Life Insurance: Cram Course # 2 Flashcards
The amount paid to the beneficiary under an insurance policy upon the death of the insured is called:
Death Benefit
Insurance that is designed to protect against the risk of premature death.
Life Insurance
What does a Stock Insurance company doing business on a Mixed Plan mean?
The company offers both Participating (dividends- more expensive) and Non-participating (no dividends) Insurance.
Name and describe three basic kinds of Life Insurance.
Ordinary Life- Temporary (Term) / Permenant (WL, UL, VUL, etc.)
Industrial Life- Debit, Home Service
Group Life- Employee/Employer
In life insurance, the rate at which a specific population dies.
Mortality
The two basic approaches used to determine the amount of insurance an individual needs are:
1) Human life value approach
2) Needs Approach (most used today)
No legal action may be taken prior to _____ days after written proof of loss is provided to the insurer.
60 days
What is an Emergency Fund used for?
Pays for maintenance, repairs, medical bills, loss of job, etc.
An individual’s valid concern for the continuation of the life or well-being of the person insured.
Insurable Interest
Example: Yourself, Family, Business Partner, Creditors
When does insurable interest have to exist?
At policy inception, at the time of the application.
What does life insurance guarantee?
A specified sum of money upon the death of the insured.
- This allows for a business to “buy out” the interest of a deceased owner. The company owns the policy on the life of the owner and the premiums are tax-deductible.
- Sole Proprietors can make it possible for the employee to buy their business,
- The employee owns the policy on the life of proprietor; it is not tax deductible to the employee.
Features of Buy/Sell Plans
What is business interruption insurance?
Key-person Insurance- the beneficiary is the business. It is a business asset.
Partners purchase insurance on each other individually; the partnership itself is not involved.
Partnership Cross Purchase Insurance
In a Partnership Cross-Purchase Plan, how many policies would be required for three partners?
6 policies (they each buy 1 policy on the other partners)
Term insurance is __________.
Temporary
Term Insurance provides insurance for a ________ time and pays _______ if the insured ________ during that period.
Specified
Only
Dies
In a Decreasing Term policy the premium stays ______, and the face amount systematically ________ to zero by the end of the term.
Level
Decreases
This allows an insured to convert a term policy to whole life without proof of insurability.
Option to convert
Which policy has lower payments the first years (usually 5 years) then higher than typical thereafter?
Modified Whole Life
Comprised of Variable Life and Variable Annuities. These products invest premium dollars in securities, which carry more risk due to price fluctuations. A securities license is required to sell these products.
Variable Insurance
What type of policy covers two people and pays death benefit when the first one dies?
Joint Life Policy
What type of policy covers two people and pays a death benefit only when the second insured dies?
Joint & Last Survivor Policy
AKA Second to die policy
What type of insurance covers the life of a debtor for the amount of a loan?
Credit Life Insurance
AKA Decreasing Term (Mortgage insurance or Credit Life)
What is another name for Whole Life Insurance?
Permanent and Cash Value Insurance
When does Whole Life Insurance mature?
At age 100. If the policyowner is alive, check is paid to them for Full Face Amount.
The most common type of insurance used in a group policy is?
Annual Renewable Term Insurance
What insurance protects against the risk that a person in debt cannot repay the debt to the creditor because of accident, sickness, disability, or death?
Credit Life Insurance
What type of products must all investments be kept in a separate account and not co-mingled with other assets?
Variable Products
What is Universal Life Insurance?
Term insurance with a policy value fund
Universal Life premiums will be used for (MIX):
M- __________ (protection) element
I- __________ (accumulation) element
X- __________ (loading charges) element
Mortality
Interest
Expense
What three things can be adjusted on a Universal policy without needing a new policy?
Face Amount
Payment Amount
Frequency of Payment
What is the key word for a Universal Life Policy?
Felxibility
Universal Life has ________ interest rate than whole life, cost is ________ than whole life.
It is basically _______ _______ Term Insurance with a _______ ________ account.
Higher
Higher
Annual Renewable
Cash Value
In Universal Life what type of Insurance is deducted monthly?
ART- Annual Renewable Term
YRT- Yearly Renewable Term
In Universal Life, if the cash value account is not large enough to support monthly deductions then the policy ________.
Terminates
Describe the features of a Straight Whole Life Policy.
Permanent _______ Protection with a _______ Premium until _______ or age _______.
Level
Level
Death
100
These policies earn a fluctuating rate of interest and do not guarantee a certain cash value. They have fixed level premiums and a guaranteed minimum death benefit.
Variable Life Insurance
How long can an insurance company challenge the validity of statements made on a policy?
2 years
AKA Incontestable Clause
What are three situations to which the incontestable time does not apply?
1) Impersonation
2) No Insurable Interest
3) Intent to Murder
What is it called when a policy owner transfers one or all of his rights of ownership of his policy?
Assignment
Yes or No
Must the insurance company be notified when a policy is assigned?
Yes, but no approval is needed.
Is insurable interest needed to assign a policy?
No, the policy owner can give it to anyone.
A chance for the insured to reject the policy without forfeiting his money.
Free Look Provision
Under the Free Look Provision, the insured has _____ days to review the policy.
