If an applicant for life insurance policy and person to be insured are two different people, the underwriter would be concered about?
Whether an insurable interest exists between the individuals
Correct! An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest, e.g., spouses, parents, children and certain business relationships.
An insured stated on her application for life insurance that she had never had an heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
Correct! A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.
What is the purpose of the buyer's guide?
To allow the consumer to compare the costs of different policies
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.
What is a policy summary?
written statement describing the features and elements of the policy being issued. Must include the name and address of the agent, the full name and home office of the administrative office address of the insurer, and the generic name of the basic policy and each rider. also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years. MUST BE PROVIDED WHEN THE POLICY IS DELIVERED
Difference between buyer's guide and policy summary?
A buyer's guide provides generic information on various policies. A policy summary provides specific information on the policy being issued.
What does illustration mean?
presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years. A life insurance illustration must do the following:
distinguish between guaranteed and projected amounts
clearly state that an illustration is not part of the contract
identify those values that are not guaranteed as such
An agent may only use the illustrations of the insurer that have been approved, and may not change them in any way
if an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to
charge a higher premium
The premium rate will be adjusted to reflect the insurer's increased risk.
An applicant who receives a preferred risk classification qualifies for
lower premiums than a person who receives a standard risk
Correct! The preferred risk category is reserved for those persons with a superior physical condition, lifestyle, and habits.
In insurance policies, the insured is not legally bound to any particular action in the insurance contact, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?
Correct! In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.
Which of the following is the closest term to an authorized insurer?
Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
The term illustration in a life insurance policy refers to
a presentation or depiction of non guaranteed elements of the policy
Correct! The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.
Insurance is a contract by which one seeks to protect another from
Correct! Insurance will protect a person, business or entity from loss.
The insurance is the transfer of risk. Insureds' losses are transferred over to the insurer
Insurance transaction includes?
Sale(effectuation of a contract of insurance)
Advising an individual concerning coverage or claims
Which of the following is a generic generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process
The Buyer's Guide
Correct! The Buyer's Guide is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.
In insurance, an offer is usually made when
An applicant submits an application to the insurer
Correct! In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.
Which of the following will be included in a policy summary?s
Premium amounts and surrender values application
Correct! A policy summary must be delivered along with the policy and will provide the producer's name and address, the insurance company's home office address, the generic name of the policy issued, and premium, cash value, surrender value and death benefit figures for specific policy years.
Stranger-originated life insurance policies are in direct opposition to the principle of
Correct! Because the purchaser of a stranger-originated life insurance policy doesn’t know the insured, or have any interest in the insured’s longevity, STOLI policies violate the principle of insurable interest.
If a policy includes a free-look period of at least 10 days, the Buyer’s Guide may be delivered to the applicant
With the policy.
Incorrect! If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn’t, the buyer’s guide must be delivered prior to accepting the initial premium.
An underwriter may obtain information on an applicant's hobbies, financial status, and habits by ordering a(n
Correct! An inspection report may be ordered about an applicant from an independent investigating firm or credit agency. It is a general report of the applicant's finances, character, work, hobbies, and habits.
Inspection reports are subjected to the rules and regulations outlined in the?
Fair Credit Reporting Act
What is the purpose of the buyer’s guide?
To allow the consumer to compare the costs of different policies
Correct! 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 includes information regarding a person's credit, character, reputation, and habits?
Correct! Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources.
Why should the producer personally deliver the policy when the first premium has already been paid?
To help the insured understand all aspects of the contract
Correct! It is the producer's responsibility to make sure that the policy is understood by the insured and all of their questions are satisfied, and the delivery receipt is signed.
An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. Five days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date?
The date of medical exam
Incorrect! If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.
An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE?
The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy.
Correct! The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.
Conditional recipt meaning?
The applicant may be covered as early as the date of the application
In terms of parties to a contract, which of the following does NOT describe a competent party?
A)The person must have at least completed secondary education.
B)The person must not be under the influence of drugs or alcohol.
C)The person must be of legal age.
D)The person must be mentally competent to understand the contract.
Correct! The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.
Which of the following best details the underwriting process for life insurance?
Selection, classification, and rating of risks
Incorrect! The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.
What do individuals use to transfer their risk of loss to a larger group?
Correct! Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss.
Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives?
Correct! Part 2 - Medical Information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant
Correct! When collecting the initial premium, the agent should issue the applicant a premium receipt.
What is a definition of a unilateral contract?
One-sided: only one party makes an enforceable promise.
Correct! An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.
