Life Insurance Basics Flashcards
What are some common personal uses of life insurance?
Cash accumulation: permanent policies have living benefits, Estate creation: life insurance creates an immediate estate, Estate conservation: using life insurance proceeds to cover estate taxes, Liquidity, Survivor protection: planning for surviving needs.
Beneficiary
a person who receives the benefits of insurance policy.
Death benefit
the amount paid upon the death of the insured in a life insurance policy.
Cash value
equity amount accumulated in the permanent life insurance.
ERISA
Employee Retirement Income Security Act: defines federal standards for private pension plans.
Estate
a person’s net worth.
Illustrations
presentation or depiction of non-guaranteed elements of a life insurance policy.
Life insurance
coverage on human lives.
Liquidation
selling assets in order to raise capital.
Lump-sum
payment of the entire benefit in one sum.
Minor
a person under the legal age.
Solvency
ability to meet financial obligations (e.g. an insurance company maintains enough assets to pay claims)
What is the difference between life settlement contracts and STOLIs?
The primary purpose for STOLI is affecting a life settlement contract. In most states STOLIs are illegal. The Life Settlement Contract establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale, or release of any portion of any of the following:
- The death benefit;
- Policy ownership;
- Any beneficial interest; or
- Interest in a trust or any other entity that owns the policy.
What is the needs approach to determining amounts of life insurance based upon?
The needs approach is based on the predicted needs of a family after the premature death of insured. Some of the factors considered by the needs to approach are income, the amount of debt (including mortgage), investments, and other ongoing expenses.
What is the purpose of key person insurance?
A business can lessen the risk of such a loss by the use of key person insurance.
In a life insurance policy, when must insurable interest exist?
A valid insurable interest may exist between the policyowner and the insured when the policy insuring any of the following: Policyowener’s own life; The life of a family member; The life of a business partner, key employee, or someone who has a financial obligation to the policyowner.
What does insurance solicitation mean?
An attempt to persuade a person to buy an insurance policy, and it can be done orally or in writing. This includes providing information about available products, describing the policy benefits, making recommendations about a specific type of policy, and trying to secure a contract between the applicant and the insurance company.
Who is responsible for all written and distributed insurance advertisements?
The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.
What information does a Buyer’s Guide provide?
Basic, generic information about life insurance that contains, and is limited to, language approved by the Department of Insurance. This document explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies.
What are the four steps a producer must follow when replacing an existing policy?
1: Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant.
2: Obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced.
3: Leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant.
4: Submit to the replacing insurance company a copy of the replacement notice with the application.
What is the purpose of the Life and Health Insurance Guaranty Association?
It was created to protect policyowners, insured, and beneficiaries against insolvent insurers. All insurers that sell life, health or annuity contracts must be members of the Association in order to transact business in Oregon?
What is underwriting?
is the risk selection and classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for insurance.
What information is gathered in Parts 1 & 2 of the application?
Part 1 is the general information of the application and it includes the general questions about the applicant, such as name, age, address, birth date, gender, income, marital status, and occupation. It will also inquire about the existing policies and if the proposed insurance will replace them.
Part 2 includes information on the prospective insured’s medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
What is the purpose of the agent’s report?
The agent’s report provides the agent’s personal observations concerning the proposed insured. The agent’s report does not become a part of the entire contract, although it is a part of the application process.
Who is required to sign an application for life insurance?
Both the agent and the proposed insured must sign the application. If the proposed insured and the policyowner are not the same person, such as a business purchasing insurance on an employee, then the policyowner must also sign the application. An exception to the proposed insured signing the application would be in the case of an adult, such as a parent or guardian, applying for insurance on a minor child.
When does an insurance policy go in effect?
when the policy is delivered and the premium is paid. If the premium not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of the policy deliver.
How can insurance company use the information it obtains from the MIB?
It can be used only as an aid in helping insurers know what areas of impairment they might need to investigate further. An applicant cannot be refused simply because of some adverse information discovered through the MIB.
How does a substandard risk policy differ from a standard risk?
The substandard risks are not acceptable at standard rates because of physical condition, personal or family history of a disease, occupation, or dangerous habits.
