Life Insurance Basics Flashcards
A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed? Why?
- The benefit is received tax free
- Because they already paid taxes on the money they used to pay the premiums
What is included in Part 2 of a life insurance application?
Medical information about the prospective insured
What is insurance underwriting?
The process of risk selection and classification
When must an insurable interest exist in a life insurance policy?
At the time of application
When planning for survivor protection in life insurance, what needs to be considered?
The insured’s:
- Current Assets
- Liabilities
- Survivor’s needs
How does the premium mode affect the total premium paid for insurance for the year?
Higher frequency payments will result in a higher overall premium
What is the purpose of the agent’s report during the application process?
The agents report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.
What is the main purpose of regulation on life insurance policy illustrations?
To help the public make educated decisions about buying life insurance
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significant;y lower this month that it was last month. What type of policy does the insured have?
Variable
What are the three factors that determine the premium for a particular life insurance policy?
- Mortality
- Interest
- Expense
What are the three main instances when insurable interest exists in life insurance?
- Insuring your own life
- Insuring the life of a family member or
- Insuring the life of a business partner or someone who has a financial obligation to the policy owner.
What term describes the fee a person pays an insurance company to receive coverage?
Premium
In calculating the about of life insurance needed, what is the needs based approach based on?
The predicted needs of a family member after the premature death of the insured
What are illustrations in a life insurance policy?
Presentations of non guaranteed elements of the policy
What is the term that describes the frequency and the amount of the premium payment?
Premium mode
What are the personal uses of life insurance? 4
- Survivor protection
- Estate creation and conservation
- Cash accumulation
- Liquidity
Mortality tables are used by insurance companies to predict what?
Life expectancy and the death rates for specific groups of individuals
What type of policy issues certificates of insurance to the insureds?
Group policy
What type of insurance would perform the function of cash accumulation?
Life insurance (permanent)
Who must have insurance interest in the insured?
The policyowner
What document must a provider provide to the insured during policy replacement?
Notice Regarding Replacement
What is the main responsibility of a company’s underwriting unit?
Risk selection
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating he need to sell assets from the estate. What is this called?
Estate conservation
When must the policy summary for a life insurance policy be delivered to the policy owner?
At the time of policy delivery
What is the purpose of key person insurance?
To minimize the risk of financial loss caused by the death of a key employee
Who is responsible for the contents of insurance advertisements?
The insurance company
At what point does coverage being when an agent issues a conditional receipt for a life insurance policy?
Either of the date of the application or the date of the medical exam (whichever occurs last)
Who is the beneficiary on a key-person life insurance policy?
The employer
If someone wants to buy life a life insurance policy that will provide lifetime protection against premature death, what type of life insurance policy should it be?
Permanent
What document describes the specific information about a policy?
Policy summary
Who is a replacing insurer?
The company that issues a new policy during policy replacement.
What is policy replacement?
A new policy is issued while an existing policy is terminated or reassured with a reduction in cash value.
What type of life insurance offers an applicant a cash value element?
Permanent insurance (usually, whole life)
What type of policy is typically issued without proof of insurability from the insured?
Group policy
If an insured changes their payment plan from monthly to annually, what happens to the total premium?
It will decrease
What is the blackout period for social security benefits?
A period of time during which the surviving spouse does not receive benefits
What type of insurance creates an immediate estate?
Life insurance
What does “liquidity” mean in a life insurance policy?
Availability of cash value
All other factors being equal, which premium payment mode will require a higher premium: monthly or annual?
Monthly
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?
The existence of insurable interest between the applicant and the insured.
