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Insurance License Exam > Life Insurance: Cram Course # 2 > Flashcards

Life Insurance: Cram Course # 2 Flashcards

1
Q

The amount paid to the beneficiary under an insurance policy upon the death of the insured is called:

A

Death Benefit

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2
Q

Insurance that is designed to protect against the risk of premature death.

A

Life Insurance

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3
Q

What does a Stock Insurance company doing business on a Mixed Plan mean?

A

The company offers both Participating (dividends- more expensive) and Non-participating (no dividends) Insurance.

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4
Q

Name and describe three basic kinds of Life Insurance.

A

Ordinary Life- Temporary (Term) / Permenant (WL, UL, VUL, etc.)

Industrial Life- Debit, Home Service

Group Life- Employee/Employer

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5
Q

In life insurance, the rate at which a specific population dies.

A

Mortality

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6
Q

The two basic approaches used to determine the amount of insurance an individual needs are:

A

1) Human life value approach

2) Needs Approach (most used today)

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7
Q

No legal action may be taken prior to _____ days after written proof of loss is provided to the insurer.

A

60 days

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8
Q

What is an Emergency Fund used for?

A

Pays for maintenance, repairs, medical bills, loss of job, etc.

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9
Q

An individual’s valid concern for the continuation of the life or well-being of the person insured.

A

Insurable Interest

Example: Yourself, Family, Business Partner, Creditors

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10
Q

When does insurable interest have to exist?

A

At policy inception, at the time of the application.

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11
Q

What does life insurance guarantee?

A

A specified sum of money upon the death of the insured.

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12
Q
  • 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.
A

Features of Buy/Sell Plans

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13
Q

What is business interruption insurance?

A

Key-person Insurance- the beneficiary is the business. It is a business asset.

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14
Q

Partners purchase insurance on each other individually; the partnership itself is not involved.

A

Partnership Cross Purchase Insurance

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15
Q

In a Partnership Cross-Purchase Plan, how many policies would be required for three partners?

A

6 policies (they each buy 1 policy on the other partners)

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16
Q

Term insurance is __________.

A

Temporary

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17
Q

Term Insurance provides insurance for a ________ time and pays _______ if the insured ________ during that period.

A

Specified
Only
Dies

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18
Q

In a Decreasing Term policy the premium stays ______, and the face amount systematically ________ to zero by the end of the term.

A

Level

Decreases

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19
Q

This allows an insured to convert a term policy to whole life without proof of insurability.

A

Option to convert

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20
Q

Which policy has lower payments the first years (usually 5 years) then higher than typical thereafter?

A

Modified Whole Life

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21
Q

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.

A

Variable Insurance

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22
Q

What type of policy covers two people and pays death benefit when the first one dies?

A

Joint Life Policy

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23
Q

What type of policy covers two people and pays a death benefit only when the second insured dies?

A

Joint & Last Survivor Policy

AKA Second to die policy

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24
Q

What type of insurance covers the life of a debtor for the amount of a loan?

A

Credit Life Insurance

AKA Decreasing Term (Mortgage insurance or Credit Life)

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25
Q

What is another name for Whole Life Insurance?

A

Permanent and Cash Value Insurance

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26
Q

When does Whole Life Insurance mature?

A

At age 100. If the policyowner is alive, check is paid to them for Full Face Amount.

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27
Q

The most common type of insurance used in a group policy is?

A

Annual Renewable Term Insurance

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28
Q

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?

A

Credit Life Insurance

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29
Q

What type of products must all investments be kept in a separate account and not co-mingled with other assets?

A

Variable Products

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30
Q

What is Universal Life Insurance?

A

Term insurance with a policy value fund

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31
Q

Universal Life premiums will be used for (MIX):

M- __________ (protection) element
I- __________ (accumulation) element
X- __________ (loading charges) element

A

Mortality
Interest
Expense

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32
Q

What three things can be adjusted on a Universal policy without needing a new policy?

A

Face Amount
Payment Amount
Frequency of Payment

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33
Q

What is the key word for a Universal Life Policy?

A

Felxibility

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34
Q

Universal Life has ________ interest rate than whole life, cost is ________ than whole life.

It is basically _______ _______ Term Insurance with a _______ ________ account.

A

Higher
Higher
Annual Renewable
Cash Value

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35
Q

In Universal Life what type of Insurance is deducted monthly?

A

ART- Annual Renewable Term

YRT- Yearly Renewable Term

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36
Q

In Universal Life, if the cash value account is not large enough to support monthly deductions then the policy ________.

A

Terminates

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37
Q

Describe the features of a Straight Whole Life Policy.

Permanent _______ Protection with a _______ Premium until _______ or age _______.

A

Level
Level
Death
100

38
Q

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.

A

Variable Life Insurance

39
Q

How long can an insurance company challenge the validity of statements made on a policy?

A

2 years

AKA Incontestable Clause

40
Q

What are three situations to which the incontestable time does not apply?

A

1) Impersonation
2) No Insurable Interest
3) Intent to Murder

41
Q

What is it called when a policy owner transfers one or all of his rights of ownership of his policy?

A

Assignment

42
Q

Yes or No

Must the insurance company be notified when a policy is assigned?

A

Yes, but no approval is needed.

43
Q

Is insurable interest needed to assign a policy?

A

No, the policy owner can give it to anyone.

44
Q

A chance for the insured to reject the policy without forfeiting his money.

