Insurance Policy Flashcards

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Questions and Answers

What is life insurance replacement?

Exchanging an existing policy for a new policy.

All of the following actions are considered rebating EXCEPT:

Sharing commissions with other producers (correct)

Offering a country club membership as an inducement to purchase insurance

Giving back commissions to a client

Offering employment as an incentive to purchase insurance

All of these are valid policy dividend options for a life insurance policyowner EXCEPT:

Buy additional insurance coverage

Cash outlay to the policyowner

Accumulate without interest (correct)

Reduction in policy premium

An insurer MUST pay a life insurance death benefit claim promptly upon receipt of proof of loss.

True Signup and view all the answers

What is an insurance policy's grace period?

Period of time after the premium is due but the policy remains in force. Signup and view all the answers

Within how many days must a licensee submit a change in address?

30 Signup and view all the answers

What must be included in an advertisement for an annuity product by Maria the producer?

Her name. Signup and view all the answers

Which policy feature makes a universal life policy different from a whole life policy?

A flexible premium schedule. Signup and view all the answers

Ambiguities in an insurance policy are always resolved in favor of the?

insured Signup and view all the answers

Which of these is considered to be a Living Benefit option in a life insurance policy?

Accelerated death benefit Signup and view all the answers

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?

Death benefit Signup and view all the answers

A limited payment whole life policy provides?

lifetime protection Signup and view all the answers

All of these are characteristics of a universal life insurance policy EXCEPT?

Fixed surrender value Signup and view all the answers

Loans obtained by a policy owner against the cash value of a life insurance policy?

would not be treated as taxable income Signup and view all the answers

Which of these is NOT an Unfair Claims Settlement Practice?

Settling a claim by arbitration Signup and view all the answers

James is the insured on a life insurance policy where his age was misstated on the application. What is CORRECT regarding the death benefit amount?

The death benefit paid will be what the premium would have purchased at the correct age. Signup and view all the answers

A business will typically use which type of life insurance to cover their employees?

group policy Signup and view all the answers

How long must an individual be unable to engage in any gainful activity due to physical or mental disability in order to qualify for Social Security Total Disability?

12 months Signup and view all the answers

An annuitant is guaranteed to NOT outlive their benefits with a(n)?

guaranteed lifetime withdrawal benefit Signup and view all the answers

How is the cost of a policy affected when a policy owner pays premiums more frequently?

increases Signup and view all the answers

An endorsement found in an insurance plan which modifies the provisions of the policy is called a(n)?

rider Signup and view all the answers

An underwriter's primary responsibility to an insurer is to protect against?

adverse selection Signup and view all the answers

An immediate annuity has been purchased with a single premium. When does the annuitant typically begin receiving benefit payments?

1 month Signup and view all the answers

How do insurers predict the increase of individual risks?

law of large numbers Signup and view all the answers

A life insurance policy written on one contract for two people in which it is payable upon the first death is called?

joint Signup and view all the answers

A rollover from a Traditional IRA to another IRA MUST be done within _______ days to avoid tax consequences.

60 Signup and view all the answers

A licensed producer MUST be _____ be an insurer to be eligible for soliciting insurance contracts.

appointed Signup and view all the answers

A nonresident producer from a state outside of Louisiana may become licensed in Louisiana IF a(n)?

reciprocal arrangement exists with the state of domicile Signup and view all the answers

An example of an Unfair Claims Settlement Practice is?

failing to promptly provide reasonable explanations for the denial of claims Signup and view all the answers

A producer who sells most of his/her insurance policies to family members is said to be engaging in?

controlled business Signup and view all the answers

Which of the following is NOT a requirement to obtaining a Louisiana insurance producer license?

Must be age 21 Signup and view all the answers

All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT?

Stock purchase Signup and view all the answers

Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE?

Net death benefit will be reduced if the loan is not repaid. Signup and view all the answers

A life insurance policy that contains a guaranteed interest rate with the chance to earn a rate that is higher than the guaranteed rate is called?

universal life Signup and view all the answers

A change in an insurance application requires?

an initial made by the applicant Signup and view all the answers

The taxable portion of each annuity payment is calculated using which method?

exclusion ratio Signup and view all the answers

A whole life insurance policy accumulates cash value that becomes?

the policy loan value which the insured may borrow against Signup and view all the answers

Andy the annuitant dies before the annuity start date. Which of the following is a TRUE statement?

premiums paid plus interest earned is returned to the beneficiary. Signup and view all the answers

A life insurance policyowner was injured in an automobile accident with results in a total and permanent disability. Which rider would pay a monthly amount because of this disability?

disability income rider Signup and view all the answers

What kind of life insurance policy covers two or more people with the death benefit payable upon the last person's death?

last survivor life insurance Signup and view all the answers

A producer must notify the Commissioner within _____ days of a felony conviction.

