Exam Study

Front 1

When a life insurance application is submitted with an initial premium and the applicant was provided with a conditional receipt and is ultimately issued the policy as applied for, when would the policy be considered in force?

Back 1

A policy is legally considered in force on the date that the application is completed and signed by the prospective insured, or the date that a medical exam is completed (if necessary), so long as the applicant is found insurable as standard risk. Any substandard risk would not be in force until the applicant accepts the substandard policy (counter offer) and pays the additional premium.

Front 2

If an insured decides to cancel their whole life insurance policy and uses their policy's cash value to purchase a term life policy with a face amount of equal value but with a likely shorter coverage period, they are utilizing which type of life insurance non-forfeiture option?

Back 2

The extended term option is similar to the reduced paid-up insurance, except the policyowner uses his or her policy’s cash value to buy the same face amount of term insurance, at a lesser term length (term length will depend on the amount of cash value available).

Front 3

In order to be considered currently insured and thus eligible for limited survivor benefits from Social Security, a worker must have earned how many credits during the 13-quarter period ending with the quarter in which the worker died.

Back 3

6: An individual qualifies as Currently Insured if he or she has accumulated at least 6 quarters of coverage within the last 13 calendar quarters. If a worker is currently insured at his or her time of death, continued benefits would still be payable to dependent children of the deceased recipient.

Front 4

Modified Endowment Contracts are double taxed as ordinary income and as a return of premium on any earned interest. In addition, policyowners who receive benefits before the age of 59 1/2 years old are also imposed with an early withdrawal penalty tax of how much?

Back 4

As is the case with any life insurance policy or qualified retirement plan, if a policyowner withdraws funds prematurely, an additional 10% yearly withdrawal penalty tax is levied on funds distributed before the age of 59 ½ years old.

Front 5

The cash value in a whole life policy is also considered to be the policy's:

Back 5

A whole life policy’s cash value is considered a ‘living benefit’ for the policy owner because it can be used as collateral on a loan or withdrawn from the policy as a loan, as long as it is paid back, with interest, to the insurance company.

Front 6

Risk classifications include

Back 6

preferred, standard, substandard and declined risk

Front 7

Hazard and Peril

Back 7

A peril is a specific event

A hazard is a risk

Hazard – leads to – Peril – leads to – Loss

Front 8

In reference to health insurance, what is a factor when determining health insurance premiums?

Back 8

Morbidity Rate

The morbidity rate is the rate of incidence in which disability due to accident or illness occurs in a given population, and is a factor when determining health insurance premiums.

Front 9

Term Life Contract

Back 9

A term life contract does not accumulate cash value; therefore, a policy owner cannot take out a loan against his or her term life contract.

Front 10

An insured has been paying premiums on their whole life policy for the past 14 years. Recently, they decided to stop making payments, but did not select a non-forfeiture option. Since they did not select such option, what actions will the insurer take?

Back 10

If the policy owner fails to select a non-forfeiture option, the insurer will automatically issue a ‘paid-up’ term life insurance policy with the same face value as the original whole life policy and a term length based on the amount of cash value that the forfeited whole life policy can purchase using the available cash value funds from the original (forfeited) whole life policy.

Front 11

In the event that a policy owner surrenders thier individual whole life policy, what will likely occur?

Back 11

In the event that a policy owner surrenders his or her policy to the insurer, proceeds equaling the premium paid into the policy are tax free, while policy surrender proceeds that exceed the cost of the policy are taxable by the IRS. Any pre-tax premium payments and earned interest before forfeiting the plan are taxable as earned income.

Front 12

The eligibility period for a Contributory group plan

Back 12

Aka the 'enrollment period,' is the period of time (usually 30 or 31 days) following the probationary period (first 90 days of employment) in which an employee may apply for coverage without having to submit to a medical exam for eligibility.

Front 13

If a policy owner decides to cancel their whole life insurance policy and uses their policy's cash value to purchase a term life policy with a face amount of equal value but with a likely shorter coverage period, they are utilizing which type of life insurance non-forfeiture option?