A

Free Look Provision

45
Q

Under the Free Look Provision, the insured has _____ days to review the policy.

A

14 days

46
Q

What is it called when the policy proceeds are assigned to a creditor?

A

Collateral or Partial Assignment

47
Q

How long is the grace period for an Ordinary Life policy?

A

30 days

48
Q

A required provision in a life insurance policy which stipulates the rights of the policyowner.

A

Ownership Provision

49
Q

What is it called when the assignee receives Full Control of the policy?

A

Absolute Assignment

50
Q

A provision is part of the _________. Whereas a rider is an ________ to the policy and frequently there is an additional charge.

A

Main policy

Addition

51
Q

What four things may have to be done before a lapsed policy will be reinstated? HINT: Pay X 3, Proof

A

Pay ALL Premiums due
Pay back outstanding Loans
Pay ALL Interest due
Proof of Insurability

52
Q

What does the Automatic Premium Loan (APL) provision provide?

A

Insurer can pay insured’s premium from Cash Value

53
Q

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?

A

Absolute Assignment

54
Q

How much money does Mary receive if John commits suicide within 6 months of the issue date?

A

Only the premiums paid.

55
Q

In reference to whole life insurance cash value non-forfeiture options, you can’t ________ your cash values, policy owner chooses how to ___________.

A

Forfeit

Receive them

56
Q

There are three non-forfeiture options:

A

Reduced, Paid-up
Extended Term
Cash

57
Q

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?

A

Yes, on the portion that is considered gain.

58
Q

The amount paid to the beneficiary under an insurance policy upon the death of the insured is called:

A

The Death Benefit

59
Q

The ___________ rider prevents a policy from lapsing by paying the premiums when the insured becomes disabled.

A

Waiver of premium rider

60
Q

How long is the waiting period before the waiver of premium rider becomes effective?

A

3 - 6 months (90-180 days)

61
Q

How long will the company waive/pay the premiums?

A

Until disabled owner recovers; If disabled before 65 and not recovered- for life.

62
Q

What is the rider called that when the owner dies, the children’s premiums are waived until the child reaches 25?

A

Payor Provision, ONLY found in Juvenile Insurance

63
Q

What is the rider that can have more than one family member insured?

A

Other insured, Spouse or child rider

64
Q

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.

A

Accelerated Benefit

Terminally/Chronically

65
Q

____________ are companies which purchase life insurance policies from the terminally ill.

A

Viatical Settlement Companies

66
Q

Yes or No

Are accelerated death benefits taxable?

A

NO

67
Q

Yes or No

Does a terminally ill person who sells her policy to a viatical company have to pay taxes on the money?

A

NO

68
Q

What are the rules for an employee to convert his group insurance to an individual policy after leaving a company?

A
  • 31 days
  • No insurability needed
  • Plan other than term
69
Q

Where is the Entire Contract Provision found?

A

At the beginning of the policy

70
Q

What does the Entire Contract Provision mean?

A

Includes:

  • Policy Document
  • Attached Riders
  • Application
  • All three must be attached to the policy
71
Q

How does the Entire Contract Provision protect the insured?

A

The Insurer can not add or change any part of the policy after the delivery.

72
Q

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.

A

Annuities

73
Q

What are the five factors used to determine Annuity Premiums?

A
  • Age
  • Sex
  • Assumed interest rate
  • Periodic income amount & payment guarantees
  • Company’s expenses or loading
74
Q

Federal social insurance program which provides retirement, disability, and survivors benefits (OASDI).

A 
O- Old
A- Age
S- Survivors
D- Disability
I- Insurance
75
Q

Basis for determining Social Security insured status. A maximum of 4 quarters can be earned in one year. Synonymous with quarters of credit.

A

Quarters of coverage

40 Quarters = Fully Insured

76
Q

Social Security is an ___________, it is not a welfare program.

A

Entitlement Program

77
Q

What type of plan is exempt from current income taxation?

A

A qualified plan

78
Q

Yes or No

Does an employee pay taxes on money they contribute to their qualified plan at work?

A

No (Pre-tax earnings)

79
Q

What does ERISA mean?

A 
E- Employee
R- Retirement
I- Income
S- Security
A- Act
80
Q

What does ERISA do for workers?

A

Protects the rights of workers

81
Q

403b Also Known As:

A

Tax Sheltered Annuity or TSA- Specifically for employees of 501(c) organizations & public schools

82
Q

How many people can own an IRA account?

A

1- Hence the name individual

83
Q

A policy owner has five options to receive their dividends. (CRAPO)

A 
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
84
Q

Are dividends taxable?

A

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.

85
Q

Does an Insurable Interest have to exist to assign a policy?

A

No, the policy owner can give it to anyone.

86
Q

If a policy owner misstates his age, will the company be able to do anything about it after the contestable period expires?

A

YES, they may adjust the proceeds to reflect correct age- increase or decrease the face amount.

87
Q

What does life insurance guarantee?

A

A specified sum of money upon the death of the insured.

88
Q

Where is the Insuring Clause found in a policy?

A

On the Cover of the policy

89
Q

What does the insuring clause promise?

A

To pay the beneficiary at death or insured at age 100.

90
Q

Common policy exclusions insurer will not pay:

A
  • Commission of a felony
  • Aviation
  • War
  • Suicide
91
Q

What is business interruption insurance?

A

Key person insurance- the beneficiary is the business. It is a business asset.

Insurance License Exam (7 decks)

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