Life Insurance Basics Flashcards
Purpose of insurance guaranty associations
Protect policy owners, insureds and beneficiaries from financial losses caused by insolvent insurers
What type of insurance creates an immediate estate?
Life insurance
Who must be a member of ins guaranty associations?
All insurers authorized to write insurance within a state
What are illustrations in a life insurance policy?
Presentations of nonguaranteed elements of the policy
What are the three main instances when insurable interest exists in life insurance?
Insuring your own life, life of a family member, life of business partner or someone who has financial obligation to the policyowner
When must insurable interest exist in a life insurance policy?
At the time of application
When must the policy summary for a life insurance policy be delivered to the policy owner?
At the time of policy delivery
How does the premium mode affect the total premium paid for insurance for the year?
Higher frequency of payments equals higher overall premium
Who is responsible for the content of insurance ads?
The company
What are the personal uses of life insurance?
Survivor protection, estate creation and conservation, cash accumulation and liquidity
Who is the beneficiary on a key-person policy?
The employer
If the insured changes his payment plan from monthly to annually, what happens to the total premium?
It will decrease
When planning for survivor protection in life insurance, what needs to be considered?
The insured’s current assets, liabilities, and survivor’s needs
What document describes the specific information about a policy?
The policy summary
What does liquidity mean in a life insurance policy?
Availability of cash value
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?
Estate conservation
If an applicant for LI policy and the potential insured are two diff people, what is the underwriters main concern?
Existence of insurable interest between the two
Can companies advertise the guaranty association?
No
What is included in part 2 of a LI application?
Medical info about the prospective insured
What is the purpose of guaranty association?
To protect policyholders against loss caused by an insolvent insurance co
What type of insurance creates an immediate estate?
Life
What is the purpose of key person insurance
Minimize the financial loss caused by the death of a key employee
What are mortality tables used for
To predict life expectancy and death rates for specific groups of individuals
What type of insurance offers a cash value element?
Permanent insurance. Usually whole life
Purpose of the agents report during application process
Personal observations about the applicant that may help during underwriting
A business is the owner and beneficiary of a key-person policy. When the business collects the policy benefit how is it taxed?
It’s tax free
Term that describes frequency and amount of premium payment
Premium mode
3 factors that determine the premium for a particular life insurance policy?
Mortality, interest, expense
Who must have insurable interest in the insured?
The policyholder
When does coverage begin when an agent issues a conditional receipt?
Either the date of the application or the date of the medical exam, whichever happens last
When calculating the amt of insurance needed, what is the needs based approach based on?
Projected needs of the family after the premature death of the insured
When planning for survivor protection in life insurance, what needs to be considered?
Insurers current assets, liabilities, and survivors needs
What is insurance underwriting?
The process of risk selection and classification
What is the main responsibility of a company’s underwriting unit?
Risk selection
Why are policy loans not available on term insurance?
There is no cash value to borrow against
What type of insurance policy offers pure death protection?
Term
When does an adjustable life policy accumulate cash value?
When the premiums paid are more than the cost of the policy
On a variable policy, what does variable refer to?
Cash value and death benefit
Under a 20 pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid for what time period?
For 20 years or until the insureds death whichever happens first
If an insured terminates membership in a group life insurance, what type can it be converted to?
Whole life
An employee wants to join group life insurance outside open enrollment what do they have to provide?
Evidence of insurability
How is the premium determined in a joint life policy?
Based on the average age of the insureds
What type of whole life insurance policy generates immediate cash value?
Single premium whole life
What happens to the premium in an annually renewable term life policy?
The premium increases each renewal
Universal life policies have 2 different interests rates, what are they?
Guaranteed and current
What are the living benefits of whole life insurance?
loan values
In a joint life policy, when is the death benefit paid?
Upon the first death
What type of insurance is best suited to cover a mortgage?
Decreasing term
Type of insurance can the policyowners skip premium payments without the policy lapsing?
Universal life
What is the main advantage of converting from group life insurance to individual coverage?
Evidence of insurability is not required
What policy element must decrease in decreasing term insurance?
Face amount
What type of premium is charged on straight life policy?
Level premium for the life of the insured
Group life insurance policies are written as what type of insurance?
Annually renewable term
What does level refer to in level term insurance?
Face amount
Insurable interest must exist at the time of application but not when
At the time of claim
Insurable interest is based on what
Economics or family relationship
An insurable interest exists if
Someone would benefit if another person continues to live
Buying life insurance creates an
Immediate estate
When LI is used to pay estate taxes it is known as
Estate conservation
Life settlement contract is between
LI policyowner and third party
Human life value approach
Establishes what a family would lose if main breadwinner died
Needs based approach does not consider
Future earnings
Stock redemption plan
Corporation agrees to buy back the stock of a deceased shareholder
Policy that provides for business continuation in the event a partner dies is based on what
Cross purchase buy sell agreement
When life insurance is purchased as an executive bonus for a corporate employee the policy belongs to who
The employee
Life insurance mortality tables are based on what
People and time
Who has a higher mortality rate a 60 year old man or woman
man
Life insurance premiums are based on (for the insurer)
Mortality + company expenses - interest earned on company investments
Agents (producers) are also known as what
Field underwriters
If a producer gives an applicant a conditional receipt and the underwriter rejects the application what happens
There is no coverage
Convertible term is convertible based on what
current or attained age of the insured
Term insurance reentry option is contingent on
passing a physical
Whole life policies show a table containing the guaranteed cash value at the end of each yr for 20 yrs - what units are shown?
It is show per unit - per thousand
Straight or traditional whole life has a level premium and will provide coverage
until the insured dies or reaches age 100
Limited pay whole life limits number of years payments are made
like 20 pay life
Limited pay whole life limits age by which all premiums are paid
such as life paid up at 65
When do limited pay whole life policies mature
age 100
On a 20 pay life the cash value will equal
The face amount at maturity
Adjustable whole life is suitable for
Someone with fluctuating income
Adjusting the premium paid on an adjustable whole life affects the face amount
And vice versa
Why is universal life diff from whole life
flexible premium
