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Life insurance > chap. 2 > Flashcards

chap. 2 Flashcards

1
Q

What is the purpose of key person insurance?

A

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

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2
Q

Q: Who must have insurable interest in the insured?

A

A: The policyowner

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3
Q

Q: Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

A

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

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4
Q

Q: 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 called?

A

A: Estate conservation

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5
Q

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

A

A: Higher frequency of premium payments will result in higher overall premium

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6
Q

Q: What document describes the specific information about a policy?
Q:Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years?

A

A: Policy summary

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7
Q

What type of insurance creates an immediate estate?

A

A: Life insurance

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8
Q

Q: Mortality tables are used by insurance companies to predict what?

A

A: Life expectancy and the death rates for specific groups of individuals

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9
Q

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

A

A: Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policy owner

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10
Q

Q: What is included in Part 2 of a life insurance application?

A

A: Medical information about the prospective insured

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11
Q

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

A

A: Mortality, interest and expense

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12
Q

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

A

A: The benefit is received tax free.

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13
Q

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

A

A: Monthly

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14
Q

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

A

A: It will decrease.

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15
Q

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

A

A: Premium mode

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16
Q

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

A

A: The employer

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17
Q

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

A

A: Permanent insurance (usually, whole life)

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18
Q

An applicant wants to buy a policy that has a cash value element. Which type should she buy?

A

Permanent

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19
Q

A married couple owns a permanent policy which covers both of their lives and pays the death benefit only upon the death of the first insured. Which policy is that?

A

Joint Life Policy

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20
Q

Q: What are illustrations in a life insurance policy?

A

A: Presentations of nonguaranteed elements of the policy

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21
Q

Q: What is the purpose of insurance guaranty associations?

A

A: To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers

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22
Q

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

A

A: The insured’s current assets, liabilities and survivor’s needs

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23
Q

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

A

A: The predicted needs of a family after the premature death of the insured

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24
Q

Q: What term describes the fee a person pays an insurance company to receive coverage?

A

A: Premium

25
Q

Q: 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 called?

A

A: Estate conservation

26
Q

Q: What is the purpose of key person insurance?

A

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

27
Q

Q: What is insurance underwriting?

A

A: The process of risk selection and classification

28
Q

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

A

A: The existence of insurable interest between the applicant and the insured

29
Q

Q: What does liquidity mean in a life insurance policy?

A

A: Availability of cash value

30
Q

What does “liquidity” refer to in a life insurance policy?

A

Cash values can be borrowed at any time.

31
Q

Q: Who must be a member of insurance guaranty associations?

A

A: All insurers authorized to write insurance within a state

32
Q

Q: Who is responsible for the contents of insurance advertisements?

A

A: The insurance company

33
Q

Q: What is the main responsibility of a company’s underwriting unit?

A

A: Risk selection

34
Q

Q: What are the personal uses of life insurance?

A

A: Survivor protection, estate creation and conservation, cash accumulation and liquidity

35
Q

Q: When must insurable interest exist in a life insurance policy?

A

A: At the time of application

36
Q

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

A

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

37
Q

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

A

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

38
Q

The mode of premium payment

A

Is defined as the frequency and the amount of the premium payment.

39
Q

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?

A

Viatical settlement

40
Q

Which is the primary source of information used for insurance underwriting?

A

Application

41
Q

Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process?

A

Buyer’s Guide

42
Q

Which of the following best describes gross annual premium?

A

Net premium plus expenses

43
Q

Which of the following methods of calculating the amount of life insurance needed takes into account the insured’s wages, years until retirement, and inflation?

A

Human life value approach (HLVA)

44
Q

What must happen when an individual policy or annuity has been personally delivered to the policy owner?

A

The policyowner must sign a delivery receipt.

45
Q

A producer is helping a married couple determine the financial needs of their children in the event one or both should die prematurely. This is a personal use of life insurance known as

A

Survivor protection.

46
Q

The insurance company underwriter could find information concerning the personal activities and character of an applicant from which of the following reports?

A

Producer’s report

47
Q

All of the following are personal uses of life insurance EXCEPT

A

Buy-sell agreement.

48
Q

Stranger-originated life insurance policies are in direct opposition to the principle of

A

Insurable interest.

49
Q

Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT

A

Other insurance coverages.

50
Q

An applicant who receives a preferred risk classification qualifies for

A

Lower premiums than a person who receives a standard risk.

51
Q

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

A

Any form of life insurance

52
Q

Which of the following types of risk will result in the highest premium?

A

Substandard risk

53
Q

An insurer receives a report regarding a potential insured that includes the insured’s financial status, hobbies and habits. What type of a report is that?

A

Inspection Report

54
Q

All of the following are characteristics of group life insurance EXCEPT

A

Premiums are determined by the age, sex and occupation of each individual certificate holder.

55
Q

All of the following are duties and responsibilities of producers at the time of application EXCEPT

A

Change any incorrect statement on the application by personally initialing next to the corrected statement.

56
Q

All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT

A

The policy is owned by the company

57
Q

If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to

A

Charge a higher premium.

58
Q

Which of the following applicants could the insurer charge a higher rate of premium and not violate regulations regarding unfair discrimination?

A

An applicant who is a smoker

59
Q

All of the following are factors that an underwriter could use to select and classify risk EXCEPT

A

National origin.

Life insurance (8 decks)

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