30 Signup and view all the answers

Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death?

results Signup and view all the answers

A renewable Term Life Insurance policy allows the policyowner the right to renew the policy?

without producing proof of insurability Signup and view all the answers

Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies?

substandard risk Signup and view all the answers

Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds?

Tom Signup and view all the answers

What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as?

representation Signup and view all the answers

Which of the following is NOT part of an insurance contract?

Certificate of authority Signup and view all the answers

An insurance producer decides to conduct business under an assumed name. The Commissioner MUST be notified of this change?

prior to using the assumed name Signup and view all the answers

A life insurance policy sold in Louisiana can be contested by the insurer only during the first ____ years of the contract.

two Signup and view all the answers

The free-look provision gives the policyowner?

the right to return the policy for a full refund within a specified number of days. Signup and view all the answers

Why are dividends from a mutual insurer not subject to taxation?

because dividends are considered to be a return of premium Signup and view all the answers

A life insurance claim which involves a per capita distribution of policy proceeds would be payable to the?

named living primary beneficiaries Signup and view all the answers

Life insurance policies will normally pay for losses arising from?

commercial aviation Signup and view all the answers

Which of these annuities require premium payments that vary from year to year?

flexible premium deferred annuity Signup and view all the answers

Which of the following is NOT information found in a life insurance buyer's guide?

How to take legal action against an insurance company Signup and view all the answers

Pat owns a 20-pay life policy with a paid-up dividend option. Which of the following statements is true?

The policy may be paid up early by using policy dividends. Signup and view all the answers

All of these are valid options for an Adjustable Life Policy EXCEPT?

A nonforfeiture option can be used to increase the death benefit Signup and view all the answers

In what part of an insurance policy are policy benefits found?

declarations Signup and view all the answers

Which of these would be the best example of a limited pay life insurance policy?

whole life policy with premiums paid up after 20 years Signup and view all the answers

All of the following riders can increase the death benefit amount EXCEPT?

Waiver of premium Signup and view all the answers

What type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies?

payor benefit Signup and view all the answers

Before a producer may sell, solicit, or negotiate insurance for an insurer, the producer must have a(n)?

appointment Signup and view all the answers

Replacement can be defined as?

a transaction in which a new life insurance policy is purchased and an existing life insurance policy is surrendered. Signup and view all the answers

Which of these is NOT considered to be a common life insurance nonforfeiture option?

Life income annuity Signup and view all the answers

The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of?

past due premiums that have not been paid by the end of the grace period Signup and view all the answers

A tax-free Section 1036 Exchange of a life insurance policy to a different policy is permitted if it occurs?

from insurer to insurer and no cash is received by the policyowner Signup and view all the answers

Simon has purchased a fixed immediate annuity. His payment amount will be dependent upon principal, interest, and the contract's?

income period Signup and view all the answers

How does one qualify as a fully-insured individual under Social Security disability coverage?

individual has been credited with the appropriate number of quarters of coverage Signup and view all the answers

When calculating the amount of life insurance needed for an income earner, what has to be determined when using the Needs Approach?

the family's financial objectives if the income earner were to die or to become disabled Signup and view all the answers

In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST?

provide evidence of insurability to the insurer Signup and view all the answers

When a producer is replacing an existing ordinary life insurance policy, the producer must take all of the following actions EXCEPT?

Obtain the beneficiary's signature Signup and view all the answers

A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due?

reduction of premium dividend option Signup and view all the answers

Which of these is considered to be a document that describes the critical segments of a life insurance policy?

policy summary Signup and view all the answers

An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest-free. The provision that allows this is called?

partial surrender Signup and view all the answers

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid?

minus indebtedness and without interest Signup and view all the answers

An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if?

the insured outlived the beneficiary Signup and view all the answers

What does the word 'level' in Level Term describe?

the face amount Signup and view all the answers

Fixed period settlement options are considered to be a form of a(n)?

annuity Signup and view all the answers

Advertising regulations exist in order to?

demonstrate full and truthful disclosures to the public Signup and view all the answers

A cease and desist order?

forbids a stated practice listed in the order Signup and view all the answers

How are annuities given favorable tax treatment?

Gains are taxed at distribution Signup and view all the answers

All of these statements concerning whole life insurance are false EXCEPT?

When a whole life policy is surrendered, income taxes may be owed Signup and view all the answers

An individual most likely will have an insurable interest in insuring a person's life if?

an economic interest exists for the continuance of the insured's life Signup and view all the answers

Which of the following is an annuity that is linked to a market-related index?

equity-indexed annuity Signup and view all the answers

______ life is designed to pay the balance of a loan if the insured dies before repayment of the loan.

Credit Signup and view all the answers

When does a life insurance policy typically become effective?

