Life Insurance Practice Test #2

Front 1

These are uses of life insurance

Back 1

1. protect family from loss of income if insured dies prematurely

2. protect family against insured dying before paying off mortgage

3. payment of final expenses like funeral & burial

Front 2

Life Insurance can be used to pay off debts such as mortgages, personal loans, credit obligations and business loans

Back 2

Life insurance is a contract by which the insured transfers the financial risk of premature death to an insurance company

Front 3

The policy owner must have an insurable interest at the time of purchasing the policy

Back 3

Premium rates are calculated on the basis of mortality actuarial tables

Front 4

There are no income tax on benefits paid at the insured's death

Back 4

Tax on cash value interest is deferred until it is withdrawn at the policy surrender

Front 5

Modified Endowment Contract- Because the interest on cash value is tax deferred, dividends are tax free and life insurance benefits paid to a beneficiary at the insured's death are tax free, some people have used cash value life insurance as tax shelters. The IRS has written rules that define when a life insurance policy does not have a real, valid life insurance purpose and is in substance an investment or savings plan.

Back 5

The purpose of the credit report is to determine whether the applicant is likely to pay the premiums on time and determine if the amount of the insurance being applied for bears a reasonable relationship to the insured's income and/or net worth.

Front 6

Modified Endowment Contract

Back 6

If a cash value life insurance policy does not have a valid life insurance purpose under IRS rules, it is classified by the IRS as a Modified Endowment Contract

Front 7

The purpose of the credit report is to determine whether the applicant is likely to pay the premiums on time and determine if the amount of insurance being applied for bears a reasonable relationship to the insured's income and/or net worth.

Back 7

If an insurance company either rates up or denies coverage on the basis of an inspection report, the insurance company must advise the insured that the rating or rejection was based on an inspection report

Front 8

The individual has a right to see an inspection report

Back 8

an individual has a right to have medical information sent to his or her physician.

Front 9

When the applicant has filled out an application, paid the premium and, if required, taken the physical examination and conditional receipt has been issued.

Back 9

If someone doesn't pay their premium until he gets the policy his policy doesn't take effect until delivery, completion of a statement of good health as of delivery and payment of premium.

Front 10

Interim Term Life is also called

Back 10

Temporary Insurance. This insurance provides temporary term coverage from the date of application until the date the insured wants a permanent policy to take effect. It WILL pay death benefits if insured dies prior to the effective date of the permanent policy.

Front 11

Temporary Insurance agreement guarantees convertibility to a permanent policy without evidence of insurability.

Back 11

Dangerous Recreational Activities and aviation policies can be written by charging a temporary surcharge or flat extra fee, charge a rate indicated by rate table based upon a higher mortality rate, or grade the death benefits.

Front 12

Whole (Straight) Life insurance policy provides level amount of coverage until the insured's age 100 maturity, provides a level premium rate, includes complementing amounts of pure insurance and cash value.

Back 12

Modified Whole Life insurance policy have complementing cash values and pure insurance protection with cash values equaling the face amount at maturity which is always age 100.

Front 13

Modified Whole Life insurance policy premiums are reduced for an initial period and are level for the rest of the policy.

Back 13

Modified Whole Life insurance policy provides cash values which can be borrowed against.

Front 14

Limited-Pay Whole Life (Single Premium Life, 20 Pay Life, 30 Pay Life or Life Paid-up at Age 55, or Life Paid-Up at Age 65)

Back 14

Limited-Pay Whole Life provides a level amount of coverage until age 100 maturity.

Front 15

Limited - Pay Whole Life has a level premium rate for a shortened premium payment period, has complimenting cash values and pure insurance protection, cash values equal face amount at age 100 maturity.

Back 15

Limited - Pay Whole Life insurance policy produces a higher amount of cash value during the premium payment years than what a Straight Whole Life insurance policy would.

Front 16

Under the Limited-Pay Life insurance policy premium payments will stop at some age prior to age 100, but the policy does not mature until age 100.

Back 16

Cash values equal the face amount at maturity in both policies.

Front 17

In both policies the pure insurance is partially paid for by the interest that the insurance company earns on the insured's cash value.

Back 17

The cash values and pure insurance added together equal the face amount under both policies.

Front 18

Endowment (such as 20 year Endowment or Endowment at Age 65) provides a level amount of coverage until maturity which is prior to (before) age 100 & has a level premium rate during the life of policy.

Back 18

Endowment has both complimenting cash values and pure insurance protection. Cash values equal face amount at maturity.

Front 19

Tern Life insurance never has cash value.

Back 19

Insurance coverage stops at the end of the Term Life policy term.

