Life Insurance Basics

Question 1

Which product is sold primarily to protect against financial and economic loss in the event of unexpected and /or untimely death?

Answer 1

life insurance

Question 2

who is the purchaser of a life insurance policy?

Answer 2

policyholder

Question 3

The death benefit proceeds are only payable upon death of the ___________

Answer 3

insured

Question 4

if the policy is owned by a person other than the insured, it is referred to as a _______

Answer 4

third-party ownership

Question 5

in order for a contract to be valid, an _____ ______ must exist between the owner and insured before the policy will be issued.

Answer 5

insurable interest

Question 6

what type of interest exists if the insured’s death results in a financial or economic loss by the owner?

Answer 6

insured interest

Question 7

T/F: a person automatically has an unlimited insurable interest in his or her own self.

Answer 7

TRUE

Question 8

who receives the policy proceeds, or death benefits, under the contract if the insured dies while the policy is in force?

Answer 8

beneficiary

Question 9

T/F: the insured can be named the beneficiary

Answer 9

FALSE

Question 10

who is the initial point of contact for most insurance transactions?

Answer 10

producer

Question 11

Transacting insurance can involve any of four different phases in the sale of products:
1.
2.
3
4.

Answer 11

solicitation, negotiation, execution of a contract, and handling matters subsequent to a contract

Question 12

who is required to provide all life insurance applicants with written disclosure regarding information to help them make a more informed decision when purchasing insurance?

Answer 12

producers

Question 13

what two things must be provided to the applicant at the time of application or no later than policy delivery?

Answer 13

buyer’s guide and policy summary

Question 14

what is a computer-generated illustration detailing the premiums to be paid, current and guaranteed interest rates, guaranteed and non-guaranteed values, any projected dividends, and the producers/insurer’s name and address?

Answer 14

policy summary

Question 15

what is a generic brochure developed by the NAIC to assist prospective buyers of life insurance? it includes all basic types of life insurance as well as comparative costs of each

Answer 15

buyer’s guide

Question 16

True/False: the applicant does not have to be notified and give written consent for information to be received by a third party

Answer 16

FALSE

Question 17

Which type of act has jurisdiction over information collected through a third party for underwriting purposes?

Answer 17

Fair Credit Reporting Act

Question 18

_________ is the act of saving or keeping the existing policy and preventing it from being replaced

Answer 18

conversion

Question 19

Does the beneficiary have to sign an application for insurance?

Answer 19

no, the applicant, insured, and the producer’s signatures are all required in an application for insurance

Question 20

What type of receipt will the producer issue if the premium is paid at the time of the application?

Answer 20

conditional receipt

Question 21

T/F: assume all policies are applied for as standard risk

Answer 21

true

Question 22

What is a binding (unconditional) receipt?

Answer 22

provided immediate coverage if the premium is paid at the time of application. Typically, not allowable in connection to the sale of life insurance

Question 23

What is a trial application?

Answer 23

an app submitted without a premium. applicant may be concerned they won’t qualify for a policy, or they don’t want to pay up front.

Question 24

What is a COD?

Answer 24

Collect on delivery. if the applicant is considered an acceptable risk, coverage will not take effect until the policy is ultimately issued by the insurer, delivered by the agent, and the premium is paid

Question 25

will the policy go into effect before the first premium is paid?

Answer 25

no - first premium must be paid for policy to take effect.

Question 26

Who collects the initial premium to submit it to the insurer with the application?

Answer 26

producer

Question 27

Which branch of the government is responsible for writing and passing state insurance laws, or statutes, to protect the insuring public?

Answer 27

legislative branch

Question 28

What is the process of selection, classification, and rating?

Answer 28

Underwriting

Question 29

T/F: Underwritings purpose is to detect adverse selection, unhealthy or high-risk applicants, and to insure only those risks that meet certain criteria

Answer 29

TRUE

Question 30

What are the sources of underwriting?

Answer 30

medical exam, application, attending physician statement (APS), medical information bureau (MIB), inspection report, and agent's report

Question 31

What is the primary source of underwriting?

Answer 31

application

Question 32

Describe part I and II of underwriting. Explain the differences between

Answer 32

Part I contains general questions about the applicant (sex/gender, marital status, residence, DOB, past/present life insurance history) Part II contains questions pertaining to medical background, past/present health conditions, medical visits, medications, height/weight, hospitalization, surgeries in recent years, family medical history

Question 33

What is an attending physician statement (APS)?