When initial premium is collected and policy is issued. Signup and view all the answers

The least expensive option to pay off a 30-year mortgage balance would be?

decreasing term life Signup and view all the answers

The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n)?

accident Signup and view all the answers

Lisa has recently bought a fixed annuity. Which of these is considered to be a disadvantage of owning this type of annuity?

During periods of inflation, annuitants will experience an increase in purchasing power of their payments. Signup and view all the answers

If the annuitant dies before the annuity start date?

the premiums paid plus interest earned will be given to the beneficiary. Signup and view all the answers

A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n)?

collateral assignment Signup and view all the answers

Underwriters can acquire information from all of the following sources EXCEPT?

Genetic testing Signup and view all the answers

Which type of life insurance offers flexible premiums, a flexible death benefit, and the choice of how the cash value will be invested?

variable universal policy Signup and view all the answers

What is the purpose of the Louisiana Life and Health Insurance Guaranty Association?

ensures that claims filed against insolvent insurance companies will be paid. Signup and view all the answers

Which of the following would be considered an underwriting duty of an agent?

completing all applications and collecting initial premiums Signup and view all the answers

According to Louisiana law, group life insurance conversion privileges must NOT?

require evidence of insurability Signup and view all the answers

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?

a prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age Signup and view all the answers

How often must an insurance producer's license in Louisiana be renewed?

every two years Signup and view all the answers

Which of the following actions by a producer would NOT result in a license suspension or revocation?

Sharing commissions with other licensed producers Signup and view all the answers

A spouse and child can be added to the primary insured's coverage as what kind of rider?

Signup and view all the answers

Study Notes

Insurance and Policy Definitions

Ambiguities in insurance policies favor the insured.
Living Benefit options in life insurance include an accelerated death benefit.
Death benefits under a Modified Endowment Contract (MEC) are not taxable, while policy loans and withdrawals are subject to taxation.
Limited payment whole life policies provide lifetime protection.
Universal life policies feature flexible death benefits, flexible premiums, and build cash value, but do not have fixed surrender values.

Loans and Claims

Loans against the cash value of a life policy are not treated as taxable income.
Unfair claims settlement practices include refusing to pay claims without investigation and failing to acknowledge claims promptly. Settling a claim by arbitration is NOT considered unfair.
If an insured's age is misstated, the death benefit is adjusted based on what the correct age premiums would have provided.

Policy Types and Annuities

Group policies are commonly used by businesses to cover employees.
Social Security Total Disability requires an individual to be unable to work for 12 months.
Guaranteed lifetime withdrawal benefits ensure an annuitant won’t outlive their benefits.
A fixed immediate annuity begins payments typically within one month.
The cost of a policy increases when premiums are paid frequently.

Insurance Transactions and Procedures

An endorsement modifying policy provisions is known as a rider.
Underwriters primarily protect insurers against adverse selection.
Replacement in insurance involves buying a new policy while surrendering an existing one.
Nonresident producers can be licensed in Louisiana through reciprocal arrangements.
Producers must notify the Commissioner of any assumed name usage before it takes effect.

Disability and Benefits

The disability income rider provides monthly payments if the insured becomes totally and permanently disabled.
Common disaster provisions manage payouts when both the insured and beneficiary die in the same accident.
There are multiple riders available for life insurance policies, like payor benefits that waive premiums if the policyholder dies.

Tax and Financial Considerations

Tax-free rollovers from a Traditional IRA to another IRA must occur within 60 days.
Dividends from mutual insurers are not taxable as they are considered returns of premium.
A life insurance policy remains contestable by the insurer for two years from the contract date.

Market Regulations

Louisiana mandates that insurance producers notify the Commissioner of felony convictions within 30 days.
Advertising regulations ensure truthful disclosures to the public, and cease and desist orders forbid certain practices.

Policy Loans and Cash Value

Cash value in whole life policies can be borrowed against, with loans reducing the net death benefit if unpaid.
Flexible premium deferred annuities require variable premium payments and are different from fixed annuities.

Miscellaneous

Association provides financial assurance for claims of insolvent insurers.
All life insurance statements regarding health and occupation are considered representations.
Fixed period settlement options function as annuities, distributing benefits over a specified period.

Compliance and License Information

Insurance producers must renew their licenses every two years in Louisiana.
Insurance institutions can contest claims based on misrepresentation or lack of evidence of insurability.
A producer's actions like sharing commissions with other licensed producers would NOT result in license suspension.

Understanding Policy Features

Level Term life insurance refers to a fixed face amount during the term.
Features such as guaranteed interest with opportunities for higher rates characterize universal life policies.
The automatic premium loan provision allows insurers to use cash value to cover unpaid premiums after the grace period ends.

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Description

Test your knowledge on insurance policies with these flashcards. This quiz covers key concepts such as ambiguities, living benefits, and taxation under Modified Endowment Contracts. Perfect for students preparing for exams in insurance principles.