Insurance Code and Contracts
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Insurance Code and Contracts

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Questions and Answers

What happens if a policy loan is repaid within a year?

  • The loan is considered void
  • Interest is charged immediately
  • A penalty fee is applied
  • Interest is waived (correct)

    • Which insurance plan is designed to offer both lifelong protection and a savings component?

  • Participating plan
  • Term insurance
  • Permanent plan (correct)
  • Whole life insurance

    • Which insurance option provides the most cost-effective maximum protection for a man with moderate means?

  • Whole life insurance
  • 20 Year Endowment
  • Limited pay life
  • Term insurance (correct)

    • What should Mr. Juan Valdez expect from a participating plan?

    <p>Yearly dividends</p> Signup and view all the answers

    What type of policy assures benefits to the insured at the end of a 20-year term, provided he is alive?

    <p>20 Year Endowment</p> Signup and view all the answers

    What does a participating plan provide the policyowner in terms of excess premiums?

    <p>Return of excess premiums as dividends</p> Signup and view all the answers

    What are two main features of term insurance?

    <p>Renewability and convertibility</p> Signup and view all the answers

    What is the reason a common-law spouse cannot be designated as a beneficiary in insurance law?

    <p>If his/her legal partner is still living and the previous marriage has not been legally dissolved</p> Signup and view all the answers

    Which provision in a permanent life insurance policy may lapse for non-payment of premium?

    <p>Automatic premium loan</p> Signup and view all the answers

    What does the convertible feature of a term insurance policy allow?

    <p>Changed to a permanent insurance policy without evidence of insurability</p> Signup and view all the answers

    What amount will the insurance company pay if the insured dies accidentally within two years of purchasing the policy?

    <p>Pay the face amount</p> Signup and view all the answers

    What is one condition that must be met for a life insurance contract to take effect?

    <p>Payment of the first premium is made to the insurer or its authorized agent</p> Signup and view all the answers

    How can a policyholder obtain money from the insurance company while remaining insured?

    <p>Taking a policy loan</p> Signup and view all the answers

    Which of the following individuals cannot be a beneficiary of a life insurance policy?

    <p>Someone to whom you owe money</p> Signup and view all the answers

    What happens to the payment if there's a misstatement of age on a life insurance policy?

    <p>The face amount adjusted for misstatement of age</p> Signup and view all the answers

    Who can be named as an irrevocable beneficiary under life insurance laws?

    <p>Any individual with an insurable interest</p> Signup and view all the answers

    What important information must be supplied about dividends from an insurance policy?

    <p>That they are not guaranteed</p> Signup and view all the answers

    What type of tax is levied on the interest earnings of proceeds left with an insurance company?

    <p>Income tax</p> Signup and view all the answers

    If the insured dies during the grace period of an unpaid life insurance policy, what is the beneficiary entitled to receive?

    <p>Face amount of the policy minus the unpaid premiums</p> Signup and view all the answers

    Which of the following statements accurately describes insurable interest?

    <p>Any person on whom you depend, or from whom you receive support, qualifies</p> Signup and view all the answers

    Which group of individuals is explicitly prohibited from being a beneficiary under life insurance contracts?

    <p>Those expressly prohibited by law</p> Signup and view all the answers

    When does a life insurance policy typically go into force?

    <p>When the agent provides a binding receipt</p> Signup and view all the answers

    Which parties are commonly involved in a life insurance contract?

    <p>The insurance company and the insured</p> Signup and view all the answers

    What is the term for persuading a policyowner to surrender a policy in one company to replace it with a policy in another company?

    <p>Twisting</p> Signup and view all the answers

    Which of the following practices is explicitly prohibited for life insurance agents?

    <p>Offering rebates on premiums</p> Signup and view all the answers

    Which of the following is an unethical practice in the procurement of insurance?

    <p>Lapsing a current policy for another</p> Signup and view all the answers

    Which action can lead to the revocation of an insurance agent's license?

    <p>Any or all of the above</p> Signup and view all the answers

    What does the term 'knocking' refer to in the insurance context?

    <p>Slandering competing insurers</p> Signup and view all the answers

    Which of the following describes 'twisting' in insurance practices?

    <p>The replacement of a policy in one company with another policy in another company</p> Signup and view all the answers

    What is considered a violation in the ethical practices regarding policyholder information?

    <p>Keeping all policyholder information confidential</p> Signup and view all the answers

    What is a form of premium discrimination against policyholders?

    <p>Adjusting premiums based on health conditions</p> Signup and view all the answers

    Within what time frame can a lapsed policy be reinstated under normal conditions of proof of insurability?

    <p>Three years</p> Signup and view all the answers

    What is life insurance fundamentally considered to be?

