III. Life Insurance Basics Flashcards
Under what circumstances may a life insurance agent deliver a policy that is dated up to six months before the application was taken?
A. To make a policy effective during a period when the agent’s appointment was in force
B. To shorten the period of contestability
C. To avoid an increase in premium rate for the insured
D. To meet sales quotas established by the insurer
C. To avoid an increase in premium rate for the insured
Agents may back-date policies up to six months in order to obtain a better premium rate for the insured.
If an insurer issued a policy based on the application that had unanswered questions, which of the following will be true?
A. The policy will be void.
B. The insurer may deny coverage later, because of the information missing on the application.
C. The policy will be interpreted as if the insurer waived its right to have an answer on the application.
D. The policy will be interpreted as if the insured did not have an answer to the question.
D. The policy will be interpreted as if the insured did not have an answer to the question.
Any unanswered questions need to be answered before the policy is issued. If a policy is issued with questions left unanswered, the contract will be interpreted as if the insurer waived its right to have an answer for the question, and will not be able to deny coverage later because of unanswered questions.
Who makes up the Medical Information Bureau? A. Insurers B. Hospitals C. Former insured D. Physicians and paramedics
The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.
All of the following statements concerning the use of life insurance as an Executive Bonus are correct EXCEPT
A. Any type of insurance policy may be used.
B. The employer pays a bonus to a selected employee to fund the policy.
C. It is considered a nonqualified employee benefit.
D. The policy is owned by the company.
D. The policy is owned by the company.
An insurer is helping a married couple determine their children's needs, assets, and liabilities, in the event that one or both of the spouses should die. What is the term most closely associated with this? A. Juvenile protection provision B. Survivor protection C. Life planning D. Survivorship insurance
The death of a primary wage earner(s) in a family can be devastating. Survivor Protection planning helps to assess the needs, assets, and liabilities of the survivors in order to determine how to best care for them in the event of the primary wage earner’s death.
Which of the following statements concerning buy-sell agreements is true?
A. Benefits received are considered income taxable.
B. Buy-sell agreements pay in the event of a medical emergency.
C. Buy-sell agreements are normally funded with a life insurance policy.
D. Premiums paid are deductible as a business expense.
A buy-sell agreement is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-sell agreements are normally funded with a life insurance policy.There are several types of buy-sell agreements that can be used for partnerships and corporations:Cross Purchase – used in partnerships when each partner buys a policy on the other;
Entity Purchase – used when the partnership buys the policies on the partners;
Stock Purchase – used by privately owned corporations when each stockholder buys a policy on each of the others;
Stock Redemption – used when the corporation buys one policy on each shareholder.
Example:
Here is an example of a cross-purchase buy-sell agreement: Partnership AB has two partners, A and B. The value of the business is $1,000,000. The partners each have an equal interest ($500,000 each). A buys a life policy on B for $500,000, and B buys a life policy on A for $500,000. If A dies, B gets 100% ownership of the business and A’s heirs receive $500,000.
If a viatical settlement provider transfers ownership of an insurance policy, how long does the insurer have to inform the insured of the change? A. 60 days B. 90 days C. 20 days D. 30 days
C. 20 days
Which of the following would be considered a nonmedical insurance application?
A. An application that does not ask any questions about the applicant’s medical history
B. An agent’s report
C. An application for life insurance
D. An application on which the medical information is completed by the applicant and the agent only
An application on which all of the questions, including medical history questions, do not need to be completed by medical professionals, and may be completed by the applicant and the agent.
D. An application on which the medical information is completed by the applicant and the agent only
An insured receives a monthly summary for his life insurance policy. He notices that the cash value of the policy is significantly lower this month than it was last month. What type of policy does the insured have?
C. Stock
D. Variable
Variable life policies vary in value, as the name suggests, because the value is based on the stocks that support the policy. If a policyholder wants a more stable, reliable value, he/she should invest in a fixed policy.
What is the purpose of the buyer’s guide?
A. To list all policy riders
B. To provide information about the issued policy
C. To allow the consumer to compare the costs of different policies
D. To provide the name and address of the agent/producer issuing the policy
C. The buyer’s guide provides generic information about life insurance policies and allows the consumer to compare the costs of different policies. The policy summary provides specific information about the issued policy, as well as the insurer’s information.
Which of the following best describes gross annual premium?
A. Expense premium
B. Annual cost of mortality plus expenses
C. Annual loading
D. Basic insurance rate plus commissions
B. Annual cost of mortality plus expensesGross annual premium is the one year cost for mortality, plus the cost of operating the company (or expense loading). Loading includes commissions, taxes, advertising, and while not an expense, includes the amount added to a pure or basic rate to provide for a profit margin to the insurer.
All of the following are characteristics of group life insurance EXCEPT
A. Certificate holders may convert coverage to an individual policy without evidence of insurability.
B. Premiums are determined by the age, sex and occupation of each individual certificate holder.
C. Amount of coverage is determined according to nondiscriminatory rules.
D. Individuals covered under the policy receive a certificate of insurance.
Premiums are determined by the age, sex and occupation of the entire group.