Front 20

If the Term Life Insurance policy is renewable and/or convertible, the premium will be adjusted at renewal or conversion to the rate for the insured's then attained age.

Back 20

Term Life insurance is usually used for short-term life insurance needs.

Front 21

Decreasing Term Life insurance provides decreasing pure life insurance protection starting at an initial face amount and gradually decreases over the period of its term so that at the end of he policy term it provides no protection.

Back 21

The premium rate is level during the policy term of a decreasing term life insurance.

Front 22

Decreasing Term Life insurance has no cash values.

Back 22

A family income rider attached to his straight whole life insurance provides Whole Life insurance benefits for final expenses at the insured's death and income benefits to the surviving family.

Front 23

The Family Life insurance program usually provides that upon death of the insured, the children's coverage will be paid up until age 25.

Back 23

Key Employee insurance provides for continuation of a business that is highly dependent upon one or a few key employees.

Front 24

Key employee is a type of business life insurance.

Back 24

In Key employee insurance the business is the both the policy owner and the beneficiary. & equal to 1 or 2 year's of the company's earnings.

Front 25

Key employee insurance is to keep the business going at the death of the key employee. & premiums usually cannot be tax deducted. Usually no tax on benefits at death.

Back 25

Group Insurance must include at least ten individual members.

Front 26

Concerning group insurance if the employer is to pay 100% of the premiums, all eligible employees must participate.

Back 26

Concerning group insurance policies are issued to the master policy holder only, certificates are issued to individual covered members.

Front 27

A group of Ten or more members of an association which was formed for some other purpose other than to obtain coverage on the lives of its members is eligible for group insurance.

Back 27

A group of Ten or more people owning the same bank are eligible for group insurance.

Front 28

A group of ten or more members of a labor union are eligible for group insurance.

Back 28

As far as group life insurance is concerned If a previously covered member dies within the 31 day conversion period before making the conversion it will be presumed that he/she intended to exercise his/her conversion right and the benefits, minus premium due, will be paid.

Front 29

Group life insurance is to be distinguished from Franchise (Wholesale) group life insurance which is a form of life insurance which can be written for a group that would NOT normally qualify for group life insurance and for which there is individual underwriting and policies.

Back 29

Concerning group life insurance the employer usually can tax deduct the premiums on a group life insurance policy.

Front 30

Group insurance can not be converted when leaving a business.

Back 30

A Buy-Sell agreement can be funded by each partner or stockholder in a business buying life insurance policies on all of the other partners of stockholders.

Front 31

buy-sell agreements has the advantage of each partner or stockholder knowing that his/her heirs will receive a fair price for his/her business interest at death as well as knowing that he/she will NOT be required to involuntarily accept one of the partner's heirs as a business partner at the partner's death.

Back 31

The life insurance policy used to fund a buy-sell agreement can be any form of life insurance.

Front 32

Social Security will pay a lump sum benefit at a currently or fully insured individual's death if there is a ?.

Back 32

qualifying survivor

Front 33

The amount of payment from a life annuity is based on what?

Back 33

The annuitant's age, sex and the amount of money in the annuity account.

Front 34

What are annuity options?

Back 34

Fixed Amount (Amount Certain), Life Annuity Period Certain, Joint and Survivor Life Annuity.

Front 35

When concerning an IRA Plan the participant may deduct the amount that he/she contributes to the plan from his/her income for federal income tax purposes and need NOT pay income tax on any of the interest earned until it is received at retirement age.

Back 35

Life insurance policy Entire Contract provision states the policy along with application is the entire contract.

Front 36

Life insurance policy Entire Contract provision is a standard provision for which there is NO extra premium charge.

Back 36

Because of Life Insurance policy Entire Contract provision, the insured canNOT take into consideration preprinted presentation forms that were used as part of the sales presentation in determining his/her benefits.

Front 37

Premium Payments clause states the premium mode, that is the frequency with which the premium will be paid.

Back 37

Premium payments clause states when and to whom the first premium is paid.

Front 38

Premium payment clause states that the policy does NOT take effect until the first premium is paid.

Back 38

Life Insurance Policy previsions states that premium payments may be made to either an agent or an insurance company or an insurance company office.

Front 39

Life insurance Policy prevision states the grace period is usually 31 days.

Back 39

Life insurance policy prevision states the incontestability period is usually 2 years.

Front 40

Incontestability provision is contained in all policies. Within the first 2 years a policy is in effect, it can be contested due to a representation on an application if it is concealed or false & material & intentional & warranted statement if it is either concealed or false.

Back 40

Incontestability provision states after a policy has been in effect two years, the insurance company canNOT contest a policy (cancel the policy or refuse to pay claim) due to any misstatement or concealment in an application.