14 days
What is it called when the policy proceeds are assigned to a creditor?
Collateral or Partial Assignment
How long is the grace period for an Ordinary Life policy?
30 days
A required provision in a life insurance policy which stipulates the rights of the policyowner.
Ownership Provision
What is it called when the assignee receives Full Control of the policy?
Absolute Assignment
A provision is part of the _________. Whereas a rider is an ________ to the policy and frequently there is an additional charge.
Main policy
Addition
What four things may have to be done before a lapsed policy will be reinstated? HINT: Pay X 3, Proof
Pay ALL Premiums due
Pay back outstanding Loans
Pay ALL Interest due
Proof of Insurability
What does the Automatic Premium Loan (APL) provision provide?
Insurer can pay insured’s premium from Cash Value
What kind of assignment is it when a viatical company pays the original owner money and the owner assigns his policy to the viatical company?
Absolute Assignment
How much money does Mary receive if John commits suicide within 6 months of the issue date?
Only the premiums paid.
In reference to whole life insurance cash value non-forfeiture options, you can’t ________ your cash values, policy owner chooses how to ___________.
Forfeit
Receive them
There are three non-forfeiture options:
Reduced, Paid-up
Extended Term
Cash
Yes or No
Since partial withdrawals from a fixed annuity are first treated as earnings income (FILO), do you pay income tax on a partial withdrawal?
Yes, on the portion that is considered gain.
The amount paid to the beneficiary under an insurance policy upon the death of the insured is called:
The Death Benefit
The ___________ rider prevents a policy from lapsing by paying the premiums when the insured becomes disabled.
Waiver of premium rider
How long is the waiting period before the waiver of premium rider becomes effective?
3 - 6 months (90-180 days)
How long will the company waive/pay the premiums?
Until disabled owner recovers; If disabled before 65 and not recovered- for life.
What is the rider called that when the owner dies, the children’s premiums are waived until the child reaches 25?
Payor Provision, ONLY found in Juvenile Insurance
What is the rider that can have more than one family member insured?
Other insured, Spouse or child rider
The ____________ is the provision/rider that allows for an early payment of a portion of the death benefit to be paid to an insured that is __________ ill.
Accelerated Benefit
Terminally/Chronically
____________ are companies which purchase life insurance policies from the terminally ill.
Viatical Settlement Companies
Yes or No
Are accelerated death benefits taxable?
NO
Yes or No
Does a terminally ill person who sells her policy to a viatical company have to pay taxes on the money?
NO
What are the rules for an employee to convert his group insurance to an individual policy after leaving a company?
- 31 days
- No insurability needed
- Plan other than term
Where is the Entire Contract Provision found?
At the beginning of the policy
What does the Entire Contract Provision mean?
Includes:
- Policy Document
- Attached Riders
- Application
- All three must be attached to the policy
How does the Entire Contract Provision protect the insured?
The Insurer can not add or change any part of the policy after the delivery.
A contract which protects against the risk of living longer than expected. They provide guaranteed life income to protect against the risk of depleting retirement funds.
Annuities
What are the five factors used to determine Annuity Premiums?
- Age
- Sex
- Assumed interest rate
- Periodic income amount & payment guarantees
- Company’s expenses or loading
Federal social insurance program which provides retirement, disability, and survivors benefits (OASDI).
O- Old A- Age S- Survivors D- Disability I- Insurance
Basis for determining Social Security insured status. A maximum of 4 quarters can be earned in one year. Synonymous with quarters of credit.
Quarters of coverage
40 Quarters = Fully Insured
Social Security is an ___________, it is not a welfare program.
Entitlement Program
What type of plan is exempt from current income taxation?
A qualified plan
Yes or No
Does an employee pay taxes on money they contribute to their qualified plan at work?
No (Pre-tax earnings)
What does ERISA mean?
E- Employee R- Retirement I- Income S- Security A- Act
What does ERISA do for workers?
Protects the rights of workers
403b Also Known As:
Tax Sheltered Annuity or TSA- Specifically for employees of 501(c) organizations & public schools
How many people can own an IRA account?
1- Hence the name individual
A policy owner has five options to receive their dividends. (CRAPO)
C- Cash pay out R- Reduced Premiums A- Accumulate with interest (this is taxable) P- Paid-up Additions O- One year Term * Also known as the 5th Dividend Option
Are dividends taxable?
No. Dividends are a refund of premium. The insured’s own money is being returned, it’s not a profit, so it’s not taxed.
Does an Insurable Interest have to exist to assign a policy?
No, the policy owner can give it to anyone.
If a policy owner misstates his age, will the company be able to do anything about it after the contestable period expires?
YES, they may adjust the proceeds to reflect correct age- increase or decrease the face amount.
What does life insurance guarantee?
A specified sum of money upon the death of the insured.
Where is the Insuring Clause found in a policy?
On the Cover of the policy
What does the insuring clause promise?
To pay the beneficiary at death or insured at age 100.
Common policy exclusions insurer will not pay:
- Commission of a felony
- Aviation
- War
- Suicide
What is business interruption insurance?
Key person insurance- the beneficiary is the business. It is a business asset.
