Life Insurance Concepts Quiz
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Questions and Answers

One of the main reasons for licensing insurance agents is to protect the public. What is another reason for this licensing process?

  • To ensure that all agents have a specific level of experience in insurance.
  • To make sure all agents have a university degree.
  • To provide additional income to the government. (correct)
  • To control the number of insurance companies in an area.

If a policy owner chooses the paid-up insurance option, what happens to the policy?

  • The policy terminates immediately.
  • The premium payments cease and coverage remains the same.
  • The premium payments continue but the coverage amount increases.
  • The premium payments cease and the coverage amount decreases. (correct)

A policyholder wants to switch from a higher premium policy to a lower premium policy, but the insurance company requires them to provide satisfactory evidence of insurability. What is the reason for this requirement?

  • To ensure the policyholder can afford the new premium.
  • To determine the policyholder's financial stability.
  • To assess the policyholder's health status and risk. (correct)
  • To verify the policyholder's age and address.

What type of life insurance policy offers the policyholder flexibility to adjust premium levels, coverage amounts, and cash values based on investment performance?

<p>Universal Life Insurance (B)</p> Signup and view all the answers

Under a Disability Waiver of Premium Rider, what is a false statement?

<p>The insured has to die while disabled to activate the rider. (A)</p> Signup and view all the answers

In most life insurance applications, what type of information is most frequently requested?

<p>Information related to the applicant's insurability. (D)</p> Signup and view all the answers

What is the impact of paid-up additions on the cash and loan value of a policy?

<p>Paid-up additions have no effect on either the cash or loan value. (D)</p> Signup and view all the answers

How can the total live coverage of a permanent basic policy be significantly increased?

<p>By adding a supplemental term rider. (A)</p> Signup and view all the answers

How do life insurance companies use the laws of probability?

<p>To estimate the future death rates within a specific population group. (B)</p> Signup and view all the answers

What is a key feature of renewable term insurance?

<p>The coverage period can be extended indefinitely, but at a higher premium. (C)</p> Signup and view all the answers

What does a binding receipt issued by a life insurance company signify?

<p>Immediate insurance coverage until the policy is formally issued or declined. (D)</p> Signup and view all the answers

What is a similarity between endowment life insurance and term life insurance?

<p>They both provide coverage for a specific period of time defined in the policy. (C)</p> Signup and view all the answers

What approach does an agent use when assessing a prospect's complete financial needs before recommending a policy?

<p>Total Needs Selling (A)</p> Signup and view all the answers

Which provision in a permanent life insurance policy allows for full coverage to continue for a specific period even if premiums are discontinued?

<p>Extended Term Insurance (D)</p> Signup and view all the answers

Which of the following is NOT a primary function of life insurance companies?

<p>Conducting extensive research on the causes of death in the general population. (C)</p> Signup and view all the answers

A policyholder is looking to set up a monthly donation to a church from the proceeds of their endowment policy at age 65. Which option allows for this?

<p>Life income option pension (A)</p> Signup and view all the answers

What is the extent of medical evidence required for an applicant to obtain life insurance?

<p>The age of the applicant and the proposed sum to be insured (B)</p> Signup and view all the answers

Which of the following factors is least likely to affect the conservation of a life insurance policy?

<p>Pressure selling (A)</p> Signup and view all the answers

Which of the following is NOT a source of information for an insurance company to assess an applicant's insurability?

<p>Agent's inspection report (C)</p> Signup and view all the answers

If an applicant for life insurance misrepresents or fails to disclose a material fact, what happens to the contract?

<p>The contract is valid unless the insurer can prove fraud (C)</p> Signup and view all the answers

Which of the following is NOT a settlement option available under a life insurance policy?

<p>Proceeds held by the company, with interest payable to the beneficiary on request (B)</p> Signup and view all the answers

What does the non-forfeiture provision guarantee to the policy owner in whole life and endowment policies?

<p>Any guaranteed policy values will belong to the policy owner, even if premium payments are discounted (C)</p> Signup and view all the answers

What are the two main categories of fixed income options?

<p>Periodic annuity option and Life annuity option (C)</p> Signup and view all the answers

Which of the following could be considered a form of fixed-income investment?

<p>Bonds (A)</p> Signup and view all the answers

What is the main advantage of purchasing a continuous premium, whole life policy over a limited payment, whole life policy?

<p>More insurance protection for the same annual premiums outlay (B)</p> Signup and view all the answers

What legal remedy is used to resolve conflicting claims on the same insurance proceeds?

