INDEMNITY CONTRACT
Pays a specified dollar amount for a loss. For example, a hospital indemnity policy may pay $100 per day as stated in the policy
Parol Evidence Rule
a written contract may not be altered without the written consent of both parties
Valued Contract
a contract that pays a stated amount in the event of a loss. A life insurance contract is an example of a valued contract. it has a face value that becomes a death benefit in the event loss
Subrogation
Occurs when a claim is paid by the insurer who has the contract and the right to take legal action against a negligent third party who may have caused the loss. Life policies have no right of subrogation.
Contract of Adhesion
One party writes the contract, without input from the other party. "take it or leave it
Personal Contract
are specific to the person insured at the time the contract is formed. Life insurance is not a persona contract
Unilateral Contract
only one party is legally bound to the contractual obligations after the premium is paid to the insurer
Conditional Contract
Both parties must perform certin duties and follow rules of conduct to make the contract enforceable
Fraud elements
1. False statement, made intentionally and that pertains to a material fact
Aleatory Contract
The exchange of value is unequal.
Mutual Insurance Company
A board of Trusees or Directors is elsected by policy holders. Owned by its policy holders
Reciprocal Insurance Company
is a group-owned insurer whose main activity is risk sharing
Risk Retention Groups
group-owned insurers that primarliy assume and spread the liability-related risk of its memebers
Self-Insurers
assume all if the fiancial risk faced without transferring that risk to an insurer
Residual Markets
last resort provate coverage source for business and individuals who have been rejected by the voluntary insurance market
Reinsurance companies
that operate to accept all or a portion of the financial risk of loss from the primary ( or ceding) insurance company. Can transfer all or part of the risk it has accepted
Treaty
Reinsurance agreement that auto accepts all new risks presented by the ceding insurer (the company seeking or requesting the reinsurance from the reinsurer)
Facultative
Reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk) nature
Domicile
Refers to the jurisdiction where an insurer is formed or incorporated
Domestic insurer
An insurer organized under the laws of this state, whether or not it is admitted to do business in this state
Ex: An insurer incorporated in Texas is considered domestic to Texas (This state)
Foreign Insurer
An insurer organized under the law of any other state, prossession, territory, or district of Columbis of the United States whether or not it is admitted to so business in this state
Ex: An insurer incorporated in Texas is considered foreign to New York (
Alien Insurer
An Insurer organized under the laws of any jurisdiction outside the United States, whether or not it is admitted to so business in this state
Ex: An insurer incorported in Ontario, Canada , is considered alien to New York (outside the US)
Admitted vs. Non-admitted
Refers to whether or not an insurer is approved or authorized to write business in this state
(domicile does not impact whether an insurer may be admitted to do business in this state)
Financail Rating Service
The higher the rating the opinion is that the insurer has a higher likelihood of the ability to pay claims. The lower the rating, the opinion is that the insurer is less likely of being able to pay claims
Surplus Lines Insurance
finds coverage when insurance cannot be obtained from admitted insurers
Insurer Management
1. Executives-oversee the operation of the business
2. Actuarial Dep-Gather and interpret statistical info used in rate making. An actuary determines the probability of loss and sets premiums rates
3. Underwriting Dep-Responsible for the selection of risk
Distribution Models
1. Exclusice or captive agency system
2. Direct Writing System
3. Ind Agency
4. Career Agency System
5. Personal Producing Generak Agent
6. Direct Mail or Direct Response Company
7. Mass Marketing
Exclusice or captive agency system
Deals with the insured through an exclusive or captive agent
Direct Writing System
1. Producer or Agent is an employee of the insurer
2.Insurer owns the accounts
3. The agent may be paid a salary, salary+bonus, or commission
Independent Agency
selling agreements with more than one insurer. It may represent an unlimited number of insurers
? Agency retains ownership of the business written
? An independent contractor that is paid a commission and covers the cost of agency operations
Career Agency System
Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company.
? Personal Producing General Agent
? Does not recruit career agents.