Answer 33

used in cases where the individual application and/or medical report reveals conditions for which further information is necessary to determine insurability. applicant must sign a written release to enable the APS & insurer is responsible for costs.

Question 34

Is an application for life insurance confidential?

Answer 34

no

Question 35

What does the MIB stand for and do?

Answer 35

Medical Information Bureau - collects adverse medical information about an applicant's health and acts as an information exchange

Question 36

T/F: The MIB can be used to decline an applicant for insurance

Answer 36

FALSE - the MIB alone cannot b used to decline an applicant for insurance

Question 37

The _____ is a member owned corporation that operates on a not-for-profit basis

Answer 37

MIB - medical information bureau

Question 38

which type of report shows the applicant's finances, character, morals, work, hobbies, and other habits?

Answer 38

investigative or inspection report (sometimes referred to as consumer investigative report)

Question 39

What is the purpose of the agent's report?

Answer 39

to provide information in order for the insurer to determine insurability.

Question 40

Which type of report is submitted by the producer, to the insurer, regarding the applicant's financial condition and any personal knowledge of the applicant?

Answer 40

Agent's report

Question 41

T/F: information in the agent's report remains confidential between the producer and insurer, and it does not become part of the entire contract

Answer 41

TRUE

Question 42

A producer provided a conditional receipt to an applicant on May 5 at the time of an application based on a standard risk. The insurer required a routine medical exam, which was completed on May 15. The policy was issued based on a substandard risk on May 20 and the producer delivered the policy on May 22. The effective date of coverage is: a. may 5 b. may 15 c. may 20 d. may 22

Answer 42

May 22

Question 43

A/an_______is a personal statement submitted by the producer to the insurer regarding the applicant’s financial condition and any personal knowledge of the applicant.

Answer 43

agent's report

Question 44

Which of the following best describes a Statement of Good Health? A- It is a sworn oral statement made by the insured at the time of application allowing for coverage to come into effect. B- It is the producer's authority to raise the rate if the insured does not appear to be in good health at the time of policy delivery C- It is required with all policy deliveries to confirm the underwriting class that was assigned D- It verifies that the insured has not suffered a serious illness or injury since the application date if the premium was not paid at the time of application

Answer 44

It verifies that the insured has not suffered a serious illness or injury since the application date if the premium was not paid at the time of application

Question 45

Tom submits an application and a premium check. Six days later, the insurer issues the policy as applied for and mails it overnight to Tom's producer. Tom picks up the policy at his producer's office the next day. When did Tom's coverage begin? A The day the insurer mailed the policy B The day the insurer issued the policy C The day Tom picked up his policy at his producer's office D The day Tom submitted his application

Answer 45

The day Tom submitted his application

Question 46

An applicant claims they have no hazardous hobbies, but the agent sees a plaque proclaiming the applicant as president of a local skydiving club. The agent would need to include this information on the: A Agent's Report B APS Report C MIB Report D Inspection Report

Answer 46

Agent's report

Question 47

When should the producer obtain a Statement of Good Health from an applicant/insured? A When the client wants to obtain a quote B At the time of application, when the producer wants to be sure the applicant is not withholding any information C At policy delivery, if the premium was not paid with the application D At the first client meeting, to determine if an application should be completed

Answer 47

At policy delivery, if the premium was not paid with the application. If the initial premium is not paid with the application, the producer must get a signed Statement of Good Health from the applicant/insured during policy delivery. This document verified the insured has not suffered injury or illness, had surgeries, or been admitted to a hospital since the application date.

Question 48

In a replacement transaction, which insurer has a current policy being replaced with a new policy? A Insolvent B Conserving C Replacing D Existing

Answer 48

Existing

Question 49

Which of the following products provides an immediate lump sum in the event of premature death? A Social Security B Disability Insurance C Life insurance D Annuity

Answer 49

Life Insurance

Question 50

Which of the following personal uses of life insurance is specifically designed to benefit the policyowner while the insured is still alive? A Estate creation B Cash accumulation C Estate conservation D Charitable bequests

Answer 50

Cash accumulation provides benefits while the insured is still alive. All of the other uses are available once the insured has died.

Question 51

In a policy summary all of the following must be shown as being guaranteed, except: A Dividends B Interest rates C Premiums D Cash values

Answer 51

A Dividends are never guaranteed.

Question 52

_____ involves analysis of the applicant to determine if they are acceptable for the proposed insurance.

Answer 52

underwriting

Question 53

What are the 3 risk classifications?