<p>Interpleader action (C)</p> Signup and view all the answers

Which of the following statements about cash value growth is FALSE?

<p>Because of its very short duration the cash value of a yearly renewable term policy grows very fast (A)</p> Signup and view all the answers

Which of the following situations DOES NOT have a legitimate insurable interest?

<p>An individual on the life of the mistress (C)</p> Signup and view all the answers

What is the collective term for supplementary provisions that extend the life insurance policy coverage with additional benefits?

<p>Riders (D)</p> Signup and view all the answers

Which statement about insurance premiums is FALSE?

<p>Cash is required for all premiums paid in the grace period (B)</p> Signup and view all the answers

Under what circumstances is a non-forfeiture option usually selected?

<p>Discontinuing premium payments for a whole life or endowment policy (C)</p> Signup and view all the answers

What is the main distinction between a continuous premium, whole life policy and a limited payment, whole life policy?

<p>The time frame for making premium payments (D)</p> Signup and view all the answers

What happens if the interest on a policy loan is not paid at the policy anniversary?

<p>The company can increase the present loan by the interest (A)</p> Signup and view all the answers

What does the incontestability clause prevent regarding claims?

<p>It prevents the company from denying a claim after the policy has been in force for 2 years (A)</p> Signup and view all the answers

If an insured has named both a primary and a secondary revocable beneficiary, what can the insured do?

<p>Add a third beneficiary without restrictions (C)</p> Signup and view all the answers

What will the insurer pay if there was a misstatement of age when purchasing a policy?

<p>The insurer will adjust the face amount based on the accurate age (A)</p> Signup and view all the answers

In general, what occurs with premiums for yearly renewable term life insurance?

<p>The premiums shall increase every time the policy is renewed (B)</p> Signup and view all the answers

What is the status of a policy that has not had premiums paid and cash values are exhausted?

<p>It can still avail of the grace period (D)</p> Signup and view all the answers

What principle does the law of large numbers illustrate about random events?

<p>A predictable pattern emerges when enough events are observed (B)</p> Signup and view all the answers

What is a requirement of a policy loan assignment relating to the primary beneficiary?

<p>It requires the primary beneficiary's signature for approval (C)</p> Signup and view all the answers

What is a primary characteristic of both endowment and term policies?

<p>Both types provide coverage for a specific term, regardless of the insured's lifespan. (B)</p> Signup and view all the answers

What is NOT a purpose of a life insurance application?

<p>To outline the applicant's preferred choices for non-forfeiture options. (B)</p> Signup and view all the answers

What action must a father take to transfer his life insurance policy to his son while avoiding estate taxes?

<p>Make his son the absolute assignee of the policy. (B)</p> Signup and view all the answers

In a policy with an irrevocable beneficiary, what action can the policyholder take without the beneficiary's permission?

<p>Stop making premium payments on the policy. (C)</p> Signup and view all the answers

Which of the following are considered basic settlement options for life insurance policies?

<p>Fixed amount, fixed period, life income, interest on deposit. (B)</p> Signup and view all the answers

What situation would most likely give an insurance company cause to rescind a life insurance policy?

<p>The insurer discovers that the application contains a material misrepresentation during the policy's contestable period. (B)</p> Signup and view all the answers

What is the least important reason for requiring insurance agents to be licensed?

<p>To streamline the process of selling insurance products. (A)</p> Signup and view all the answers

If the insured person dies during the term of both an Endowment and Term policy, what happens?

<p>The full coverage of the policy will be paid out to the beneficiary. (D)</p> Signup and view all the answers

Flashcards

Endowment and Term Policies

Both policies provide limited coverage for a specific period without cash value during that time.

Application Functions for Life Insurance

An application conveys the desire for insurance and provides initial info, but not non-forfeiture options.

Appointing a Beneficiary

To pass a life insurance policy to his son, a father must make him an absolute assignee.

Irrevocable Beneficiary Impact

An irrevocable beneficiary prevents changes to policy benefits without their permission.

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Basic Settlement Options

Options include fixed amount, fixed period, life income, or interest on deposit.

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Insurance Policy Rescindable Rights

Insurers can rescind a policy if there's a material misstatement during the contestable period.

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Suicide Exclusion Period

A policy may deny benefits if the insured commits suicide within a specified period after taking the policy.

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Importance of Licensing Insurance Agents

Licensing ensures agents are qualified; less important reasons include potential market saturation.