? Sells insurance for carriers it is contracted
Direct Mail or Direct Response Company
Insurers who sell insurance policies directly to the public with licensed employees or contractors
? A marketing system utilizing mass media, such as direct mail, newspapers, magazines, radio, television, internet, web sites, call centers and vending mach
Mass Marketing
? Used to target a specific type of insurance to a large group of individuals, such as the American Association of Retired People (AARP)
? Insurer may benefit by reductions in marketing costs and underwriting expenses may be lower when offering coverage t
Law of Agency
The relationship of a person (called the agent or producer) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agent's acts bind the principal. An act of an
Insurer (principal)
The Insurer is the source of authority from which the producer must abide. Insurer appoints the producer to act on its behalf in transacting the business of insurance. It is responsible for all acts of its producers when a producer is acting within the sc
Producer (agent)
A person or agency appointed by an insurance company to represent it and to sell policies on its behalf. A producer acts with one or more of the following three types of authority
1.Express
2.Implied
3.Apparent
Express
Authority that is written into the producer's contract. An example would be the producer's binding authority if written in the contract. A producer's contract may also express what the producer may not do, such as creating his/her own advertisements.
Implied
Authority the public assumes the producer has. An example would be the business activities of providing quotes, completing applications and accepting premiums on behalf of the insurer.
Apparent
Authority created when the producer exceeds the authority expressed in the agency contract. This occurs when the insurer takes no action to counter the public impression that such authority exists. An example would be the producer's issuance of a binder w
Producer's Responsibilities to the Insurer
Fiduciary duty to the insurer in all respects. A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person especially when handling premiums for insurance pol
Producer's Responsibilities to Insurance Applicant or Insured
Forward premiums to insurer on a timely basis
� Seek and gain knowledge of the applicant's insurance needs
� Review and evaluate the applicant's current insurance coverage, limits, and risks
� Serve the best interests of the applicant or insured, although
Broker
A licensed individual who negotiates insurance contracts with insurers on behalf of the applicant. A broker represents the applicant or insured's interests, not the insurer, and does not have legal authority to bind the insurer. Broker licenses are not ap
Speculative Risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur. Examples of speculative risk include gambling, investing, starting a new business. Speculative risk cannot be insured.
Pure Risk
Situations where there is no chance for gain; the only outcome is for nothing to occur or for a loss to occur. Pure risk is the only risk that can be insured. Examples include the possibility of:
? Damage to property caused by a fire or other natural disa
Loss
Reduction, decrease, or disappearance of value. A loss is the basis of a claim under the terms of an insurance policy.
Peril
The cause or source of a loss (fire, windstorm, embezzlement, disease, death).
Hazard
A specific condition that increases the probability, likelihood, or severity of a loss from a peril. (three types: Physical Hazard, Moral Hazard, Morale Hazard)
Physical Hazard
A physical condition that increases the likelihood or probability of loss. may be seen, heard, felt, tasted, or smelled.
Example: Flammable material stored near a furnace.
Moral Hazard
Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people. most closely related to some form of lying, cheating, or stealing.
Example: An insured burns down his/her own house to collect the insurance pay
Morale Hazard
An attitude of indifference toward the risk of loss that increases the probability of a loss occurring.
Example: Driving too fast for conditions, not wearing a seat belt, ignoring stop signs at familiar intersections, smoking, failure to take medications
Loss Exposure
The condition of being at risk of loss. Simply by existing, property and people are subject to many different risks. To an insurance company, each insured person or their covered property represents the risk of loss and the value of each potential claim i
Adverse Selection
An imbalance created when risks that are more prone to losses than the average (standard) risk are the only risks seeking insurance within a specific marketplace. For example, only those living in earthquake-prone areas seek to buy earthquake insurance or
Managing Risk
Analyzing exposures that create risk and designing programs to minimize the possibility of a loss. Ways of managing risk: (STARR)
1. Sharing-Pooling or spreading the risk among a large number of persons or entities
2. Transfer-Transferring the risk from o
Insurable risks must include
Large number of homogeneous units or groups with the same perils. ?Law of Large Numbers - As the number of units in a group increases, the more likely it is to predict a particular outcome.