Back 13

Extended term option

The extended term option is similar to the reduced paid-up insurance, except the policy owner uses his or her policy’s cash value to buy the same face amount of term insurance, at a lesser term length (term length will depend on the amount of cash value available).

Front 14

alternatives to the lump-sum cash option in a life policy settlement

Back 14

interest only

fixed-period

fixed-amount

Front 15

Which two life insurance riders can be purchased to guarantee that a policy will continue without further commitment (premium payments) and that income will be paid if the insured becomes totally and permanently disabled?

Back 15

Waiver of Premium Rider will guarantee the policy will continue without further commitment (premium payment)

Disability Income Rider will provide monthly income that is paid to the insured if total and permanent disability occurs.

Front 16

In the event that a parent dies or becomes disabled, which rider allows surviving child coverage to continue until the child reaches a specified age?

Back 16

A Payor Rider is often attached to a juvenile insurnace policy. Insurance premiums are waived until the child becomes of age (varying between age 21-25), or until the guardian can resume premium payments.

Front 17

Annual Renewable Term

Back 17

Group term, also known as Annual Renewable Term (ART), is the most common type of employment-related group life insurance. It is typically renewable without requiring proof of insurability.

Front 18

Profit Sharing and Stock Bonus plans

Back 18

defined contribution plans in which employee contributions are tied to the performance of the company with benefits paid out as shared profits or company stock.

Front 19

Money-Purchase plan

Back 19

requires the employer to deposit a fixed monetary contribution into an employee’s pension fund, instead of sharing in company profits or issuing shares of the company’s stock

Front 20

Roth IRAs

Back 20

work in an opposite manner to traditional IRAs in that they use ‘post-tax’ dollars instead of ‘pre-tax’ dollars for contributions. They accumulate, build interest, and upon withdrawal, funds are not taxed, as long as withdrawals are qualified

Front 21

Insurable Interest

Back 21

-a required element of insurable risk

-the loss of one party, results in an economic hardship for the other party.

Front 22

entity plan

Back 22

-typically used if several partners exist within a company

-Instead of each partner purchasing multiple life policies, the company itself purchases a life policy on each partner and serves as the policy owner of each policy

-Each partner’s face amount is based on his or her share of ownership in the company.

Front 23

In order for a beneficiary to receive double indemnity, what must occur?

Back 23

Referred to as ‘double indemnity,’ an Accidental Death Benefit rider provides an additional amount of life insurance, equal to the face amount of the policy, to the designated beneficiary if the insured’s death results from an accident.

Front 24

Loss Ratio

Back 24

the ratio between company losses (annual claims) and company revenue (annual collected premium), and is calculated by dividing losses by total premiums received. Loss ratios are also regulated by the federal government and state insurance departments to ensure that a large percentage of an insurance company’s revenues be maintained to cover annual claims by its policyowners.

Front 25

sliding

Back 25

charging an applicant for ancillary (supplemental) coverage without their knowledge or advising that such additional coverage is required by law with the purchase of insurance

Front 26

term life contract (in regards to cash value)

Back 26

-does not accumulate cash value

-policy owner cannot take out a loan against a term life contract

Front 27

If the policy owner fails to select a non-forfeiture option

Back 27

insurer will automatically issue a ‘paid-up’ term life insurance policy with the same face value as the original whole life policy and a term length based on the amount of cash value that the forfeited whole life policy can purchase using the available cash value funds from the original (forfeited) whole life policy.

Front 28

Adhesion

Back 28

The insurance policy is written by the insurer, and cannot be altered by the applicant.

Front 29

If an applicant submitted an initial premium with his life insurance application, was provided a conditional receipt by the insurance company and was ultimately issued a policy as applied for, when would his insurance policy be considered in force?

Back 29

A policy is legally considered in force on the date that the application is completed and signed by the prospective insured, or the date that a medical exam is completed (if necessary), so long as the applicant is found insurable as standard risk. Any substandard risk would not be in force until the applicant accepts the substandard policy (counter offer) and pays the additional premium.