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Life Insurance Probability

The use of probability laws to estimate future death rates and risks for insured members.

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Renewable Term Insurance

A policy allowing the owner to renew coverage usually at a higher premium.

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Binding Receipt

A document that provides interim insurance until the policy is either issued or declined.

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Endowment vs. Term Life Insurance

Both provide coverage only for a specified time according to the policy contract.

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Total Needs Selling

An approach in insurance where agents assess a client's complete financial needs before suggesting a policy.

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Extended Term Insurance

A provision allowing policyholders to maintain insurance for a specified time after stopping premium payments.

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Interim Insurance

Temporary insurance coverage provided until the official policy is confirmed or declined.

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Insurance Protection Duration

The time frame during which insurance coverage is valid as specified in the policy agreement.

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Professional and Ethical Standards

Standards aimed at protecting the public and controlling agents' conduct.

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Paid Up Insurance Option

Coverage continues with reduced amounts after premiums cease, until age 65.

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Change of Policy Premium

Switching from a higher to lower premium requires satisfactory evidence of insurability.

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Universal Life Policy

A policy allowing variation in premiums, insured sum, and dependent cash values on investment performance.

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Disability Waiver of Premium Rider

Coverage that allows premiums to be waived if disability occurs, but is false if insured must die while disabled.

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Insurability Information

Most life insurance applications request detailed information about the applicant’s insurability.

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Paid-Up Additions

Additions that do not affect the loan or cash value of the policy.

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Supplement Term Rider

Increases total live coverage of a permanent policy through additional temporary coverage.

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Fixed Income Option

An option providing regular payments over a defined period.

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Medical Evidence Requirement

Determined by age of applicant and the sum insured.

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Conservation of Life Insurance Policy

Dependent on factors like commission and agent attitude, but not pressure selling.

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Sources of Information for Insurability

Includes personal appearance, medical reports, but not agent inspection reports.

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Contract Validity for Misrepresentation

A life insurance contract is valid unless fraud is proven by the insurer.

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Settlement Options Provision

Options for proceeds payment, excluding interest holding by the company.

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Non-Forfeiture Provisions

Policies ensure minimum benefits remain, even under adverse conditions.

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Importance of Guaranteed Policy Values

Assures policy benefits belong to the owner, despite payment changes.

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Continuous Premium Whole Life Policy

A policy with regular premium payments throughout the insured's life.

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Interpleader Actions

Legal action to resolve conflicting claims on insurance proceeds.

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Insurable Interest

The legitimate interest in the continued life of the insured.

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Riders

Additional coverage options that supplement a life insurance policy.

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Grace Period for Premiums

Time allowed to pay unpaid premiums without losing coverage.

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Non-forfeiture Option

Choices available when premiums stop for a policy, to avoid losing benefits.

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Cash Value Growth Rate

The rate at which cash value accumulates in a whole life policy.

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False Statement about Premiums

Incorrect statement that cash is required for all grace period premiums.

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Policy Loan Interest

If the interest on a policy loan is unpaid, the insurance company may increase the existing loan by the interest amount.

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Incontestability Clause

The incontestability clause prevents an insurance company from denying a claim after the policy has been active for 2 years.

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Beneficiary Designation

An insured can add a third beneficiary at any time, even if primary and secondary already exist.

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Misstatement of Age Impact

If age is misstated, the insurer pays the face amount adjusted for the actual age at the time of the policy.

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Yearly Renewable Term Policy

A yearly renewable term life insurance policy means premiums will increase with each renewal.

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Law of Large Numbers

This law suggests that repeated events will tend to follow a predictable pattern over time.

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Policy Settlement Options

Options for settlement include fixed amount, fixed period, life income, or interest on deposit.

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Study Notes

Traditional Life Insurance

  • Policy Provisions (Endowment and Term):

    • Term policies offer coverage for a specific period,
    • no cash value during the policy term,
    • protection limited to a specific period.
    • Endowment policies offer a benefit at the end of the period if the person is alive, and may have renewal and conversion options.

  • Life Insurance Application Functions:

    • Providing details for non-forfeiture options.
    • Furnishing information to construct the life insurance contract.
    • Presenting initial information about insurability.
    • Communicating the applicant's desire to obtain insurance.

  • Beneficiary Appointments & Estate Tax:

    • A father can make the policy payable to his estate,
    • but potentially pass the policy to his son to avoid estate tax liability.
    • An irrevocable primary beneficiary is an important method for achieving this tax protection.