? Auto insurance losses are the easiest type of insurance loss to
Insurance Concepts
A legal contract purchased to indemnify the insured against a loss, damage, or liability arising from an unexpected event.
� The exchange of a relatively small and definite expense for the risk of loss that, if it occurs, may be large or small.
� A contra
Principal of Indemnity
Insured is intended to be restored to the same financial or economic condition that existed prior to the loss, depending on the amount and type of insurance purchased.
� Insured should not profit from an insurance transaction, but be made "whole again
Insurability
The ability of an applicant to meet an insurer's underwriting requirements.
Underwriting
The process of selecting, classifying, and rating a risk for the purpose of issuing or not issuing insurance coverage.
Insurable Events
Any event, past or present, which may cause loss or damage, or create legal liability on the part of an insured.
Insurable Interest
All Policies
Life & Health policies
Property
Casualty
Indexed Universal Life (Equity Indexed)
This policy gives policyowners the opportunity to decide the percentage of cash value that is invested in traditional fixed income securities. The remainder of the cash value is invested in an equity index account linked to a stipulated stock index, typic
Universal Life (Flexible Premium Adjustable Life Insurance)
Universal Life Insurance (UL) features insurance protection and a savings element (cash value) that grows on a tax-deferred basis. UL is an "unbundled policy." This means the individual elements of the policy and premium� which includes the mortality risk
Adjustable Face Amount
The insured can increase or decrease the face amount of the policy. Any increase in the face amount will require evidence of insurability.
Flexible Premium
A target premium is established by the insurer, which is the minimum amount that must be deducted from the cash value to maintain the policy to age 100, based on current interest rates, mortality and expense charges. Because mortality and expense charges
General Account
A portion of the premium is invested by the insurance company and held in their general account. The current return on the investments is credited to the UL policy.
Loans and Partial Withdrawals
As noted above the individual elements of a UL policy are individually viewable, subject to change, and accessible. This gives it increased flexibility. Unlike other policies, the policyowner not only has the option to take a policy loan, he or she may al
Death Benefit Options
Option A - Pays the face amount of the policy and provides a level death benefit. As the cash value increases, the company's risk decreases. A universal life policy must include an amount at risk. If the cash value approaches the face amount, the death be
Variable Life
Variable whole life is a whole life policy with certain benefits that will vary based on market conditions. Variable life characteristics include:
A fixed premium
Accounts
General Account (guaranteed values)
Separate Account (nonguaranteed values)
A fixed premium
The premium is determined by the insurer and remains fixed and level throughout the contract.
Accounts
The policy provides for both a general account and a separate account.
General Account (guaranteed values)
The general account is fixed and guaranteed and provides for a guaranteed minimum death benefit to age 100. Policy loans are available from the general account.
Separate Account (nonguaranteed values)
The separate account is invested in equity securities as offered by the insurance company. The owner may select which separate account they want their premium to be invested in. Cash value in the separate account will fluctuate based on the market conditi
Universal Life
The mortality charge (cost of protection) and expenses are then deducted from the cash value account.
Variable Universal Life (VUL)
Variable Universal Life (VUL) is a combination of Variable and Universal Life Policies. Like Universal life, the policy provides for flexible premiums and adjustable death benefits. Options A and B are available to policyowners. But like Variable life, a
Juvenile
Juvenile insurance is any policy written on the life of a minor. A popular type is commonly called "Jumping Juvenile" because it automatically increases the face amount at a given age (usually age 21 to 25) without evidence of insurability. The premium re
Joint Life (First to Die)
Joint Life is a whole life policy that is written to cover 2 or more lives. The death benefit is paid upon the first insured to die. Once payment is made, the policy no longer exists. Premiums are based upon a joint issue age; which is obtained by an aver
Joint Survivorship Life (Last to Die)
This whole life policy is written to cover 2 or more lives, and the death benefit is not paid until the last insured dies. Premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than t
Return of Premium Term
This term policy is written for a specified number of years (20-30 years). If the insured is still living at the end of the term, the policy will provide a refund of all the premiums paid into the policy. Typically these policies have a higher premium tha
Waiver of Premium
If the insured becomes totally disabled, the company waives premiums for the duration of the disability, therefore the policy remains in-force. There is usually a maximum 6-month elimination period before premiums are waived. The Waiver of Premium rider d
Payor Benefit (Waiver of Payors Premium)
A rider that waives the premium payment if the owner dies or becomes disabled and is unable to make the premium payment on behalf of the insured.