Front 30

Non-contributory plans

Back 30

are paid entirely by the employer and must cover 100% of all eligible employees.

Front 31

Annuity policies written by dually licensed agents are monitored by

Back 31

The Securities and Exchange Commission (SEC) regulates the sale of variable annuities as a security and an agent must maintain a state insurance license as well as be registered with the Financial Industry Regulatory Authority (FINRA).

Front 32

Variable Annuity units/value

Back 32

The number of annuity units will remain constant, but the value of each unit will fluctuate due to the variable annuity's underlying stock investment.

Front 33

1035 policy exchange provision: annuity

Back 33

An annuity can only be exchanged for another annuity without being taxed

Front 34

helps in determining health insurance premium rates

Back 34

The morbidity rate is the rate of incidence in which disability due to accident or illness occurs in a given population, and is a factor when determining health insurance premiums.

Front 35

Entity Plan

Back 35

An entity plan is typically used if several partners exist within a company. Instead of each partner purchasing multiple life policies, the company itself purchases a life policy on each partner and serves as the policyowner of each policy. Each partner’s face amount is based on his or her share of ownership in the company.

Front 36

Uniform simultaneous death act

Back 36

The Uniform Simultaneous Death Act allows the court to decide that the life policy proceeds are paid as if the insured outlived the primary beneficiary and if a secondary beneficiary is named, he or she will receive the death benefit proceeds

Front 37

defined contribution plan

Back 37

focus on the contributions paid into the plan instead of the benefits distributed out of the fund. All contributions invested, plus interest and possible dividends earned, represent the total accumulation of funds available at the time of the employee's retirement

Front 38

National Do-Not-Call Registry

Back 38

Although the FTC, the FCC and the states enforce it, the Do-Not-Call Registry is managed by the FTC.

Front 39

Policy Settlement vs Non Forefiture

Back 39

Unlike the life income, interest only and fixed-amount options which are available to a policy’s beneficiary upon the death of the insured, the extended term option is a ‘nonforfeiture’ option available to a policyowner upon the forfeiture, or surrender of his or her whole life policy to the insurer

Front 40

Surrender of Whole Life Policy

Back 40

In the event that a policyowner surrenders his or her policy to the insurer, proceeds equaling the premium paid into the policy are tax free, while policy surrender proceeds that exceed the cost of the policy are taxable by the IRS. Any pre-tax premium payments and earned interest before forfeiting the plan are taxable as earned income.

Front 41

Implied Authority

Back 41

Since the company does not authorize the agent to collect and remit ongoing premium, the company views the agent as working on the client’s behalf. If the agent were not to remit this premium to the company, the agent, not the company, would be liable for the lost premium payment.

Front 42

Consideration clause

Back 42

The consideration clause specifies the premium amount and frequency that payments must be made to maintain the policy. Policyowners can pay on a monthly, quarterly, semi-annual, or annual basis depending on their ability to afford such payments.

Front 43

Waiver of premium and Disability Income Riders

Back 43

Both the Waiver of Premium Rider and the Disability Income Rider provide monthly income that is paid to the insured if total and permanent disability occurs.

Front 44

Annuity Funding Plan

Back 44

Profit Sharing and Stock Bonus plans are defined contribution plans in which employee contributions are tied to the performance of the company with benefits paid out as shared profits or company stock. A Money-Purchase plan requires the employer to deposit a fixed monetary contribution into an employee’s pension fund, instead of sharing in company profits or issuing shares of the company’s stock

Front 45

Exclusion ratio

Back 45

To determine the taxable portion of the payment, the IRS utilizes an Exclusion Ratio, which is the investment in the contract divided by the expected return.

Front 46

Actuary

Back 46

Each insurer employs statistical analysts, called ‘Actuaries,’ to analyze and predict potential loss in order to set and maintain premium pricing for the insurer’s products. The better an insurance company can predict the outcome of risk, the more profitable it will become, thus insurers are in the business of analyzing and predicting risk

Front 47

In a group life contract, evidence of insurability is

Back 47

In a group life contact, evidence of insurability is required only after the enrollment period ends