Life Insurance Concepts Quiz

Life Insurance Concepts

• Risk in insurance means chances of the beneficiary being paid by the company or hazards on people's lives.
• Life insurance contributes to the welfare and progress of the country by:
  • Accumulating capital for investment in commerce and industry
  • Partially relieving the community of the care of dependents
  • Encouraging provisions for the future
• Life insurance can provide money when income stops because of:
  • Disability
  • Death
  • Retirement
• The fundamental advantage of using insurance to meet economic losses is that these losses are spread over a large number of people.

Life Insurance Contract

• A life insurance contract is legal and binding if the parties to the contract are legally competent.
• The father is the applicant-owner in a life insurance contract on behalf of his child.
• The insurance code specifies that a contract does not take effect unless the policy is delivered to the insured, his assignee, or agent, or to a beneficiary.
• The parties involved in a life insurance contract are the insurance company, insured, and beneficiary.

Beneficiary

• For life insurance coverage to be valid, insurable interest must exist:
  • At the inception of the policy
  • Throughout the entire lifetime of the policy
  • At the time of the loan but not necessarily throughout the lifetime of the policy
• All of the following can be beneficiaries except:
  • A creditor
  • Those expressly prohibited by law to receive donations
• According to insurance law, a common-law spouse cannot be designated as a beneficiary.

Premium

• A single premium policy means a policy under which only one premium payment is required.
• To calculate the required premiums for a given policy, the agent must know the applicant's:
  • Age
  • Face amount desired
  • Choice of plan
• The three elements that make up a life insurance premium are:
  • Mortality experience
  • Investment earnings
  • Operating expenses
• Loading refers to the difference between the gross and net premiums for the purpose of paying insurance overhead expenses.

Classifications of Life Insurance Plans

• A participating plan entitles the policy-owner to receive dividends.
• A permanent plan offers both protection and savings.
• The main difference between a term plan and a permanent plan is that permanent plans provide both protection and savings while term plans offer protection only.

Whole Life

• Whole life insurance provides protection until age 100.

Endowment

• An endowment policy is a type of life insurance policy that provides a lump sum payment to the policyholder if they survive to the end of the policy term.

Limited Payment

• In a limited payment policy, protection is until age 100, and payment of premiums is for a limited period (e.g., 20 years).

Term Insurance

• Term insurance provides protection for a specified period (e.g., 10, 20, or 30 years).
• The convertible feature of a term insurance policy provides that the policy may be changed to a permanent insurance policy without evidence of insurability.

Annuity

• An annuity plan is a type of life insurance policy that provides a steady income stream for a specified period or for life.

Riders

• A term rider is a type of rider that adds term insurance to a permanent life insurance policy.
• A waiver of premium rider stops further premium payments in the event of disability.

Underwriting

• Life insurance policies for which higher than standard premium rates are payable are said to be rated policies.
• Anti-selection occurs when the insurance company accepts more than its share of poor risks.
• In an application, the information that must be disclosed includes every fact that is material to the insurance.

Policy Provisions

• Statements in the application form are warranties.
• An automatic premium loan differs from other policy loans in that it goes into effect requiring no separate action from the policy-owner.### Policy Loans and Surrender
• A policyholder can obtain money from the insurance company and remain insured by taking a policy loan or surrendering the policy for its cash value.
• A policy loan is charged with interest, which replaces investment income the insurer cannot earn since a loan has been granted.

Misstatement of Age

• If there is a misstatement of age, the amount of insurance is adjusted to the amount which the premium paid at the correct age would have purchased.
• The insurance company will pay the face amount adjusted for misstatement of age if the insured dies.

Grace Period

• If the insured dies during the grace period of an unpaid life insurance policy, the amount payable to the beneficiary is usually the face amount of the policy minus the unpaid premiums.
• A typical grace period provision in a life insurance policy obliges the life insurance company to allow the policy-owner a three-month extension beyond the due date to make the late premium payment without penalty.

Absolute Assignee

• When a policy is assigned absolutely, the assignee acquires all the rights and interests of the original policyholder.

Suicide Clause

• The suicide clause is in effect for the first year.
• If a policy-owner commits suicide within one year, the company is only liable for the payment of the premiums paid by the insured only.

Non-Forfeiture Options (NFO)

• The three non-forfeiture values in a permanent policy are cash surrender value, paid-up insurance, and extended term insurance.
• In the event that a policy elects the paid-up insurance option, the premiums cease and protection continues with a reduced amount of coverage.

Reinstatement

• Any policy which has lapsed can be reinstated subject to normal conditions of proof of insurability within three years.

Settlement Options

• The basic settlement options are fixed amount, fixed period, interest, and fixed period and for life.
• When the proceeds of a life insurance policy are left with the company to earn interest, income tax is levied on the interest earnings of the proceeds.

Agents and Life Insurance Company

• Insurance companies which are owned by the policy-owners are examples of mutual companies.
• Prior to granting a license, the IC requires proof of a prospective agent's character and reputation.
• The IC has the power to adjudicate insurance claims against insurance companies for any single claim not exceeding P250,000.00.

Ethical Practices

• The insurance industry is under government regulations because it affects public interest.
• Rebating of premiums by an insurance agent is prohibited.
• Sharing the commission with any other person is called twisting.
• Persuading a policy-owner, directly or indirectly, to surrender or lapse a policy in one company and replacing it with a policy in another company is called twisting.
• An insurance agent's license can be revoked for fraudulent practices, misrepresentation in the application for license, or violation of any provision of the Insurance Code.