    <p>A cooperative risk sharing plan</p> Signup and view all the answers

    Who is responsible for making assumptions and calculations regarding life insurance premium rates?

    <p>Actuary</p> Signup and view all the answers

    Which of the following must an individual meet to purchase life insurance?

    <p>Certain standards of health and occupation</p> Signup and view all the answers

    What is the fundamental advantage of using insurance to meet economic losses?

    <p>Spread over a large number of people</p> Signup and view all the answers

    What does the term 'loading' refer to in the context of insurance premiums?

    <p>The difference between the gross and net premiums for overhead expenses</p> Signup and view all the answers

    How does life insurance contribute to the welfare of a country?

    <p>All of the above</p> Signup and view all the answers

    What are the three elements that make up a life insurance premium?

    <p>Mortality experience, investment earnings and operating expenses</p> Signup and view all the answers

    Study Notes

    Insurance Code and Contracts

    • The issuance of a life insurance contract requires both payment of the first premium and delivery of the policy to the insured, assignee, agent, or beneficiary.
    • Individuals owing money to the insured are not typically considered suitable beneficiaries.
    • Any person with insurable interest (e.g., family members or dependents) can be named as an irrevocable beneficiary.
    • The interest earnings of the proceeds of a life insurance policy are subject to income tax.
    • Insurable interest extends to children, grandchildren, dependents, those receiving support, and individuals with pecuniary interest.
    • Individuals expressly prohibited by law from receiving donations are not eligible to be designated as beneficiaries.
    • Life insurance typically goes into effect upon the agent issuing a binding receipt, not necessarily when the policy is received by the applicant.
    • The parties involved in a life insurance contract are the insurance company and the insured.
    • Common-law spouses are generally ineligible to be designated as beneficiaries if the legal partner is still alive and the previous marriage has not been legally dissolved.
    • The automatic premium loan provision in a permanent life insurance policy can lapse if premiums are not paid.
    • The convertible feature of a term insurance policy permits conversion to a permanent insurance policy without additional evidence of insurability.
    • If an insured dies within two years of acquiring a life insurance policy due to an accident, the insurance company pays the face amount.
    • Policy loans allow policyholders to borrow funds against their policy's cash value while maintaining insurance coverage.
    • If a misstatement of age is made at the time of purchase, the insurance company adjusts the death benefit accordingly.
    • Life insurance dividends are not guaranteed.
    • In the event of death during the grace period of an unpaid life policy, the beneficiary receives the face amount of the policy minus unpaid premiums.

    Interest on Policy Loans

    • Interest is charged on outstanding policy loans to compensate for the insurer's lost investment income.

    Life Insurance Plans

    • A permanent life insurance plan combines life insurance protection with savings features.
    • Term insurance offers the maximum protection for the lowest premium, ideal for individuals with moderate means.
    • Participating life insurance policies allow policyholders to receive dividends, which are returns of excess premiums.
    • Level term insurance provides a fixed face amount throughout the policy term with level premiums.
    • The most attractive features of term insurance are its convertibility and renewability features.

    Ethical Practices and Procedures

    • It is considered unethical for agents to engage in twisting, which is persuading a policyholder to replace their current policy with a new one from another company.
    • Rebating, involves giving back a portion of the premium or offering other benefits in exchange for purchasing insurance.
    • An insurance agent’s license may be revoked for various reasons, including fraudulent practices, misrepresentation, and violations of insurance code provisions.
    • Ethical insurance practices include maintaining confidentiality of policyholder information.
    • Knocking is an unethical practice involving making derogatory remarks about competing insurers or companies.

    Life Insurance Principles and Fundamentals

    • Life insurance is a cooperative risk-sharing plan where individuals pool their risks to protect against financial losses.
    • An actuary is responsible for calculating life insurance premiums based on various factors.
    • Life insurance is voluntary and requires the applicant to meet health and occupation standards.
    • The fundamental benefit of insurance is it distributes losses among a large group of individuals through the pooling of premiums.
    • Loading refers to the amount added to the net premium to cover insurance company expenses, including commissions and taxes.
    • Life insurance contributes to economic development by accumulating capital for investment and alleviating the financial burden on dependents.
    • Life insurance provides financial protection in the event of disability, death, or retirement.
    • Life insurance premiums consist of three elements: mortality experience, investment earnings, and operating expenses.

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    Insurance Policy Reviewer

    Description

    This quiz covers essential aspects of life insurance contracts, including the requirements for issuance, the role of beneficiaries, and the implications of insurable interest. Test your knowledge on how insurable interest affects beneficiary designation and the taxation of policy proceeds.

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