receipt means you sent your ____ in with your application
first premium
73
Binding receipts are effective for ___ or ___ days
30 or 60 days from the date of the application even if the applicant is found to be uninsurable (rarely used with life insurance, mostly home and auto)
74
Life insurance binders are called _____ insurance agreements
temporary
75
3 parts of an application are information about
general info
health info
producer's report
76
An APS is an ____
attending physicians statement for health care information
77
Who pays for the medical exam for life insurance?
the insurer
78
The four classifications of risks are
standard
preferred
substandard
declined
79
When a policy is issued, it must be ____ to the policyowner
delivered, in some states they require a receipt from the policyowner
80
A policyowner must sign a ____ attesting that their health is the same as when they applied (required if no ___ with application)
statement of good health, required if no premium was paid with application
81
FCRA stands for the
Fair Credit Reporting Act
82
Under the FCRA, a ____ must be issued to all applicants of life or health insurance
a notice to applicant - tells you a repot is being ordered
83
Consumer rights under FCRA means that a consumer may _____ incorrect information
dispute
84
Penalties under FCRA can be punishable by ____
fines and imprisonment
85
False pretense under FCRA is a fine of ____ or ____ or both
$5,000, 1 year imprisonment or both
86
Producers may be ____ for their mistakes
liable
87
STOLI or IOLI are ___ and ____ and are being banned
stranger-owned life insurance or investor-owned life insurance
88
the USA PATRIOT Act is to ____ and covers ____
deter terrorism and covers money laundering
89
Third party ownership of a life insurance policy is when someone other than the ____ owns the policy
other than the insured
90
To get third party ownership, must have an insurable interest in the insured, which is a significant loss if that person dies, can be:
emotion
| economic
91
An insurable interest exists between lenders and their ____
debtors
92
An insurable interest is only required when you ___ for a life insurance policy
apply
93
Life insurance can be used to make sure an estate is _____
conserved
94
Liquidity refers to how easily an asset can be turned into cash without ____
loss of value
95
Cash value in a permanent life insurance policy is also known as the _____ benefit
living
96
Human life value =
individual's annual income x number of years until retirement
97
Needs approach to valuing insurance coverage is more ___ than the human life value and falls into two categories:
more accurate, two categories are:
| cash needs and income needs
98
Cash needs in the needs approach can be met with a lump sum, includes:
final expenses
debt payoff
children's education
emergency fund
99
Income needs in the needs approach fall into three specific periods:
family dependency - kids too young to support themselves
preretirement - surviving spouse not yet retirement age
retirement - surviving spouse needs income
100
Two types of buy/sell agreements:
entity, and cross-purchase
101
Companies usually buy ___ to protect against liabilities related to deferred compensation plans
life insurance (company is owner, premium payer, and beneficiary - employee is the insured)
102
The preretirement period in cash needs analysis is also known as the -____ period
blackout
103
Industrial insurance is small amounts, face amounts are usually $2,000 or less to cover burial expense, and premiums are due ____ and collected ____
due weekly, collected in-person
104
Home service policies are like ____ policies, usually bigger face amounts and monthly bank drafts for premiums
like industrial policies
105
Three elements into calculating insurance premiums:
mortality, interest, expense (expense load)
106
Net premium =
mortality - interest
107
Gross premium =
mortality - interest + expenses
108
Which is not a party to a third party owned insurance policy?