Disability Income Benefit
In the event of total disability and after an initial waiting period (such as 6 months), premiums are waived and the insured is paid a monthly income. The monthly disability income benefit is typically limited to a percentage, usually 1% of the face value
Waiver of Cost of Insurance
A rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability. Usually, the disability must occur
Term Riders
Term riders may be attached to virtually any permanent policy, interest sensitive, or term policy to provide an amount of temporary extra insurance protection for a fixed period of time. These riders are useful when an insured needs more insurance or a de
Spouse (Other Insured) Rider
This type of rider will provide level term coverage on the life of the insured's spouse. Such rider will also provide a conversion provision permitting the spouse to convert to permanent coverage without evidence of insurability prior to the termination o
Child Rider
This type of rider will generally provide level term coverage on the life of all of the insured's children. Such riders are usually offered at one premium rate and may cover newborns after 14 days of life and adopted children who can be added to the cover
Family Rider
This is the combination of writing both the Spouse and Child Rider on one policy. This may be written as a policy or a rider; in the market today, it is normally written in the form of a rider. Usually family riders are sold in units (packages) of protect
Nonfamily Rider
Covers an additional insured with an insurable interest, such as a business partner.
Accidental Death Benefit (Double or Triple Indemnity)
In the event of a claim, the policy normally pays double or triple the face amount if death was a result of an accident (may be called multiple indemnity rider, paying multiple times the face amount). The benefit is payable only if death occurs before a s
Accidental Death and Dismemberment
This rider provides a benefit in addition to the base of the policy. The rider pays 100% of the amount of the rider, known as the principal sum, upon accidental death. If the insured suffers an accidental dismemberment loss, such as loss of a limb or eyes
Guaranteed Insurability
Allows the insured to purchase stated amounts of additional insurance every 3 years based on certain ages (specifically 25, 28, 31, 34, 37, and 40), events, or specified dates without evidence of insurability up to a maximum age, usually 40. The premiums
Return of Premium
Increasing Term insurance equal to the amount of premiums paid. If the insured dies within the term, the beneficiary would receive the face amount plus an amount equal to the premiums paid. It adds flexibility when added to a whole life policy. It is also
Return of Cash Value
Increasing Term insurance equal to the cash value. This rider provides the payment of term insurance equal to the cash value amount at time of death. However, this does not relieve the obligation to pay loans from the claim proceeds at time of death.
Cost of Living (COL)
The cost of living rider enables the insured to purchase more insurance each year to help offset increasing insurance needs due to inflation. The amount that can be purchased is based on increases in the cost of living index. This additional coverage is u
Accelerate death benefits
A benefit that rob idea for an early payment of a portion of the face amount prior to death
Endow (Mature)
The maturity date or time at which the policy's cash value equals the face amount and the proceeds are paid to the policyowner. When the life insurance policy's cash value equals the face amount, the policy is said to endow.
Face Amount
The death benefit amount payable on a life insurance policy. In other words, the amount of coverage the policy provides. This is sometimes referred to as the limit of liability.
Cash Value
Money accumulated in a permanent policy which the policyowner may borrow as a policy loan or receive if the policy is surrendered before it matures.
Rider
An added benefit attached to the policy that modifies existing coverage. A rider is usually added at the time of application and typically requires an increase in premium.
Return of Premium Rider
if the insured dies within the period of the term, the beneficiary receives the death benefit of the Whole Life Policy and, through an increasing term rider, the equivalent of the premiums paid on the Whole Life Policy.
The full face amount (death benefit)
is payable to the beneficiary any time death occurs while the policy is in force.