  • Policy Options for Non-forfeiture:

    • A policy holder can use a non-forfeiture option.
    • Discontinue premium payments.
    • Borrowing minimal cash from the policy.
    • Modifying the dividend option in effect.

  • Settlement Options:

    • Policy loan, guaranteed insurability.
    • Cash surrender value, automatic premium loan.
    • Fixed amount, fixed period, life income, interest on deposit.
    • Double indemnity, total and permanent disability waiver.

  • Insurance Company Rescission Rights:

    • Companies may rescind a policy if the policy holder misrepresents facts.
    • Intentional suicide during the suicide exclusion period is a cause for rescission.
    • Company discovers any material misstatement during the contestable period.
    • Any policy holder is a minor when the policy was applied for.

  • Insurance Agent Licensing:

    • A key reason is establishing and maintaining high professional and ethical standards.
    • Protecting the public.

  • Paid-Up Additions:

    • These additions primarily affect the cash values.
    • Not impact the loan value.

  • Life Insurance and Probability:

    • Insurance companies use probability laws to estimate death rates within a group.
    • Predict the death timing of an insured.
    • Develop general population mortality statistics.
    • Determine the historical death rates of insured persons.

  • Renewable Term Insurance:

    • Policyholders can renew the coverage at a higher premium than the beginning. -Change insured person at renewal date is not automatically granted by the company.
    • Coverage is continued by the insurance company upon agreement and payment of premiums.

  • Whole Life Policy Binding Receipt:

    • The insurance company offers permanent insurance as of the date the application is approved.
    • Interim insurance coverage is provided until the policy is issued or application declined.

  • Endowment and Term Life Insurance Similarities:

    • Both build upon payment of the face amount, but will vary based on the insured's life.
    • Both often vary during the policy period.

  • Prospect Financial Requirements:

    • A Counselor selling approach.

  • Permanent Life Insurance Provision - Extended Term: -This policy permits discontinuation of premiums, while maintaining full insurance for a period.

  • Policy Options for Endowment at Age 65:

    • Financial implications when the owner wishes to donate monthly to the church.

  • Medical Evidence Requirements to Determine Insurability:

    • Applicant's Age.
    • Proposed amount of insurance.
    • Applicant's occupation.
    • Financial state of applicant.
    • Date of last medical examination.

  • Life Insurance Policy Conservation:

    • It's dependent on multiple factors, including loan interest payment and avoidance of misstatements on the application.

  • Insurance Misstatement Adjustment: -The amount of insurance is adjusted based on the accurate age of the insured.

  • Guaranteed Cash Values: -Policy values remain the same even if insurability factors change (health status or beneficiaries).

    • Any guarantee may be subject to the specified conditions.

  • Premium Payment Option in Life Insurance Policy: -Premium is paid quarterly or semi annually.

  • Non-Forfeiture Options Usage: -Renewal is based on the company's agreement and coverage duration.

  • Policy Misstatement of Age: -Insurance amounts are adjusted to reflect the payment at the correct age.

  • Participating Endowment: -Guaranteed cash values plus extra annual distributions.

  • Group Insurance insurability: -Group insurance assumes that all members can be insured.

  • Yearly Renewable Term Policies Renewal Specifications: -Renew the policy once. -Policy premiums increase at each renewal. -Evidence of insurability may be needed at renewal.

  • Incontestability Clause (Policy Claims): -This clause allows insurance companies to pay claims as long as the death occurred within a specified time period.

  • Revocable Beneficiary for Life Insurance: -The beneficiary designation will require the primary beneficiary's signature.

  • Policy Loan Interest Non-payment: -Insurance company may demand full loan payment. -Policy may be terminated.

  • Insurance Policy Claim Denials: -It is not permitted to deny claims for misstatement in applications.

  • Additional Insurance Coverage (Rider): -Accidental death benefits are specified conditions to cover additional cases.

  • Settlement Option Considerations: -The options may cover the life of the insured, fixed period payments, or specific amounts with interest payable on demand.

  • Irrevocable Beneficiary Requirement: -Contingent beneficiary designation will require approval.

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Traditional Life Review Answers PDF

Description

Test your knowledge on crucial life insurance concepts, including licensing reasons, policy options, and the importance of insurability. This quiz covers various types of life insurance policies and the impacts of features like paid-up additions. Challenge yourself to see how well you understand the intricacies of life insurance!

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