Life Insurance Basics

Question 1

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

Answer 1

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.

Question 2

What type of report provides information about the applicant’s hobbies, habits and financial status?

Answer 2

Investigative consumer report.

Question 3

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

Answer 3

Risk selection.

Question 4

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

Answer 4

Premium mode.

Question 5

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

Answer 5

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

Question 6

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

Answer 6

At the time of policy delivery.

Question 7

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

Answer 7

Permanent insurance (usually, whole life).

Question 8

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

Answer 8

The employer.

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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 Policyowner.

Question 11

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

Answer 11

It will decrease.

Question 12

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

Answer 12

Mortality, interest and expense.

Question 13

What type of insurance creates an immediate estate?

Answer 13

Life insurance

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

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

Answer 15

Monthly.

Question 16

Who is responsible for the contents of insurance advertisements?

Answer 16

The insurance company.

Question 17

Mortality tables are used by insurance companies to predict what?

Answer 17

Life expectancy and the death rates for specific groups of individuals.

Question 18

What are the personal uses of life insurance?

Answer 18

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

Question 19

What does liquidity mean in a life insurance policy?

Answer 19

Availability of cash value.

Question 20

What is the purpose of key person insurance?

Answer 20

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

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

Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the state. What is this called?

Answer 22

Estate conservation.

Question 23

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

Answer 23

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

Question 24

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

Answer 24

Medical information about the prospective insured.

Question 25

What is insurance underwriting?

Answer 25

The process of risk selection and classification.

Question 26

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

Answer 26

Permanent insurance (usually, whole life).

Question 27

Who must have insurable interest in the insured?

Answer 27

The policyowner.

Question 28

When must insurable interest exist in a life insurance policy?

Answer 28

At the time of application.

Question 29

What document describes the specific information about a policy?

Answer 29

Policy summary.

Question 30

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

Answer 30

Premium.

Question 31

What are illustrations in a life insurance policy?

Answer 31

Presentations of non-guaranteed elements of the policy.

Question 32

What is the purpose of insurance guaranty associations?

Answer 32

To protect policy owners, insureds and beneficiaries from financial losses caused by insolvent insurers.

Question 33

What is the purpose of the agents report during the application process?

Answer 33

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

Question 34

Who must be a member of insurance guaranty association?

Answer 34

All insurers authorized to write insurance within a state.

Question 35

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

Answer 35

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

Question 36

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

Answer 36

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