Front 41

Misstatement of Age provision states if someone states age or sex to pay too low premiums, the insurance company can reduce benefits to what they would usually provide for a person of that age/sex. This applies after the two year incontestability period.

Back 41

Misstatement of Age provision states if his or her age or gender causes to pay too much the insurance company must refund the premiums of overpayment.

Front 42

The purpose of the misstatement of age provision is to

Back 42

allow the insurance company to issue the policy without proof of age or gender.

Front 43

If a corporation owns a whole life insurance policy on an employee/owner and the corporation is not the insured or the beneficiary. What would the corporation be called?

Back 43

Since the corporation is neither the insured nor the beneficiary, it is referred to as the third party owner.

Front 44

In a Common life insurance policy previsions the policy owner has the right to surrender the policy and select a nonforfeiture option if the policy is a what kind of policy?

Back 44

Cash Value Policy

Front 45

An Accumulated by the Insurance Company at Interest is a what kind of Option?

Back 45

Dividend Option

Front 46

Several Life insurance policy Nonforfeiture Options are?

Back 46

1. Cash

2. Paid Up Insurance Policy

3. An Extended Term Insurance Policy

Front 47

Most Straight Whole Life Insurance polices allow for reinstatement of the policy within how many years?

Back 47

3 Years, all back premiums must be repaid with interest, new evidence of insurability may be required, insurance may agree to reinstate part of the policy and not others, new suicide & incontestability periods apply.

Front 48

When talking about Life insurance Policy Loan previsions it is found in only permanent life insurance policies, that is cash value life instance policies.

Back 48

Policy Loan previsions state that life insurance policy loan value is usually the same as the cash value minus one year's interest.

Front 49

What will happen In a Policy Loan previsions if the policy owner does NOT pay the Policy Loan interest?

Back 49

it will be added to the loan balance

Front 50

In a life insurance Policy loans if the insured dies with an outstanding loan, the amount of the outstanding loan will be?

Back 50

deducted form the proceeds of the policy

Front 51

Policy loan provision allows the policy owner to borrow up to

Back 51

the amounts indicated in the policy loan table.

Front 52

Policy Loan provision is found only in

Back 52

cash value policies. & the policy owner must pay the interest rate indicated in the policy or it will be added to the loan.

Front 53

Policy loan provision states that unpaid loans will be deducted from the life insuarance benefit paid to the

Back 53

beneficiary at the insured's death.

Front 54

The policy loan value will be either the same as the cash value or often it is the

Back 54

cash value minus 1 year's interest

Front 55

A life insurance policy change provision states the insured's right to convert the policy to another policy with a higher premium rate

Back 55

with out evidence of insurability

Front 56

Life insurance policy change provision is found in

Back 56

all forms of life insurance policies

Front 57

Life insurance policy change provision applies to

Back 57

the entire life of the policy

Front 58

A guaranteed Insurability rider

Back 58

provides the insured the option to purchase additional insurance.

Front 59

What are Dividend Options

Back 59

1. cash

2. applied to reduce the next premium

3. accumulated by the company at interest

Front 60

In A life insurance policy assignment the policy owner has the right to assign what?

Back 60

one or more rights in a policy to someone else.

Front 61

Concerning a life insurance settlement option the automatic settlement option, if the policy owner fails to select one

Back 61

it is lump sum

Front 62

Concerning a life insurance settlement option a life annuity can be a

Back 62

life insurance policy settlement option

Front 63

Concerning a life insurance settlement option benefits to be held by the insurance company at interest can be

Back 63

a settlement option

Front 64

The owner of the policy has the righ t to select a beneficiary

Back 64

unless an irrevocable beneficiary has been need.

Front 65

The primary beneficiary is the person who receives the life insurance benefits at the insured's death if

Back 65

the primary beneficiary is still alive.

Front 66

The contingent beneficiary is the person to who death benefits will be paid if the primary beneficiary either dies

Back 66

before the insured or as a result of the same accident.

Front 67

Accidental death benefits are paid only if

Back 67

the insured dies as a result of indues sustained in an accident

Front 68

When Accidental Death benefits are added to a policy, they are paid in addition to the

Back 68

face amount of the basic policy

Front 69

The waiver of premium rider requires the insured to be totally disabled usually for 6 months in order for the

Back 69

Waiver of premium rider to apply

Front 70

Waiver of Premium rider is an optional rider that waives premiums as long as the policy owner is disabled for a time such as

Back 70

after the sixth month of disability. so starting the 7th month of disability.. premiums paid during the first 6 months are usually reimbursed.

Front 71

waiver of premium rider terminates and benefits stop at

Back 71

age 65

Front 72

Waiver of premium rider leaves the life insurance in effect &

Back 72

cash value continues to accumulate