L&h Insurance Terms

Front 1

What is a Buy/Sell Agreement?

Back 1

An agreement among owners of a firm that provides the continuation of a business upon the premature death of an owner. Through legal contract the deceased's estate must sell the deceased's interest back to the entity, who must buy at a predetermined price. (See pg 5)

Front 2

What is a nonparticipating (nonpar) policy?

Back 2

Insurance policies which do not pay dividends to policyowners. (See pg 5)

Front 3

What is a participating (par) policy?

Back 3

Policies that may pay annual dividends to policyowners. (See pg 5)

Front 4

What is pure risk?

Back 4

The difference between the cash value and the face value. (See pg 5)

Front 5

What is the face value of a policy?

Back 5

The death benefit. (See pg 5)

Front 6

What does the term "mutual" mean in regards to life insurance policies?

Back 6

Owned by the policyholders. (See pg 5)

Front 7

What is the "Human Life Value Approach" when determining the amount of personal life insurance needed?

Back 7

This approach is a measure of the actual future earnings and services of a person at risk in the event of premature death. (See pg 6)

Front 8

What is the "Needs Analysis Approach" when determining the amount of personal life insurance is needed?

Back 8

This approach determines a need for coverage upon the premature death of an individual. (See pg 6)

Front 9

What is Capital Liquidation?

Back 9

Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. (See pg 6)

Front 10

What is Capital Retention/Conservation?

Back 10

Assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal or capital invested. (See pg 6)

Front 11

What are some the advantages of having a Buy/Sell Agreement?

Back 11

It is legally enforceable, The value of the business is previously agreed upon, and it is an immediate and automatic method of transferring the deceased's interest. (See pg 7)

Front 12

What are some of the disadvantages of NOT have a Buy/Sale Agreement?

Back 12

Income to surviving family members stops, Surviving business owner(s) may suffer a loss of income, Asset reduction due to forced liquidation, The estate transfer may be delayed due to a forced business liquidation, Share(s) of ownership transfer to surviving relatives. (See pg 7)

Front 13

Name the two types of Buy/Sell Agreements.

Back 13

Cross Purchase Plan and Entity Plan. (See pg 7)

Front 14

What is a Cross Purchase Plan?

Back 14

Used when parties purchase life insurance on each other or the employer. (See pg 7)

Front 15

Wha is an Entity Plan?

Back 15

Used when the business owns the policies on the parties and is the designated beneficiary for each contract participant. (See pg 7)

Front 16

For whose benefit is Key Person coverage written for?

Back 16

Employer, not the employee's family. (See pg 7)

Front 17

What is Key Person Insurance?

Back 17

Life insurance purchased to offset the expense and financial losses due to the death of a valued employee. (See pg 7)

Front 18

What will the Key Person policy provide funds for?

Back 18

Decreased cash flow, recruiting cost, cost of training and cost of replacing the key employee. (See pg 7)

Front 19

What is Deferred Compensation?

Back 19

An incentive plan in which an employer promises to pay key employees certain amounts of money at a specified future date (usually retirement.) (See pg 7)

Front 20

What are viatical settlements?

Back 20

Life insurance policies puchased from a terminally ill insured. (See pg 5)

Front 21

What is a Split Dollar Plan?

Back 21

A policy that insures the employee's life with premium payments split between an employee and an employer. (See pg 8)

Front 22

What is Third Party Ownership?

Back 22

A policy owned by one person insuring the life of another person. (See pg 8)

Front 23

Name the classes of Life Insurance polices.

Back 23

Group, Individual, Ordinary Life Insurance, Industrial (Home Service), Permanent, Term, Participating, Nonparticipating, Fixed, Flexible, and Variable.

Front 24

What is the definition of an Industrial (Home Service) policy?

Back 24

Small policies, normally $250 to $1,000 that originally were sold to pay funeral expenses. (See page 9)

Front 25

What are some other names that an Industrial policy might be known as?

Back 25

Home Service policy or Monthly Debit Ordinary policy (MDO). (See page 9)

Front 26

What is a Permanent policy?

Back 26

A durable policy that stays level in amount and premium. (See page 9)

Front 27

What is Ordinary Life Insurance?

Back 27

Any type of life insurance that is not group, industrial, or government insurance. (See page 9)

Front 28

What is a fixed policy?

Back 28

The policy has a fixed amount of coverage, benefits and premium. (See pg 10)

Front 29

What is a variable policy?

Back 29

A policy introduced in the 1970s that uses separate accounts for the cash value accumulation. (See pg 10)

Front 30

True or false: If a policyowner cash surrenders a life insurance policy, the insurer could assess a surrender charge.

Back 30

True (Chapter 1 retention question)

Front 31

Which type of life insurance policy pays a dividend?

Back 31

Participating (Chapter 1 retention question)

Front 32

True or False: When using the Human Life method of determining a need, an agent would not consider any past income of the prospective insured.

Back 32

True (Chapter 1 retention question)

Front 33

True or False: Key person Insurance insures the employee's retirement plan.

Back 33

False (Chapter 1 retention question)

Front 34

Kathryn's employer is both the owner and beneficiary of her Key Employee policy. What percentage of the premium will Karen, the owner, be allowed to deduct at tax time for business expense.

Back 34

0% (Chapter 1 retention question)

Front 35

Key Person Insurance is used to provide funds for all of the following except which: A) Recruiting costs B) Training expense C) Overhead expense D) To replace lost cash flow

Back 35

C) Overhead expense (Chapter 1 retention question)

Front 36

What is one of the greatest differences between group and individual life insurance policies?

Back 36

Ownership (Chapter 1 retention question)

Front 37

Who is not considered when computing the Emergency Reserve Fund for the family when doing Needs Analysis?

Back 37

The insured (Chapter 1 retention question)

Front 38

Which of the following is false concerning term life insurance: A) Premium outlay is low B) Provides a means to purchase large amounts of insurance c) Matures at age 100

Back 38

C) Matures at age 100 (Chapter 1 retention question)

Front 39

Which of the following is a type of Buy-Sell Agreement funded by life insurance: A) Entity Proceeds B) Cross Purchase C) Key Person Coverage

Back 39

B) Cross Purchase (Chapter 1 retention question)

Front 40

All of the following are types of a Buy-Sell Agreement, except which? A) Entity Cross Purchase Plan B) Cross Purchase Plan C) Entity Plan

Back 40

A) Entity Cross Purchase Plan (Chapter 1 retention question)

Front 41

True or False: One purpose of a Buy-Sell Agreement is to establish the value of a business before the agreement is activated.

Back 41

True (Chapter 1 retention question)