Other Life Topics

Question 0

Warranty

Answer 0

A absolute true statement upon which the validity of the insurance policy depends. Breach of warranty can be grounds for voiding the contract. Sets aments made at application aren’t considered warranties.

Question 1

Indemnity

Answer 1

Reimbursement

A provision in a policy that states in the event of loss an insured or beneficiary is permitted to collect only the extent of the financial loss and not allowed to gain financially.

Question 2

Representations

Answer 2

Statements believed to be true to the best of ones knowledge.
Misrepresentations could void the contract
Material misrepresentations a statement if discovered would alter the underwriting decision by insurance co
Intentional misrepresentations are considered fraud

Question 3

Concealment

Answer 3

Intentional withholding of information of material fact crucial in decision making. Can void policy

Question 4

Impersonation

Answer 4

False pretense…
Act of assuming the name or identity of another person for the purpose of committing fraud ie taking the medical for another insured. Illegal!

Question 5

Unilateral contract

Answer 5

Only one of the parties of the contract is legally bound to do anything. The insured makes no legally binding promises.

Question 6

Adhesion

Answer 6

Contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party. Insurance contracts are offered on a take it or leave basis

Question 7

Aleatory

Answer 7

Exchange of unequal amounts or values. The premium amount may be small compared to the that will be paid by the insurer.

Question 8

Conditional

Answer 8

Conditional contract requires that certain conditions be met by the policy owner and the company in order for the contract to be executed. Ie insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.

Question 9

Conditional receipt

Answer 9

Says the effective date of policy will either be the date of application or date of medical exam whichever is occurs last.

Question 10

Approval conditional receipt

Answer 10

Coverage begins only when per paid application is approved by insurer. No approval during underwriting process.

Question 11

Unconditional (binding) receipt

Answer 11

Most often with property and casual insurance. Coverage begins immediately for a specific period of time

Question 12

Underwriting

Answer 12

The risk selection and classification process

Question 13

Interest adjusted net cost method

Answer 13

Considers the time value of money (or investment return had it been invested elsewhere) by applying an interest adjustment to yearly premiums and dividends
Surrender cost index
Net payment cost index

Question 14

Comparative interest rate

Answer 14

(CIR) the rate of return that must be earned on a “side fund” in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time.

Question 15

Business insurance

Answer 15

Find business continuation
Reimburse a business for a lost revenue or profit following death of a key employee
Provide employee benefits

Question 16

Buy and sell agreements

Answer 16

Allow surviving partner or partners to purchase the deceased partner’s share of the business from the deceased’s family.
Life insurance can in part or wholly fund the buy-sell agreement.

Question 17

Cross purchase plan

Answer 17

Each partner involved buys insurance on every other owner

Question 18

Entity

Answer 18

The business itself is obligated to buy out the ownership of any deceased or disabled partner.

Question 19

Group underwriting

Answer 19

Considers:
Purpose of the group
Size of the group
Turnover of the group
Financial strength of the group

Question 20

Types of groups

Answer 20

Credit union for all of its members
Credit life for the life of a debtor usually decreasing term
Mortgage life usually decreasing term

Question 21

Tax treatment of premiums, proceeds and dividends

Answer 21

Premiums:not tax deductible
Death benefit(proceeds):tax free when taken as a lump sum to a named beneficiary or when taken in installments the principal is tax free the interest is taxable.
Dividends: not taxable
Dividend interest:taxable in the year earned(accumulations)

Question 22

Tax treatment of cash value

Answer 22

Policy owner is not taxed on the annual increase in cash value.
If policy owner withdraws the cash value or surrenders the policy, the amount that exceeds the premiums paid will be taxed as ordinary income.
Partial surrender : FIFO interest last basis

Question 23

Tax treatment of policy loans

Answer 23

A loan for the cash value is not taxable.

One cannot receive a tax deduction for interest paid on a policy loan.

Question 24

Estate taxation

Answer 24

Death benefit may be included in taxable estate.

If the insured owns the loan it will be included in the estate for tax purposes. If the policy is given away and the insured dies within three years it will be included in the estate.

Question 25

Group life premium taxation

Answer 25

Premiums paid by an employer for life insurance as a benefit to an employee is tax deductible.

Question 26

Business insurance taxation

Answer 26

Key employee insurance
Stock redemption or entity purchase agreement
Split dollar insurance

Not tax deductible

Question 27

Cash value of a business owned life insurance policy

Answer 27

Accumulates on a tax deferred basis

Policy loans are not taxable to businesses. However unlike individuals, businesses may deduct interest on a policy loan up to 50,000.

Question 28

7-pay test

Answer 28

Cumulative premiums paid during first 7 years of policy must not exceed the total amount of net level premiums that would be required to pay the policy using guaranteed mortality costs and interest.

Question 29

Modified endowment contract

Answer 29

Any policy that fails the 7 pay test, becomes a MEC and looses its tax benefits.

Question 30

MEC taxation rules

Answer 30

Tax deferred accumulations
Any distributions are taxable, withdrawals and policy loans
Distributions are taxed on LIFO basis. Interest first
Distributions before age 59 1/2 are subject to a 10% penalty

Question 31

Tax qualified retirement plan

Answer 31

Approved by the IRS. Give both employer and employee tax benefits.

Question 32

IRA tax exemptions

10% penalty is waived but still subject to standard income taxation

Answer 32

Age 59 1/2
Totally disabled
Down payment on a home; not to exceed 10k
Post-secondary education expense
Catastrophic medical expenses or death

Question 33

Tax sheltered annuities

Answer 33

Tax defend annuity 403b plan available to nonprofit orgs under sec 501(c)(3) or public schools

Question 34

Keogh plans

Answer 34

HR-10 make it possible for a self employed person to be covered under IRS qualified retirement plan

Question 35

SEP

Answer 35

simplified employe pension plan for small employer of self employed. SEP has a larger contribution value, the lessor of 25% of employee compensation or IRS value.