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Health & Life Insurance > Life Insurance Basics > Flashcards

Life Insurance Basics Flashcards

Chapter 2

1
Q

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

A

life insurance

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2
Q

who is the purchaser of a life insurance policy?

A

policyholder

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3
Q

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

A

insured

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4
Q

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

A

third-party ownership

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5
Q

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

A

insurable interest

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6
Q

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

A

insured interest

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7
Q

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

A

TRUE

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8
Q

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

A

beneficiary

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9
Q

T/F: the insured can be named the beneficiary

A

FALSE

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10
Q

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

A

producer

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11
Q

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

A

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

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12
Q

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?

A

producers

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13
Q

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

A

buyer’s guide and policy summary

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14
Q

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?

A

policy summary

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15
Q

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

A

buyer’s guide

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16
Q

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

A

FALSE

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17
Q

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

A

Fair Credit Reporting Act

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18
Q

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

A

conversion

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19
Q

Does the beneficiary have to sign an application for insurance?

A

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

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20
Q

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

A

conditional receipt

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21
Q

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

A

true

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22
Q

What is a binding (unconditional) receipt?

A

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

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23
Q

What is a trial application?

A

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.

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24
Q

What is a COD?

A

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

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25
Q

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

A

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

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26
Q

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

A

producer

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27
Q

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

A

legislative branch

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28
Q

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

A

Underwriting

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29
Q

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

A

TRUE

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30
Q

What are the sources of underwriting?

A

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

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31
Q

What is the primary source of underwriting?

A

application

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32
Q

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

A

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

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33
Q

What is an attending physician statement (APS)?

A

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.

34
Q

Is an application for life insurance confidential?

A

no

35
Q

What does the MIB stand for and do?

A

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

36
Q

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

A

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

37
Q

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

A

MIB - medical information bureau

38
Q

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

A

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

39
Q

What is the purpose of the agent’s report?

A

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

40
Q

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?

A

Agent’s report

41
Q

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

A

TRUE

42
Q

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

A

May 22

43
Q

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.

A

agent’s report

44
Q

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

A

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

45
Q

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

A

The day Tom submitted his application

46
Q

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

A

Agent’s report

47
Q

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

A

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.

48
Q

In a replacement transaction, which insurer has a current policy being replaced with a new policy?

A
Insolvent

B
Conserving

C
Replacing

D
Existing

A

Existing

49
Q

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

A

Life Insurance

50
Q

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

A

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

51
Q

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

A

A Dividends are never guaranteed.

52
Q

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

A

underwriting

53
Q

What are the 3 risk classifications?

A

preferred, standard, substandard

54
Q

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

A

standard

55
Q

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

A

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

56
Q

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

A

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

57
Q

what 3 factors do insurers use to determine premiums?

A

mortality, interest, and expenses

58
Q

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?

A

mortality table

59
Q

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

A

expense loading

60
Q

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

A

producer

61
Q

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

A

constructive or legal delivery

62
Q

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?

A

statement of good health

63
Q

what are the 2 ways to deliver a policy?

A
  1. personal delivery with a signed receipt of delivery
  2. registered or certified mail with a signed receipt of delivery
64
Q

Does life insurance eliminate risk?

A

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)

65
Q

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

A

survivor protection

66
Q

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?

A

estate creation

67
Q

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

A

cash accumulation

68
Q

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?

A

estate conservation

69
Q

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?

A

liquidity

70
Q

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

A

preneed plan

71
Q

What provides peace of mind?

A

security

72
Q

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

A

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

73
Q

is life insurance exempt from creditors?

A

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

74
Q

Interest earned on premiums paid to an insurer help the premiums charged to:

A
Increase

B
Lower

C
Stabilize

D
Standardize

A

Lower

75
Q

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

A

$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.

76
Q

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

A

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.

77
Q

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

A

notice regarding replacement

78
Q

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

A

B Additional charges to offset lost interest

79
Q

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

A

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.

80
Q
A

Health & Life Insurance (14 decks)

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