the beneficiary
109
Decreasing term policies are appropriate for coverage of financial obligations that decrease steadily over time, like:
Premiums will _____
mortgages, bank loans, obligations with periodic payments
premiums will stay the same
110
Increasing term policies are appropriate for coverage of financial obligations that increase steadily over time, like:
Premiums will ____
health insurance, inflating cost of living expenses
increase
111
A return of premium term policy:
returns your premiums at end of term if you're still alive (higher % return means higher premiums)
112
Renewable term policies guarantee that the policy will renew at end of term until a specific age, but the premiums will
increase, called step-rate premiums
113
Convertibility on a term policy allows the owner to -___
convert term to a permanent policy without evidence of insurability and no application
114
Premiums for a converted term policy to permanent insurance will be based on one of two options:
attained age at time of conversion, original age when term policy was written
115
Whole life policy premiums never _____
increase
116
If premiums on a whole life policy aren't paid, the policy will ____
lapse
117
The death benefit on a whole life policy is fixed and level, meaning
it won't change
118
Cash value in a whole life policy reflects the ___ necessary to assure payment of the guaranteed death benefit
reserves
119
The guaranteed interest crediting in a whole life policy means the cash value
increases over time at a guaranteed level of interest
120
IF you die with a loan out on the cash value of your whole life policy, the amount borrowed plus interest is _____
deducted from the death benefit
121
at endowment of a whole life policy, the policyowner pays income tax on any
taxable gain
122
Continuous premium whole life is also referred to as straight life or
ordinary life
123
THe lowest initial premium for a whole life policy is with a _____
graded premium
124
Universal life is a form of _____ life insurance
flexible - can be like term or whole
125
Option B in a universal life policy is the ___ death benefit
increasing - cash value does not increase as quickly
126
Option A in a universal life policy is the ____ death benefit
level - cash value increases quicker
127
Withdrawals from universal life are ____ tax-free up to the ____, above that they are taxed as ordinary income. They also reduce the ___ and ___ by the amount of the withdrawal
are federal income tax-free up to cost basis (premiums paid) and reduce cash value and death benefit by amount of withdrawal
128
Variable universal life is also known as ____ premium variable life
flexible
129
Joint life policies are also called ____ policies
first-to-die
130
Survivorship life policies will pay when the ____ dies
last insured dies, also known as second-to-die or last-to-die
131
Juvenile policies are mostly ____ life insurance
permanent
132
Jumping juvenile policies increase the ____ at a certain age
increase the face amount
133
Waiver of premium rider will ____
pay the premiums so the policyholder can continue to have coverage for duration of policy if they become disabled
134
The waiting period on a waiver of premium rider is usually ___ to ___ days to see if the insured is still disabled
90 to 180 days
135
For a flexible premiums policy, the waiver of premiums is called _____ or ____
waiver of monthly deductions or waiver of cost of insurance
136
Disability income rider typically provides a disability benefit in the amount of ____% of face value
1%
137
Payor benefit rider is usually found with ____ policies and waives premiums is policyholder becomes disabled until minor reaches age ___ or ___
juvenile policies, until they reach age 18 or 21
138
Accelerated death benefit riders are triggered by medical circumstances, including:
terminal illness, death within 24 months
serious illness with reduced life expectancy
long-term care due to inability to perform ADLs
hospice admittance
catastrophic illness, such as need for organ transplant
139
The Other (Additional) insured rider provides _____ term insurance for a spouse or immediate family member of the primary insured
convertible term insurance
140
the Exchange privilege rider or substitute insured rider is used to ____ the insured person
change the insured person to a different person
141
The three types of term insurance riders are
level, decreasing, increasing
142
The return of premium rider is an increasing term rider and the death benefit equals the ____
total of premiums paid for the rider and the underlying permanent policy
143
The Accidental death benefit rider (ADB) pays an extra benefit if the insured dies in an
accident
144
For the ADB to pay out, the insured must die within ___ of the accident
90 days
145
The accidental death and dismemberment (AD&D) pays out the principal sum if ____ and capital sum if ___
principal = death, capital = dismemberment (legs, arms, feet or hands, loss of sight, loss of hearing, paralysis)
146
The guaranteed insurability rider (GIR) also known as GIO and GIB, and allows owner to purchase additional life insurance at specified ____
intervals in the future for certain amounts without evidence of insurability (certain ages 25 through 40; also certain life events marriage, birth, adoption)
147
Interest only settlement option = insurer retains death benefit and pays __
stated amount of interest, death benefit paid at a later date
148
Fixed period settlement option =
get paid principal and interest over a stated period of time
149
fixed amount settlement option =
choose a fixed amount each period to be paid out until principal and interest are completely paid out to beneficiary
150
the life with refund settlement option pays income for as long as beneficiary is alive and guarantees that total payments will be at least _____
amount of the death benefit
151
Participating policy dividends area refund of ____
a portion of the premiums --> not taxable
152
Participating policy dividend options are CARPPO:
```
cash
accumulation of interest (dividend not taxable but interest is)
reduced premium
paid up additions
paid up insurance
one-year term insurance
```
153
The free look provision gives the policyowner a period of time to return a policy for any reason within ____ days of delivery and receive all premiums paid
10 days
154
