Ch. 2 (Life Insurance Basics)

Question 1

Mortality tables are used by insurance companies to predict what?

Answer 1

Life expectancy and death rates for specific groups of individuals.

Question 2

What are the personal uses of life insurance?

Answer 2

Survival protection, estate creation and conservation, cash accumulation, and liquidity.

Question 3

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 process called?

Answer 3

Estate conservation.

Question 4

When must the policy summary for a life insurance policy be delivered to the policyowner?

Answer 4

At the time of policy delivery.

Question 5

When must insurable interest exist in a life insurance policy?

Answer 5

At the time of application.

Question 6

Who is responsible for the contents of insurance advertisements?

Answer 6

The insurance company.

Question 7

What is the main responsibility of an insurance company’s underwriting unit?

Answer 7

Risk selection.

Question 8

At what point does coverage begin when an insurance company issues conditional receipt for a life insurance policy?

Answer 8

Either on the date of the application or the date of the medical exam (whichever occurs last).

Question 9

What is the purpose of the agent’s report during the application process?

Answer 9

The agent’s report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.

Question 10

Which document describes the specific information about a policy?

Answer 10

Policy summary.

Question 11

What type of insurance creates an immediate estate?

Answer 11

Life insurance.

Question 12

Who is the beneficiary on a key-person life insurance policy?

Answer 12

The employer.

Question 13

What is included in part 2 of a life insurance application?

Answer 13

Medical information about the prospective insured.

Question 14

A business is the owner and beneficiary of a key-person life policy. When the business collects the policy benefit, how is it taxed?

Answer 14

The benefit is received tax free.

Question 15

What term describes the fee a person pays an insurance company to receive coverage.

Answer 15

Premium.

Question 16

What does liquidity mean in life insurance policy?

Answer 16

Availability of cash value.

Question 17

Can insurers advertise the existence of a guaranty association during solicitation and sales of insurance policies?

Answer 17

No, advertising of the existence of the guaranty association for purposes of solicitation and sale of the insurance policy by insurers is an illegal business practice.

Question 18

Who must have insurable interest in the insured?

Answer 18

The policyowner.

Question 19

In calculating the amount of life insurance needed, what is the needs approach based on?

Answer 19

The predicted needs of the family after the premature death of the insured.

Question 20

If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?

Answer 20

The existence of insurable interest between the applicant and the insured.

Question 21

If an insured changes his payment plan from monthly to annually, what happens to the total premium?

Answer 21

It will decrease.

Question 22

What are the three main instances when insurable interest exists in life insurance?

Answer 22

Insuring your own life, the life of a family member, or the life of a business partner, or someone who has a financial obligation to the policyowner.

Question 23

How does the premium mode affect the total premium paid for insurance for the year?

Answer 23

Higher frequency of premium payments will result in higher overall premium.

Question 24

What is the purpose of insurance guaranty associations?

Answer 24

To protect policyowners, insureds, and beneficiaries from financial losses causes by insolvent insurers.

Question 25

What are illustrations in a life insurance policy?

Answer 25

Presentations of nonguaranteed elements of the policy.

Question 26

Who must be a member of insurance guaranty associations?

Answer 26

All insurers authorized to write insurance within a state.

Question 27

What type of life insurance offers an applicant a cash value element?

Answer 27

Permanent insurance (usually, whole life).

Question 28

What is insurance underwriting?

Answer 28

The process of risk selection and classification.

Question 29

What is the purpose of key person insurance?

Answer 29

To minimize the risk of financial loss caused by the death of a key employee.

Question 30

When planning for survivor protection in life insurance, what needs to be considered?

Answer 30

The insured’s current assets, liabilities, and the survivor’s needs.

Question 31

What are the three factors that determine the premium for a particular life insurance policy?

Answer 31

Mortality, interest, and expense.

Question 32

What is the term that describes the frequency and the amount of the premium payment?

Answer 32

Premium mode.

Question 33

All other factors being equal, which premium payment mode will require an over higher premium: monthly or annual?

Answer 33

Monthly.