Waiver of Premium Rider
If the insured policyowner were to become totally disabled, the Waiver of Premium Rider would waive future premiums for the duration of the disability and still allow the cash value and dividends to continue as though the premiums were being paid.
Living Needs Rider
It allows a partial payment of the face amount before death if the insured becomes terminally ill
The rider is most often added without an additional premium charge
At death, the early payment is deducted from the beneficiary's benefit
Standard Provisions-Individual Policies Only
Contractual provisions explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spells out the agreement between the policyowner and the insurance company. Provisions and
Provision
Benefits provided in the police as part of the contract without an additional charge
Options
Provisions that provide choices which must be specified by the policyowner
Entire Contract Clause
This provision describes the parts of the life insurance contract. The entire contract consists of the policy, riders (or endorsements), amendments, and a copy of the application. All statements made in the application are, in the absence of fraud, deemed
Incontestability Clause
Within the first 2 years of a policy, the insurer may contest a claim and void the contract upon proof of a material misstatement or fraud. A material misstatement is one in which the insurer would not have issued the policy had they known the true inform
Insuring Clause (Proof of Death)
Specifically, the insuring clause is found on the first page of the policy and is considered the most important clause in the policy. It identifies the parties to the contract and the perils or conditions in which it will pay. The insuring clause is the i
Consideration Clause
The consideration clause specifies the amount and frequency of premium paid by the owner as something of value provided in exchange for the company's promise to pay (the insuring clause).
Changes (Modifications)
Changes or modifications must be in writing, signed by an executive officer of the insurer, approved by the policyowner and made part of the entire contract. A producer cannot alter, change, modify or waive any policy provisions.
Suicide Clause
If the insured commits suicide, while sane or insane, within typically 2 years from the issue date, the insurer's liability is limited to a refund of premium. If the insured commits suicide after the suicide clause has expired, the insurer must pay out th
Owner's Rights (Ownership Provision)
The policyowner has the right to name or change revocable beneficiaries, borrow against the cash values or access living values, receive dividends and to select among the dividend options made available, and to assign the policy on a collateral basis or a
Assignment
Assignment is the transfer of ownership. There are two types of assignments: absolute assignment, and collateral assignment
absolute assignment
The original owner, the assignor, will name a new owner, the assignee, of the policy. Since a new owner is named, this is considered a permanent assignment. The full amount of the policy is assigned, and this is referred to as a transfer of ownership.
collateral assignment
which does not cause a permanent change in ownership. However, the rights of the owner will be subject to the assignment. A collateral assignment is typically used when an insurance policy is used as collateral for a loan. This is a temporary assignment u
Misstatement of Age or Gender
If the age and/or gender of the insured have been misstated in a policy, all benefits under the policy will be provided based upon the insured's correct age and/or gender according to the premium scale in effect at the time the policy was issued
Free Look (Right to Examine Period)
If dissatisfied for any reason, the owner has the right to return it for a full refund of any premiums paid. The free look period is usually 10 days, unless state law specifies otherwise. If applicable, additional information about this topic is presented
Exclusions
Aviation - The exclusion does not apply to fare-paying passengers on regularly scheduled commercial flights. This exclusion applies most specifically to student pilots or those with a newly issued pilot's license with a limited number of hours of flying e
Mode of Premium
This provision addresses the frequency of premium payments (monthly, quarterly, semiannually or annually), and to whom the premiums are payable. The more frequent the payment, the greater the cost. The policyowner has the right to change the premium mode.
Grace Period
The grace period is the time period provided after the premium due date before a policy lapses. If the insured dies during this period, the death benefit is payable minus any premiums or loans due. The typical grace period is a month (30 or 31 days) unles
Automatic Premium Loans (APL)
This provision must be elected by the policyowner and can be cancelled at any time. It enables the insurer to automatically borrow against the cash value to cover a premium payment to prevent the contract from lapsing unintentionally. APL is available on
Reinstatement
If a policy has lapsed unintentionally due to nonpayment, it can be reinstated by the owner. The reinstatement time period is typically 3 years from lapse (but can be as long as 5 years). In order to reinstate, the insured must provide evidence of insurab
Policy Loans Provision
A policy loan may be made in a cash value policy once there is sufficient cash value to borrow against. In most policies, cash value must be made available to borrow against after 3 years.
