Life Insurance Basics (CH 3)

Question 1

Buy/Sell Agreement

Answer 1

An agreement between a business owner and another person that sets the terms and conditions for a future sale of the business or a share of the business

Question 2

Executive Bonus Plan

Answer 2

A Benefit for executives and key employees within a company, in which an individual’s salary is increased (and taxed as income) in order to enable the employee to purchase additional life insurance coverage.

Question 3

Human Life Value Approach

Answer 3

An approach to figuring life insurance needs in which an economic value is estimated for the insured, based on estimates of future earning potential.

Question 4

Key Employee (Person) Insurance

Answer 4

Life or Health Insurance on important employees whose death or disability would cause the employer financial loss. The insurance is usually owned by or payable to the employer.

Question 5

Needs Approach

Answer 5

An approach to figuring life insurance needs in which the needs of the beneficiaries over time is added together to determine the appropriate amount of coverage to buy.

Question 6

Settlement Option

Answer 6

A method of receiving Life Insurance proceeds other than in lump sum.

Question 7

Third-Party Ownership

Answer 7

Occurs when a family member buys insurance on another family member and retains the ownership of the policy.

Question 8

Viatical Settlement

Answer 8

A situation in which a terminally ill policy owner gives up his or her rights to a life insurance policy in exchange for an advance payment of a portion of the death proceeds.

Question 9

Viatical Settlement Broker

Answer 9

A person who, on behalf of a viator, and for a fee, commission or other valuable consideration, offers or attempts to negotiate Viatical settlements between a viator and one or more Viatical settlement providers.

Question 10

Viatical Settlement Contract

Answer 10

An agreement that 1) establishes the terms under which compensation (or anything of value) that is less than the expected dealth benefit of the insurance policy or certificate will be paid in return for the viator’s death benefit or ownership of an portion of the policy or certificate or 2) transfers ownership or changes the beneficiary designation of the policy or certificate at a later date, regardless of the date that compensation is paid to the viator.

Question 11

Viator

Answer 11

The owner of a life insurance policy or certificate under a group policy who- in return for compensation or anything of value that is less than the expected death benefit of the policy or certificate- assigns, transfers, or sells the death benefit or ownership of any portion of the policy or certificate.

Question 12

An applicant is denied a policy due to information contained in the credit report. Who is responsible for providing a copy of the credit report used in the process to the applicant?

Answer 12

credit bureau

Question 13

What statement regarding insurable interest is NOT correct?

Answer 13

Only immediate family members can have insurable interest in each others’ lives.

Question 14

Insurance agents are required to give life insurance applicants a Buyer’s Guide at the time of

Answer 14

application, unless the company offers an unconditional 10-day free look upon policy delivery.

Question 15

Policy delivery refers to the delivery of the

Answer 15

completed insurance policy to the applicant.

Question 16

Besides the mortality rates based on the current mortality tables and any interest the insurer can earn by investing paid premiums, what other item is factored into the premium calculation?

Answer 16

Expenses of the company in administering, selling, and servicing the policy.

Question 17

In advertising Life Insurance products, dividends must be referred to as

Answer 17

an overcharge of premium and an adjustment to the cost of insurance.

Question 18

What statement regarding key person insurance is NOT correct?

Answer 18

Premiums for a key person life insurance policy are a tax-deductible expense to the business.