The insuring clause or insuring agreements sets forth the insurer's promise to ____
pay benefits upon insured's death
155
Assignment is a transfer of the ____ rights to another individual or entity
owner's rights
156
Partial assignment is the temporary assignment of a policy but does not change the ownership of the policy. Usually for a ____
loan
157
Absolute or permanent assignment is a total transfer of
owners rights to another person or entity
158
The entire contract is three things:
policy
copy of application
any riders or amendments
159
Endorsements are changes to a contract, must be in writing, and must be signed by
an executive officer of the company - cannot be agent/producer
160
Grace periods for premium payments are for a period up to ___ days
31 days
161
Reinstatement, always permitted with permanent insurance, requires three things from the insured if their policy lapses:
submit application for reinstatement within three years of lapse
pay all past due premiums plus interest
provide satisfactory evidence of insurability
162
Incontestability provision is to protect insured, says that insurer cannot contest application was made to defraud insurer after ___ years
two
163
Payment of claims provision says the insurer will pay claims promptly, generally within ____ days. If not, interest is due
60 days
164
If benes are irrevocable, need ____ permission for policy loans or withdrawals
bene
165
If an irrevocable bene dies, benes become ____
revocable
166
The facility of payment provision allows the insurer to pay part of the policy's death benefit to someone other than a designated bene if:
- bene is a minor, deceased, or cannot be found
| - someone other than bene incurred the insured's final medical or funeral expenses
167
The Uniform Simultaneous Death Act states that if the insured and primary bene die in same accident, ____ is assumed to have died first
primary bene --> proceeds go to contingent bene
168
Group life insurance is limited to the following group types:
```
employer group plans
METs (multiple employer trusts)
labor unions
association group plans
group credit life insurance (insurance cannot exceed debt owed)
```
169
An individual employee of a group plan does not receive a master policy, instead they get a ____
certificate of insurance
170
In a contributory group plan, employees
pay a part of the premium, in non-contributory they don't
171
At least ___% of eligible employees must participate in a contributory group plan
75%
172
____% of employees must contribute in a noncontributory group plan
100%
173
In underwriting of a group plan, some underwriting considerations are :
stability of the group
persistency of the group (change insurers every year)
existence of the group (can't just be applying for coverage as reason for group to exist)
174
Are medical questions part of a group policy underwriting?
usually not
175
The two most common classifications for employees in determining eligibility under a group plan are:
full time vs part time
| years of service
176
Probationary periods for new employees under a group plan usually last ____ to ___ months
one to twelve
177
The enrollment period in a group plan follows the probationary period, usually last ____ days, and no ____
31 days, no medical questions (if you apply after enrollment period, might be medical questions)
178
Must have a conversion privilege with a group plan, some requirements are:
```
conversion done within 31 days
must convert to permanent insurance
same coverage amount
premiums based on attained age at conversion
no proof of insurability required
```
179
Can an annuitant be a corporation or a trust?
NO, must be a natural person
180
Can an annuitant make withdrawals, deposits, change names of parties to an annuity agreement or terminate the contract?
NO - unless they are also the contract owner (which is often the case)
181
A life annuity payout option can also be called:
straight life, pure life, life - no refund
182
Fixed annuities are supported by the insurer's ____ account
general
183
Variable annuities are kept in a ____ account
separate
184
For variable annuity, separate account is held in ____ units - when annuitized, held in ____ units
accumulation units converted to annuity units
185
Do you need a securities license to sell equity-indexed annuities?
NO
186
Four uses of annuities are:
life income
tax favored savings
funding IRAs
Education funds
187
Group annuities are funded by ____ contributions and distributions are determined by the _____
funded by employer contributions, distributions determined by employer
188
Are premiums paid for individual life insurance tax deductible?
NO
189
Interest earnings credited to life insurance cash values are ____
tax deferred as long as they remain inside the policy
190
Withdrawals (partial surrenders) are withdrawn on a ____ basis
FIFO
191
Policy loans are ___ taxable, even if loan amount exceeds cost basis. If a policy is surrendered or lapses, any portion of the loan amount that exceeds policy's basis is a _____. Interest paid on policy loans is ____ tax deductible
policy loans not taxable
if lapses, amount in excess of basis is capital gain
interest paid on loans is NOT tax deductible
192
Are dividends from a policy taxable?
no, considered return of premiums. will reduce basis
193
Accelerated death benefits are ____
tax exempt
194
Business life insurance premiums are NOT tax deductible to the business for:
key person
buy-sell
policies that will reimburse company for deferred comp arrangements
195
Business life insurance premiums ARE tax deductible to the business for _____ plans
executive bonus plans
196
Premiums for executive bonus policies are ____ to the employee
taxable income
197
Distributions from an annuity are withdrawn on a ____ basis
LIFO
198
Under 1035 exchanges:
Life to Life =
Annuity to Annuity =
Life to Annuity =
Annuity to Life =
Life to life, not taxable
Annuity to annuity, not taxable
Life to annuity, not taxable
Annuity to life, GAINS TAXABLE
199
If you die with an annuity in the accumulation period, the gains and cost basis are both ____
included in the estate
200
If you due with an annuity in the annuitization period, the present value of any payments to the ___ or ____ is included in the estate
beneficiary or survivor annuitant
201
Can you put US minted coins in an IRA?
YES
202
Employees are ____ vested in employer contributions under a SIMPLE plan
100% vested