Revocable
The policyowner may change a revocable beneficiary at any time. This beneficiary does not have a vested interest in the policy. Most named beneficiaries are revocable and have no rights.
Irrevocable
The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits wit
Per capita
This is a designation that will pay to surviving beneficiaries equally if a named beneficiary predeceases the insured. For example, if an insured names his/her 3 children as beneficiaries and one of the children predeceases the insured, the benefit will p
Per stirpes
This is a designation that will pay a deceased beneficiary's share to the heirs of the beneficiary who predecease the insured. If an insured names his/her 3 children as beneficiaries and one of the children predeceases the insured, the deceased beneficiar
The time limit to bring legal action against an insurer cannot be less than _______ after the act occurs.
12 months
Which of the following is the proper sequence of beneficiaries?
Primary, contingent, tertiary
If a life insurance policy lapses due to nonpayment of premium, then reinstatement requires:
The payment of back premiums, plus interest, and proof of insurability
To reinstate a lapsed policy, back premiums plus interest need be paid and proof of insurability is required. The right to request reinstatement has a time limit, typically 3 to 5 year
A beneficiary wants a guarantee that benefits will be paid for a period of 10 years or life whichever time period is greater. Which of the following options should the beneficiary select?
Life with 10-year Period Certain
Life with 10-year Period Certain pays out for the greater of 10 years or life.
When is the earliest a beneficiary designation can be made?
At the time of policy application
Beneficiaries are indicated for the first time when the application for life insurance is completed for submission to the home office of the insurer.
Policy dividends
Dividends are declared under participating policies. They are not guaranteed, and if received, the dividend itself is generally not taxable. They can be withdrawn any time there is an accumulation.
If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due.
Grace
How long, typically, is the grace period on a $500,000 level term life insurance policy?
Typically, the grace period runs one month (30 or 31 days) from the premium due date.
When does a change in beneficiary take effect?
The date the policyowner signs the request to change the beneficiary.
Even if the insured dies prior to the time the insurer receives the change of beneficiary form, the change actually goes into effect as of the date the change of beneficiary form is sig
The cash received by the policyowner when he/she terminates a policy is known as what?
Cash Surrender Value
The Cash Surrender Value is the Nonforfeiture Option that allows the owner to withdraw the cash value upon the surrender of the policy.
How long, typically, is the reinstatement period from policy lapse?
3 years, but it can be up to five years with some policies or some insurers.
Angela bought a policy from her friend, an insurance producer. After looking it over thoroughly, Angela only has one question. Will she receive dividends? She will if the policy is a....
Participating
Dividends are declared under participating policies, are paid as declared, and are not guaranteed. The dividends are a return of excess premiums paid.
Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be:
Reduced Paid-Up. It provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options, rather they are dividend options.
Which Settlement Option pays for a specified period, regardless of who may receive the payments?
Fixed Period
As the name implies, Fixed Period establishes that the policy proceeds are guaranteed to be paid over a set period (i.e., 30 years) regardless of who may receive the payments, the policyowner or the beneficiary.
Which Settlement Option pays a specified dollar amount until benefits are exhausted?
Fixed Amount pays benefits at a specified dollar amount (such as $1,000/month) until the benefits are exhausted.
Which individual policy standard provision stipulates the conditions under which the insurer will not pay a claim while the policy was in force at the time of death of the insured?
The exclusions provision specifies the conditions under which the insurer will not pay out a death claim if the insured dies while the policy is in force.
Tom is the insured/owner of a $500,000 life insurance policy and dies leaving four surviving children, Mary, Carrie, Larry, and Barry, and each child receives $125,000 upon his death. This is an example of what type of distribution?
Per Capita- to share equally.
Distribution options used when the insured lives to the endowment date of the policy or at the insured's death are
Settlement Options
Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose:
Life Income Only
The option that will guarantee the beneficiary an income as long as she/he lives is Life Income Only.
What are the two types of life insurance assignments?
