Life Insurance Basics

Front 1

what is insurable interest?

Back 1

to purchase insurance a policyowner must face the possibility of losing money or something of value in the event of a loss.

Front 2

t or f? insurable interest must exist at the time of application.

Back 2

true. however, once a life insurance policy is issued, the insurer must pay the policy benefit, whether or not an insurable interest exists.

Front 3

what are 3 reconized areas in which insurable interest exist?

Back 3

1. an applicant insuring his or her own life.
2. an applicant insuring the life of a family member.
3. an applicant insuring the life of a buisness partner, key employee, or someone who haas a financial obligation to them.

Front 4

what is known as survivor protection?

Back 4

life insurance can provide the funds neccessary for the survivors of the insured to be able to maintain their lifestyles in the event of their death.

Front 5

what is known as estate creation?

Back 5

in the event of a death, life insurance can be purchased and following the first premium payment the beneficiary will recieve a substantial amount of funds in order to maintain their normal lifestyles. this is is a good method for young people who don't have enough time or assets readily available.

Front 6

t or f? there is no other legal method other than the purchase of life insurance, wherby an immediate estate can be created at such a small cost.

Back 6

true.

Front 7

what is known as cash accumulation?

Back 7

life insurance may be used to accumulate specific amounts of monies for specific needsand guarantees that the amount of the money will be available when needed.

Front 8

what is liquidity?

Back 8

refers to the availabilty of cash to the insured. some life insurance policies offer cash values that can be borrowed at any time and used for immediate needs.

Front 9

what is estate conservation?

Back 9

life insurance proceeds may be used to pay state inheritence taxes and federal estate taxes so that it is not neccessary to sell off assets from the estate to pay these costs.

Front 10

what is a viatical settlement?

Back 10

it allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are needed most, before their death. viatical settlements are not a policy option, they are seperate contracts in which the insured sells the death benefit to a third party at a discounted rate.

Front 11

what is known as the human life value approach?

Back 11

a method used for determining the amount of personal life insurance that requires the calculation of the probable future earnings of the insured using wages, inflation, the number of years to retirement, and the time value of money.

Front 12

in the human life value approach of determing the amount of personal life insurance for an individual, what must an agent do to calculate an individual's life value?

Back 12

1. determine the insured's after-tax income from the present date until retirement
2. deduct the insured's annual expenses for food, clothing, medical, and other expenses.
3. calculate the number of years to retirement
4. estimate the effect inflation would have on income over the required number of years.

Front 13

what is known as the "needs approach" when determining the amount of personal life insurance?

Back 13

is based on the predicted needs of a family after the premature death of the insured. this method provides the proper amount of coverage immediately.

Front 14

what should always be assumed when using the "needs approach' to determing the amount of personal life insurance?

Back 14

always assume that the insured's death will occur immediately.

Front 15

what is known as post mortem?

Back 15

costs associated with death

Front 16

what is known as bequest?

Back 16

an insured may wish to leave their funds to their church, scholl, or other organization at the time of their death.

Front 17

what is considered as liquidation?

Back 17

the selling of assets.

Front 18

what is known as the retention of capital?

Back 18

enough insurance is purchased so that when added to other liquid assets, there is enough to pay income benefits without invading the principle (the asset, "i.e a house")

Front 19

what does the buiness use of life and health insurance insure?

Back 19

it insures funding buisness continuation agreements, compensating executives, and protecting the firm against financial loss resulting from death or disability of key employees.

Front 20

what is the difference between permenant and term life insurance?

Back 20

permenant is good til the age of 100 and term is only good for a period of time.

Front 21

agents performing transactions involving variable life insurance/annuities, are required to be registered with the _____________________.

Back 21

FINRA (financial industry regulatory authority).

Front 22

what is considered the net premium?

Back 22

the premium without the operating costs incuded.

Front 23

what is the primary factor that insurance companies use to lower premiums?

Back 23

interest earnings that insurer's gain from investing the money paid from premiums.

Front 24

what is considered as loading?

Back 24

the added cost to the net premium

Front 25

what is a mode?

Back 25

the frequency the policy owner pays the premium (monthly, quarterly, annually).

Front 26

the higher the frequency of premium payments, the ________ the premium will be.

Back 26

higher. (if the polictowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have additional expenses in billing the premium.

Front 27

before using an advertisement, what must an agent to first?

Back 27

the agent must file it's content with the home office of the insurer, and receive a written approval.

Front 28

what is a policy summary?

Back 28

a written statement describing the features and elements of a policy. (must include name and address of agent, the full name and home office or admistrative office of the insurer) the policy summary must be provided when the policy is delivered.

Front 29

what is an illustration?

Back 29

a presentation that distinguishes between guaranteed and projected amounts of policy elements over a period of years.

Front 30

what is the purpose of the regulation of illustrations?

Back 30

to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable.

Front 31

what is underwriting?

Back 31

the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge.

Front 32

what is considered a field underwriter?

Back 32

an agent that has solicited the potential insured and assumes responsibility to represent insurer.

Front 33

what must an agent do if they feel like there is some misrepresentation from an applicant?

Back 33

they must inform the insurance company

Front 34

what are the 3 basic sections of an insurance application?

Back 34

1. general info
2. medical info
3. the agent's report

Front 35

for larger than normal amounts of requested insurance, what will the insurer require?

Back 35

a medical examination by a professional.

Front 36

t or f? an agent should never erase or use white-out on an application?

Back 36

true.

Front 37

what is known as the "statement of good health"?

Back 37

an agent is required to get a statement from the insured upon delivery of insurance if a premium payment was not collected during the application process to ensure the insured has not inccured any health conditions since the time of the application.