Life Insurance Basics

Question 1

Purpose of Life Insurance

Answer 1

Help a dependent, family member, or other survivor cope with the financial consequences of someone’s death

Question 2

Life insurance creates an…

Answer 2

Immediate estate and no probate process

Question 3

Other uses of life insurance

Answer 3

Estate and tax planning, forced savings via cash value, business succession planning

Question 4

Insurer

Answer 4

Accepts the financial risk of someone’s death and pays death benefits in exchange for compensation

Question 5

Policyholder/owner

Answer 5

Controls the policy with the insurer, decides how it will be set up and usually needs to pay premium

Question 6

Insured

Answer 6

Person whose death will result in benefits

Question 7

Can the owner and insured be the same person?

Answer 7

Yes

Question 8

Third-Party Ownership

Answer 8

When the owner and insured are different

Question 9

Beneficiary

Answer 9

Received death benefit when the insured dies

Question 10

Insurable Interest

Answer 10

Policyholder/owner must have insurable interest in the insured person’s life at the time of application, not necessarily at time of death

Question 11

Beneficiary generally doesn’t need insurable interest and is usually chosen by…

Answer 11

Owner

Question 12

Ownership Rights: Choose the amount of insurance and…

Answer 12

Beneficiary

Question 13

Ownership Rights: Use the life insurance policy as…

Answer 13

Collateral for a loan from the insurer or another lender

Question 14

Ownership Rights: Withdraw money from…

Answer 14

Policy’s cash value (if had)

Question 15

Ownership Rights: Terminate life insurance policy or…

Answer 15

Make changes to it

Question 16

Ownership Rights: Choose the frequency of…

Answer 16

Required premium payments

Question 17

Ownership Rights: Receive dividends from…

Answer 17

Insurance company

Question 18

Ownership Rights: Decide whether the beneficiary will receive death benefits in a…

Answer 18

Lump sum or in multiple installments

Question 19

Ownership Rights: Transfer all or portion of the ownership rights to…

Answer 19

Someone else

Question 20

Death Benefits

Answer 20

Chosen by owner; aka face amount or face value

Question 21

Assignment

Answer 21

Ability to transfer ownership rights to a third party

Question 22

Assignment requires…

Answer 22

Insurer consent

Question 23

Absolute Assignment

Answer 23

Gives all rights permanently to a third party

Question 24

Collateral Assignment

Answer 24

Gives lenders the right to name themselves as beneficiaries until repayment

Question 25

Human Life Value

Answer 25

Estimates amount of income a person would expect to contribute to a beneficiary’s well being over a lifetime

Question 26

Analysis/Needs Approach

Answer 26

Estimates what a beneficiary would need in order to accomplish an important financial goal