Absolute (permanent) and collateral (temporary)
Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits?
Liz the beneficiary determines which option she would like to have.
If the owner of the policy does not select a Settlement Option while alive, then the beneficiary may choose an option at the time of claim.
The interest earned on dividends is:
Taxable
The dividends themselves are generally not taxable, but any interest earned on the dividends is taxable.
Who is responsible for paying the premiums due on a life insurance policy?
It is the policyowner's responsibility to pay the premiums due in full and on time.
Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection?
Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for the time period stated in the policy's nonforfeiture table. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividen
The insuring clause is found:
The insuring clause is typically found on the front or first page of the policy and is considered the most important clause in the policy.
Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use?
Revocable beneficiary. By naming her husband as a revocable beneficiary, Linda would retain all rights of ownership. To name her husband irrevocably would give her husband a vested interest in policy benefits.
Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage?
The Automatic Premium Loan enables the insurer to borrow automatically from the policy's cash value, at the end of the grace period, to cover a premium payment to prevent the policy from lapsing. There is no charge for having this provision in a cash valu
What are the dividend options?
Cash, Premium Reduction, Accumulate at Interest, Paid-up additions, 1-year term, paid-up option
A misstatement of an insured's age was not discovered until after the insured died. The policy had been in effect for 3 years. What will the insurer do to address this situation?
The Misstatement of Age or Sex Provision states that if the insured's age or gender has been misstated, the insurer is allowed, at the time of claim, to adjust benefits according to the amount the premiums would have purchased at the correct age or gender
Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery?
The insurer would pay out a reduced benefit in proportion to the underpayment of premium
If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit?
When no named beneficiaries are alive at the time the insured dies, the estate of the insured receives the death benefit.
How can you change a Irrevocable beneficiary
Once an irrevocable beneficiary has been declared by the owner of the policy, the beneficiary designation can then be changed only with the irrevocable beneficiary's prior written consent. An irrevocable beneficiary has a vested interest in the policy ben
Individual life policies typically pay out a death benefit if death is a result of suicide after they have been in force for _____ years.
Two years is typically the standard suicide limitation period for individual life policies. In some states it may be different.
A partial withdrawal is permitted on which of the following policies?
Policies on a universal life platform allow for partial withdrawals.
Beth owns a 20-Pay Life participating policy. She has decided that the dividends should be applied toward future premiums. Which Dividend Option did she choose?
The Dividend Option that allows the dividends to be applied toward the next premium due is Premium Reduction.
If the policyowner specifies the time over which all settlement option installments are to be paid, he/she has chosen which Settlement Option?
Fixed Period. Any time the policyowner specifies payments to be guaranteed for a specific period regardless of who may receive the payments, the Fixed Period Settlement Option has been chosen.
What provision establishes that if both the insured and the primary beneficiary die in the same accident, and it cannot be determined who died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contin
The Common Disaster Clause is designed to rule in such situations. If a contingent beneficiary is named and is alive, he or she receives the proceeds. Otherwise they are paid to the insured's estate.
Ed purchased a policy naming his children as per capita beneficiaries. Upon his death the proceeds are paid to:
Per capita means that surviving beneficiaries share equally in the death benefits. If Ed's policy has a $100,000 death benefit, and if upon his death, there are two surviving children, each gets $50,000.
Ted owns a $50,000 Whole Life Policy. At age 47, he decides to stop paying premiums on his policy when it has $15,000 of cash value and exercise the Extended Term Option. Ted's term benefit will be:
$50,000
The Extended Term Option uses the present cash value of the policy, upon its lapse, to automatically buy a single premium term policy of the same face amount for a specified number of years and days as listed in the policy's nonforfeiture table.
If the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens?
Unless specified otherwise, the cash values buy extended term. Upon non-payment of premium due, the extended term option kicks in automatically and is paid for by the cash values of the policy. The policy has nonforfeiture values which are available to th
The provision which denies the beneficiary the right to commute, alienate, or assign his/her interest in the policy proceeds is:
The Spendthrift Clause. If benefits were paid out in a lump-sum rather than held by the insurance company, creditors could go after the funds in satisfaction of any outstanding debts
What are the three nonforfeiture values?