Answer 53

preferred, standard, substandard

Question 54

Which type of risk do individuals have an average life expectancy?

Answer 54

standard

Question 55

which type of risk do individuals have bad health and higher risk exposure?

Answer 55

substandard risk. they are issues "rated policies", known as surcharges

Question 56

T/F: being declined by one insurance company means you will be denied by all insurance companies

Answer 56

FALSE, being declined by one insurance company does not mean a person will be declined by all

Question 57

what 3 factors do insurers use to determine premiums?

Answer 57

mortality, interest, and expenses

Question 58

which type of table does a life insurer use to determine the average life expectancy for each age group, based on the year of birth?

Answer 58

mortality table

Question 59

The amount charged to cover each policy's share of expenses of operation is called ____ ______.

Answer 59

expense loading

Question 60

Who's responsibility is it to deliver the policy, get a delivery receipt, and explain policy benefits to policyowner/insured?

Answer 60

producer

Question 61

If the premium was paid at the time of the application, which type of delivery occurs?

Answer 61

constructive or legal delivery

Question 62

What does the producer need to obtain at the time of delivery to verify that the insured has remained in the same health status continuously since the time of the application?

Answer 62

statement of good health

Question 63

what are the 2 ways to deliver a policy?

Answer 63

1. personal delivery with a signed receipt of delivery 2. registered or certified mail with a signed receipt of delivery

Question 64

Does life insurance eliminate risk?

Answer 64

no - it transfers the larger risk from the policyowner/insured to the insurance company. it reduces uncertainty, giving a great peace of mind by replacing the possibility of a larger loss (income) with a known smaller loss (premium)

Question 65

which type of protection provides funds for surviving spouses and dependents?

Answer 65

survivor protection

Question 66

what is it called when life insurance proceeds are paid in a lump sum and provide financial assets to create an immediate estate the insured can pass onto survivors?

Answer 66

estate creation

Question 67

what is it called when an amount of cash is accessible to the policyowner form within permanent life insurance policies?

Answer 67

cash accumulation

Question 68

what is it called when money is provided to pay any estate taxes or loans which must be satisfied upon the death of the estate owner (insured) preserving the insured's estate?

Answer 68

estate conservation

Question 69

What is it called when you have immediate funds available upon death to pay creditors, taxes and final expenses as well as cash values available for policy loans, withdrawals, and full surrenders?

Answer 69

liquidity

Question 70

What type of plan provides immediate funds to pay for funeral expenses and burial?

Answer 70

preneed plan

Question 71

What provides peace of mind?

Answer 71

security

Question 72

What type of policy may be purchased by a third party from a terminally ill insured providing immediate cash prior to death?

Answer 72

viatical settlement - may sell policy if only given X amount of life yet on a pretax basis

Question 73

is life insurance exempt from creditors?

Answer 73

yes - the benefits that are payable to a beneficiary are also exempt from the insured's creditors

Question 74

Interest earned on premiums paid to an insurer help the premiums charged to: A Increase B Lower C Stabilize D Standardize

Answer 74

Lower

Question 75

The mortality rate is based on mortality tables which show life expectancy for people living in the U.S. and the death rate per: A 1,000,000 B 10,000 C 1,000 D 100

Answer 75

$1000 - Mortality tables show the death rate per 1,000, similar to how policy premiums are based on, a rate per $1,000 of coverage.

Question 76

At the time of application for life insurance, an insurable interest must exist between: A The insured and the beneficiary B The applicant and the agent C The applicant and the insured D The owner and the beneficiary

Answer 76

C - The insurable interest relationship must exist between the applicant and insured at the time of application and policy issuance for the contract to be valid.

Question 77

If it is known or should be known by the agent that an existing policy is going to be lapsed, forfeited, surrendered or terminated in favor of a new policy, the agent must submit a: A Notice Regarding Replacement B Statement of Release C Cancellation of Service D Notice Regarding Conservation

Answer 77

notice regarding replacement

Question 78

A client choosing to pay premiums other than annually will have: A Higher surrender charges on some policies B Additional charges to offset lost interest C Lower overall total premium costs D Better client service

Answer 78

B Additional charges to offset lost interest

Question 79

What information must appear on the Policy Summary provided to a life insurance client? A A copy of the producer's license B The underwriter’s name and address C The producer's name and home address D The producer's name and address

Answer 79

D The producer's name and address The producer's name and address along with the address of the insurance company must appear on the Policy Summary.