When Y applied for insurance and paid the initial premium on August 14, he was issued a conditional receipt. During the underwriting process, the insurance company found no reason to reject the risk or classify it other than as standard. Y was killed in an automobile accident on August 22, before the policy was issued. In this case, the insurance company will
Issue the policy anyway and pay the face value to the beneficiary.
Correct! The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.
The full premium was submitted with the application for life insurance, and the policy was issued two weeks later as requested. When does the policy coverage become effective?
As of the application date
Incorrect! If the full premium was submitted with the application and the policy was issued as requested, the policy coverage effective date would generally coincide with the date of application.
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
Correct! In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.
Which policy component decreases in decreasing term insurance?
Decreasing term policies feature a level premium and a death benefit that decreases each year over the duration of the policy term.
Which of the following types of policies will provide permanent protection?
Incorrect! Whole life policies are referred to as permanent protection, since as long as the premium is paid coverage will continue for the life of the insured. Both the premiums and death benefit are guaranteed and will remain level for life.
Your client wants both protection and savings from the insurance, and is willing to pay premiums until retirement at age 65. What would be the right policy for this client?
Limited pay whole life
Premium payments will cease at her age 65, but coverage will continue to her death or age 100.
A Universal Life Insurance policy is best described as a/an
Annually Renewable Term policy with a cash value account.
Incorrect! A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
The type of policy that can be changed from one that does not accumulate cash value to the one that does is
Convertible Term Policy.
Incorrect! A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.
Which two terms are associated directly with the way an annuity is funded?
Single payment or periodic payments
Correct! Annuities are characterized by how they can be paid for: either a single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level, in which the annuitant/owner pays a fixed installment, or the payments can be flexible, in which the amount and frequency of each installment varies.
The annuitant/owner pays a fixed installment
amount and frequent of each installment varies
Which of the following is INCORRECT regarding a $100,000 20-year level term policy?
A)The policy will expire at the end of the 20-year period.
B)At the end of 20 years, the policy’s cash value will equal $100,000.
C)The policy premiums will remain level for 20 years.
D)If the insured dies before the policy expired, the beneficiary will receive $100,000.
Correct! Term policies do not develop cash values. All the other statements are true.
Which of the following policies would be classified as a traditional level premium contract
Correct! Straight whole life policies have a level guaranteed face amount and a level premium for the life of the insured.
The main difference between immediate and deferred annuities is
When the income payments begin.
Correct! The main difference between immediate and deferred annuities is when the income payments begin. Immediate annuities will begin payments within the first year, while deferred annuities will not begin payments until sometime after the first year.
Which type of life insurance policy generates immediate cash value?
Incorrect! Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.
Level term insurance provides a level death benefit and a level premium during the policy term. If the policy renews at the end of a specified period of time, the policy premium will be
Adjusted to the insured's age at the time of renewal.
Incorrect! If a level term product is renewed at the end of the term period the premium will be based upon the attained age of the insured.
In which of the following cases will the insured be able to receive the full face amount from a whole life policy?
If the insured lives to age 100
Correct! Whole life insurance provides protection for the entire lifetime of the insured. If the insured lives to the age of 100, the company pays the face amount of the policy to the policyowner (usually the insured).
Twin brothers are starting a new business. They know it will take several years to build the business to the point that they can pay off the debt incurred in starting the business. What type of insurance would be the most affordable and still provide a death benefit should one of them die?
Correct! A Joint Life policy covering two lives would be the least expensive because the premiums are based on an average age, and it would pay a death benefit only at the first death.
Which of the following is NOT a term for the period of time during which the annuitant or the beneficiary receives income?
Correct! The "annuitization period" is the time during which accumulated money is converted into an income stream. It is also referred to as the annuity, liquidation or pay-out period.
A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?.
Incorrect! An annuity purchased with a single lump-sum payment, with a 25-year fixed-period distribution will be most suitable for this arrangement
Fixed annuities provide all of the following EXCEPT
A)Minimum guaranteed rate of interest.
B)Future income payments.
C)Hedge against inflation.
D)Equal monthly payments for life.
Correct! Fixed annuities invest premium payments into a general account - a safe and conservative investment portfolio. They also provide a specified dollar amount for each annuity payment regardless of the purchasing power of the money. Variable annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, and therefore providing protection against inflation.
A domestic insurer issuing variable contracts must establish one or more
Correct! Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.
Variable whole life
level, fixed premium, investment based product-
guaranteed minimum death benefit
cash value not guaranteed/fluctuates with the performance if the portfolio in which the premiums have been invested by the insurer
policy owner bears the investment risk in variable contracts
because the insurance company is not sustaining the investment risk of the contract, the underlying assets of the contract cannot be kept in the insurance company's general account
these assets must be held in a separate account which invests in stocks bonds and other securities investment options
Any domestic insurer issuing variable contracts must establish one or more separate accounts. The insurer must maintain in each separate account assets with a value at least equal to the reserves and other contract liabilities connected to the account.