Reduced paid-up,Extended term, Cash surrender
When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option?
Extended term
Albert owned a $100,000 policy that had accumulated a cash value of $20,000, against which he had borrowed $10,000. If he dies with this loan outstanding, his beneficiary will receive which of the following amounts?
$90,000. Any outstanding loans at the insured's death will be deducted from the face amount (death benefit) along with any interest due.
Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?
Life Income Only guarantees payment for the lifetime of the recipient.
A life insurance policy lists the names of 3 people as primary beneficiaries. Other than listing the person's names, which of the following is the most important next step?
Indicate what percentage of the death benefit each is entitled to receive. Percentage should be used instead of dollar amounts just in case the policy has an outstanding loan or premium at the time of death.
By law, what happens to any values remaining in a life insurance policy when it lapses due to non-payment of premiums?
They are the property of the owner and cannot be forfeited
Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will:
Accept the beneficiary change
John is the insured. His wife Mary is the primary beneficiary. Their three children are the contingent beneficiaries. John and Mary are killed in a common accident. The proceeds of John's policy would be paid to:
The Children Contingent beneficiaries receive the policy proceeds in the absence of the primary beneficiary. The common disaster clause assumes the primary beneficiary died before the insured if both are killed in the same accident.
Generally, an insurer may defer the granting of a policy loan for up to ______ months
6
Albert, as the owner of a life insurance policy insuring his son David, wants a Settlement Option that, if David were to die, would provide guaranteed payments to Albert and his wife Lois, until both of them die. Albert should choose:
Life Income Joint and SurvivorAlbert's desire would be Life Income Joint and Survivor, as he is concerned with payments continuing until both he and Lois have died.
Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select?
Frank's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash val
Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient?
The only settlement option that pays out its benefit 100% income tax-free to the beneficiary is the lump sum option.
Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option?
Mona surrenders the policy for its cash value and then uses that cash value to reduce her debt load.
A life insurance policy cannot be backdated more than ______ months.
A life insurance policy cannot be backdated more than 6 months in order to save age for premium purposes.
Failure to repay a loan or loan interest will void a life insurance policy:
If the total amount due equals or exceeds the policy's cash values. Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.
A beneficiary receives ample income each month from the interest earned while retaining his/her principal. This is referred to as ?
Capital Conservation
The Interest Only settlement option leaves the principal (capital) with the insurer, thus conserving the capital, and the interest income generated is taxed as ordinary income.
Beth exercised an owner's option on a life policy to stop paying premiums but continue to be covered until she was age 100. Which Nonforfeiture Option did she choose?
The Nonforfeiture Option that would allow Beth to stop making premium payments and continue to be covered to age 100, but for a reduced face amount, is Reduced Paid-Up.
If an insured dies during the policy's grace period, the insurer will:
Pay the death benefit, less the amount of premium due. The policy is in force during the grace period and if death occurs during the grace period, the insurer pays the death benefit, minus any premiums or loans due.
Frank, the owner of a life insurance policy, chooses a Settlement Option whereby the proceeds of his policy will be paid out over 20 years. Frank has chosen:
Fixed Period
Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeit
One-Year Term and Paid-Up Additions are dividend options, not nonforfeiture options. Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term.
A _______ Option protects the policyowner against total loss of benefits in the event of a lapsed policy.
Nonforfeiture Options are found in life insurance policies that generate a cash value, and protect the owner against total loss of that cash value, if the policy should lapse or is cancelled.
life insurance Vs. Annituity
Life Insurance
1. Provides a benefit upon death of the insured
2. creates an estate
3. pays a death benefit
4. protects against premature death
5. owner, insured, beneficiary
6. policy
Annuity
1. provides steady income until death of the annuitant
2. Liqu
What is different about a corporate owned nonqualified annuity compared to an individually owned nonqualified annutiy
Corporate owned annuities must be associated with a qualified retirement plan for the corpration to avoid current income taxation. There are no interest rate limitations for annuities in the IRC. All annuities provide a death benefit guarantee prior to an