Life Insurance Basics

Question 1

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?

Answer 1

• The benefit is received tax free

- Because they already paid taxes on the money they used to pay the premiums

Question 2

What is included in Part 2 of a life insurance application?

Answer 2

Medical information about the prospective insured

Question 3

What is insurance underwriting?

Answer 3

The process of risk selection and classification

Question 4

When must an insurable interest exist in a life insurance policy?

Answer 4

At the time of application

Question 5

When planning for survivor protection in life insurance, what needs to be considered?

Answer 5

The insured’s:

• Current Assets
• Liabilities
• Survivor’s needs

Question 6

How does the premium mode affect the total premium paid for insurance for the year?

Answer 6

Higher frequency payments will result in a higher overall premium

Question 7

What is the purpose of the agent’s report during the application process?

Answer 7

The agents report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.

Question 8

What is the main purpose of regulation on life insurance policy illustrations?

Answer 8

To help the public make educated decisions about buying life insurance

Question 9

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?

Answer 9

Variable

Question 10

What are the three factors that determine the premium for a particular life insurance policy?

Answer 10

• Mortality
• Interest
• Expense

Question 11

What are the three main instances when insurable interest exists in life insurance?

Answer 11

• 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.

Question 12

What term describes the fee a person pays an insurance company to receive coverage?

Answer 12

Premium

Question 13

In calculating the about of life insurance needed, what is the needs based approach based on?

Answer 13

The predicted needs of a family member after the premature death of the insured

Question 14

What are illustrations in a life insurance policy?

Answer 14

Presentations of non guaranteed elements of the policy

Question 15

What is the term that describes the frequency and the amount of the premium payment?

Answer 15

Premium mode

Question 16

What are the personal uses of life insurance? 4

Answer 16

• Survivor protection
• Estate creation and conservation
• Cash accumulation
• Liquidity

Question 17

Mortality tables are used by insurance companies to predict what?

Answer 17

Life expectancy and the death rates for specific groups of individuals

Question 18

What type of policy issues certificates of insurance to the insureds?

Answer 18

Group policy

Question 19

What type of insurance would perform the function of cash accumulation?

Answer 19

Life insurance (permanent)

Question 20

Who must have insurance interest in the insured?

Answer 20

The policyowner

Question 21

What document must a provider provide to the insured during policy replacement?

Answer 21

Notice Regarding Replacement

Question 22

What is the main responsibility of a company’s underwriting unit?

Answer 22

Risk selection

Question 23

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?

Answer 23

Estate conservation

Question 24

When must the policy summary for a life insurance policy be delivered to the policy owner?

Answer 24

At the time of policy delivery

Question 25

What is the purpose of key person insurance?

Answer 25

To minimize the risk of financial loss caused by the death of a key employee

Question 26

Who is responsible for the contents of insurance advertisements?

Answer 26

The insurance company

Question 27

At what point does coverage being when an agent issues a conditional receipt for a life insurance policy?

Answer 27

Either of the date of the application or the date of the medical exam (whichever occurs last)

Question 28

Who is the beneficiary on a key-person life insurance policy?

Answer 28

The employer

Question 29

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?

Answer 29

Permanent

Question 30

What document describes the specific information about a policy?

Answer 30

Policy summary

Question 31

Who is a replacing insurer?

Answer 31

The company that issues a new policy during policy replacement.

Question 32

What is policy replacement?

Answer 32

A new policy is issued while an existing policy is terminated or reassured with a reduction in cash value.

Question 33

What type of life insurance offers an applicant a cash value element?

Answer 33

Permanent insurance (usually, whole life)

Question 34

What type of policy is typically issued without proof of insurability from the insured?

Answer 34

Group policy

Question 35

If an insured changes their payment plan from monthly to annually, what happens to the total premium?

Answer 35

It will decrease

Question 36

What is the blackout period for social security benefits?

Answer 36

A period of time during which the surviving spouse does not receive benefits

Question 37

What type of insurance creates an immediate estate?

Answer 37

Life insurance

Question 38

What does “liquidity” mean in a life insurance policy?

Answer 38

Availability of cash value

Question 39

All other factors being equal, which premium payment mode will require a higher premium: monthly or annual?

Answer 39

Monthly

Question 40

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?

Answer 40

The existence of insurable interest between the applicant and the insured.