Which statement is NOT true regarding a Straight Life policy?
Its premium steadily decreases over time, in response to its growing cash value.
Straight Life policies charge a level annual premium throughout the insured’s lifetime and provide a level, guaranteed death benefit.
An insured has a life insurance policy that requires him to only pay premiums for a specified number of years until the policy is paid up. What kind of policy is it?
Correct! In limited-pay policies, the premiums for coverage will be completely paid-up well before age 100, usually after a specified number of years.
Which of the following is another term for the accumulation period of an annuity?
Correct! The accumulation period is also known as the pay-in period. It is the period of time over which the annuitant makes payments (premiums) into an annuity.
All of the following are true regarding a decreasing term policy EXCEPT
A)The contract pays only in the event of death during the term and there is no cash value.
B)The face amount steadily declines throughout the duration of the contract.
C)The payable premium amount steadily declines throughout the duration of the contract.
D)The death benefit is $0 at the end of the policy term.
Incorrect! Premiums remain level with a decreasing term policy; only the face amount decreases.
All of the following entities regulate variable life policies EXCEPT\
A)The Guaranty Association.
D)The Insurance Department.
Correct! Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.
Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid
For 20 years or until death, whichever occurs first.
Correct! Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.
Equity indexed annuities
Seek higher returns.
Equity Indexed Annuities are not securities, but they invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the Equity Indexed Annuity has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500.
The premium of a survivorship life policy compared with that of a joint life policy would be
Correct! Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.
The policyowner of a Universal Life policy may skip paying the premium and the policy will not lapse as long as
The policy contains sufficient cash value to cover the cost of insurance.
Correct! In Universal Life Insurance, the policyowner may skip a premium payment without lapsing the policy as long as the policy contains sufficient cash value at the time to cover the cost of insurance for that premium period.
The type of policy that can be changed from one that does not accumulate cash value to the one that does is a
Convertible Term Policy.
Correct! A convertible term policy has a provision that allows the policyowner to convert to permanent insurance.
Which of the following is TRUE regarding variable annuities?
The annuitant assumes the risks on investment.
Correct! The payments that the annuitant invests into the variable annuity are invested in the insurer's separate account. The separate account under many annuities provides the annuitant with a dozen or more investment options ranging from "money market funds" to "growth stock funds" to "precious metal funds". Therefore, the annuitant assumes the risk of the investment.
a person who is entitled to receive benefits from an annuity
Which of the following statements is correct regarding a whole life policy?
The policyowner is entitled to policy loans
Whole life policies offer level premium based on the issue age, guaranteed, level death benefit, cash value that is scheduled to equal the face amount at the insured’s age 100, and living benefits, which include policy loans.
Which of the following is TRUE regarding the premium in term policies?
The premium is level
Regardless of the type of term insurance purchased, the premium is level throughout the term of the policy. Only the amount of the death benefit may change.
The death protection component of Universal Life Insurance is always
Annually Renewable Term
A universal policy has two components: an insurance component and a cash account. The insurance component (or the death protection) of a universal life policy is always annual renewable term insurance.
Which Universal Life option has a gradually increasing cash value and a level death benefit?
Correct! Under Option A, the death benefit remains level while the cash value gradually increases. The death benefit will increase at a later date in order to maintain a gap between the cash value and the death benefit before the policy matures.
Variable Whole Life insurance is based on what type of premium?
Correct! Variable While Life insurance is a level fixed premium investment-based product.
A policy will pay the death benefit if the insured dies during the 20-year premium-paying period, and nothing if death occurs after the 20-year period. What type of policy is this?
Correct! A 20-year term policy is written to provide a level death benefit for 20 years.
Which of the following is NOT true regarding the annuitant?
The annuitant cannot be the same person as the annuity owner.
Correct! While they don’t have to be, the annuitant and annuity owner are often the same person. The annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written. Since the annuitant’s life expectancy is taken into consideration, the annuitant must be a natural person.
Which of the following best defines target premium in a universal life policy?
The recommended amount to keep the policy in force throughout its lifetime
Correct! The target premium is a recommended amount that should be paid on a policy in order to cover the cost of insurance protection and to keep the policy in force throughout its lifetime.
When would a 20-pay whole life policy endow?
When the insured reaches age 100
Correct! A limited-pay whole life policy, just like straight life, endows for the face amount if the insured lives to age 100. The premium is, however, completely paid off in 20 years.
Which type of life insurance policy generates immediate cash value?
Correct! Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.