Life Insurance Basics

Question 0

When must insurable interest exist in a life insurance policy?

Answer 0

At the time of application.

Question 1

What are the personal uses of life insurance?

Answer 1

Survivor protection, estate creation and conservation, cash accumulation and liquidity.

Question 2

What document must a producer provide to the insured during policy replacement?

Answer 2

Notice regarding replacement

Question 3

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?

Answer 3

The existence of insurable interest between the applicant and the insured.

Question 4

Life insurance may be used to pay estate inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?

Answer 4

Estate conservation

Question 5

What term describes the fee a person pays an insurance company to receive coverage?

Answer 5

Premium

Question 6

Who must have insurable interest in the insured?

Answer 6

Policyowner

Question 7

What does “liquidity” mean in a life insurance policy?

Answer 7

Availability of cash value

Question 8

What is the purpose of the agent’s report during the application process?

Answer 8

The agent’s report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.

Question 9

What is policy replacement?

Answer 9

A new policy is issued while an existing policy is terminated or reissued with a reduction in cash value.

Question 10

What is the purpose of key person insurance?

Answer 10

To minimize the risk of financial of financial loss caused by the death of a key employee.

Question 11

A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?

Answer 11

The benefit is received tax free.

Question 12

What are the three main instances when insurable interest exists in life insurance?

Answer 12

Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policy owner

Question 13

Who is responsible for the contents of insurance advertisements?

Answer 13

The insurance company

Question 14

Who is the beneficiary on a key-person life insurance policy?

Answer 14

The employer

Question 15

At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?

Answer 15

Either the date of the application or the date of the medical exam. Whichever occurs last.

Question 16

What type of policy issues certificates of insurance to the insureds?

Answer 16

Group policy

Question 17

Who is a replacing insurer?

Answer 17

The company that issues a new policy during policy replacement.

Question 18

What is insurance underwriting?

Answer 18

The process of risk selection and classification.

Question 19

What type of policy is typically issued without proof of insurability from the insured?

Answer 19

Group policy

Question 20

What type of life insurance offers an applicant a cash value element?

Answer 20

Permanent (Whole) life insurance

Question 21

If someone wants to buy a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should it be?

Answer 21

Permanent life insurance

Question 22

What is included in part two of a life insurance application?

Answer 22

Medical information about the prospective insured.

Question 23

What are illustrations in a life insurance policy?

Answer 23

Presentations of nonguaranteed elements of the policy

Question 24

An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?

Answer 24

Variable

Question 25

What is a blackout period for social security benefits?

Answer 25

A period of time during which the surviving spouse does not receive benefits.

Question 26

What type of insurance creates an immediate estate?

Answer 26

Life insurance

Question 27

Mortality tables are used by insurance companies to predict what?

Answer 27

Life expectancy and the death rates for specific groups of individuals.

Question 28

What is the main responsibility of a company’s underwriting unit?

Answer 28

Risk selection

Question 29

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

Answer 29

It will decrease

Question 30

What is the term that describes the frequency and the amount of the premium payment?

Answer 30

Premium mode

Question 31

All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annually?

Answer 31

Monthly

Question 32

What document describes the specific information about a policy?

Answer 32

Policy summary

Question 33

When must the policy summary for a life insurance policy be delivered to the policy owner?

Answer 33

At the time of policy delivery

Question 34

When planning for survivor protection in life insurance, what needs to be considered?

Answer 34

The insured’s current assets, liabilities and survivor’s needs

Question 35

What are the three factors that determine the premium for a particular life insurance policy?

Answer 35

Mortality, interest and expense

Question 36

How does the premium mode affect the total premium paid for insurance for the year?

Answer 36

Higher frequency of premium payment will result in higher overall premium

Question 37

In calculating the amount of life insurance needed, what is the needs approach based on?

Answer 37

The predicted needs of a family after the premature death of the insured

Question 38

What type of insurance would perform the function of cash accumulation?

Answer 38

Life insurance

Question 39

What is the main purpose of the regulation on life insurance policy illustrations?

Answer 39

To help the public make educated decisions about buying life insurance