Life Insurance Flashcards

Questions and Answers

What is a profit sharing plan?

A profit sharing plan is where the employer contributes money to an employee's retirement plan when the company shows a profit.

What provision prevents a beneficiary from changing or borrowing from planned installments in a life insurance policy?

Spendthrift provision

Which factor determines the length of time that benefits will be received under the Fixed Amount settlement option?

Size of each installment

What will be included in a policy summary?

Premium amounts and surrender values Signup and view all the answers

What would be the face amount of a new term policy if the insured cancels a $50,000 whole life policy?

50,000 Signup and view all the answers

Which policy provision allows an insured to reactivate a lapsed life insurance policy?

Reinstatement provision Signup and view all the answers

A tax sheltered annuity is a special tax favored retirement plan available to whom?

Certain groups of employees only Signup and view all the answers

What are groups formed when several related small companies join forces to create a large pool of insured individuals?

Multiple employer trust Signup and view all the answers

Once a policy is surrendered for its cash value, coverage ends and the policy can be reinstated.

False Signup and view all the answers

What is the maximum penalty for habitual noncompliance with the Fair Credit Reporting Act?

2500 Signup and view all the answers

What effect does the Accelerated Benefit provision have on the benefits paid to the beneficiary?

It will decrease the benefits paid. Signup and view all the answers

If a beneficiary wanted a guarantee that benefits would be paid for a period of 10 years, what would they select?

Fixed period Signup and view all the answers

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection Signup and view all the answers

How many days must a person comply with a request from the Commissioner if no time is specified?

30 days Signup and view all the answers

Which of the following is NOT an appropriate use of a deferred annuity?

Creating an estate Signup and view all the answers

What happens to premiums if a father with a Payor Benefit Rider becomes disabled?

The insured's premiums will be waived until she is 21. Signup and view all the answers

Nonforfeiture values are required by state law to be included in the policy.

True Signup and view all the answers

How long does a licensed insurance producer have to notify the Commissioner of a change of address?

10 days Signup and view all the answers

What does the insuring clause state?

The company's promise to pay. Signup and view all the answers

How many hours must a person work for the Keogh plan to be effective?

1000 hours a year Signup and view all the answers

Are disputes regarding consumer information considered negative information according to the Fair Credit Reporting Act?

No Signup and view all the answers

What type of term is credit life insurance issued on when the debt is being repaid?

Decreasing term Signup and view all the answers

What is misrepresentation in insurance?

Issuing, publishing or circulating false information about policy benefits or terms. Signup and view all the answers

What is the term for how frequently a policyowner is required to pay the policy premium?

Mode Signup and view all the answers

A tax sheltered annuity is available to which groups of people?

Certain groups of people (educational, religious, public education) Signup and view all the answers

What happens if a policy owner fails to pay the premium after the grace period?

The policy remains in force due to the automatic premium loan. Signup and view all the answers

What is a partnership buy-sell agreement called when each partner buys insurance on the life of the other?

Cross purchase plan Signup and view all the answers

What do equity indexed annuities invest in?

An aggressive basis to yield higher results. Signup and view all the answers

What does the other insurance provision define?

How each policy will pay. Signup and view all the answers

What does credit insurance cover?

The life of a debtor. Signup and view all the answers

How long does a licensed producer have to notify the Commissioner of change of address or phone?

10 days Signup and view all the answers

What does the term 'insuring clause' refer to in insurance?

It contains the company's promise to pay. Signup and view all the answers

What is the relationship between the two types of assignment in insurance?

Absolute and collateral Signup and view all the answers

What does survivorship mean in terms of insurance benefits?

Surviving beneficiary will continue receiving 2/3 of the benefit paid when both were alive. Signup and view all the answers

What type of life insurance provides temporary protection lasting for a specified period?

Term life insurance Signup and view all the answers

What distinguishes level term life insurance?

Premiums remain the same throughout the life of the policy. Signup and view all the answers

What is an increasing term policy?

A level premium policy where the face amount increases every year of the policy term. Signup and view all the answers

What is the face value of a life insurance policy?

Death benefit. Signup and view all the answers

What describes a decreasing term policy?

A level premium and a death benefit that decreases each year. Signup and view all the answers

Whole life insurance provides permanent protection.

True Signup and view all the answers

Does a straight life policy build cash value?

Yes, it builds cash value. Signup and view all the answers

What is a limited pay whole life policy?

A policy that requires premium payments for a specified period and remains in force for the insured's lifetime. Signup and view all the answers

What is the purpose of a single premium whole life policy?

To provide a level death benefit with a one-time lump sum premium payment. Signup and view all the answers

What must an insurer present to an applicant to obtain information?

Disclosure authorization notice. Signup and view all the answers

When does a 20 pay whole life policy endow?

At age 100. Signup and view all the answers

What type of retirement account allows contributions after age 70 1/2 without taxes on growth?

ROTH IRA. Signup and view all the answers

What is the one-year term option in dividend options?

Using dividends to purchase a one-year term policy. Signup and view all the answers

What describes a nonqualified annuity plan?

A plan that is not subject to government approval standards. Signup and view all the answers

What is a joint life policy?

A policy that pays out upon the first death among the covered individuals. Signup and view all the answers

What is an accelerated benefit provision?

A provision allowing early payment of some face value if the insured suffers from a terminal illness. Signup and view all the answers

What defines a modified endowment contract?

When a policy develops cash value faster than a 7-pay whole life contract. Signup and view all the answers

Which provision makes a contract complete?

Entire contract Signup and view all the answers

Which rider would not cause a death benefit to increase?

Payor benefit rider Signup and view all the answers

What can an adjustable life policyowner change?

The coverage period. Signup and view all the answers

What type of insurance company returns surplus money to policyholders?

Mutual insurer. Signup and view all the answers

For an individual not covered by an employer-sponsored plan, how are IRA contributions classified?

Tax deductible. Signup and view all the answers

How long does the Commissioner have to file a report after an examination?

60 days. Signup and view all the answers

In variable annuities, who assumes the investment risks?

The annuitant. Signup and view all the answers

What is the paid-up option in life insurance?

Accumulated dividends at interest are used to pay the policy up early. Signup and view all the answers

After an insurance company examination, how long must the report be filed?

60 days. Signup and view all the answers

Which is NOT true about beneficiary designations?

Beneficiaries have interest in the policyholder. Signup and view all the answers

What is a Stoli policy?

Stranger Originated Life Insurance (STOLI) policy. Signup and view all the answers

What defines a peril in insurance terms?

Cause of loss. Signup and view all the answers

When does coverage become effective if the full premium is submitted with the application?

As of the application date. Signup and view all the answers

What best describes fixed period settlement options?

Both the principal and interest will be liquidated over a selected period. Signup and view all the answers

What do equity indexed annuities seek?

Higher returns. Signup and view all the answers

Which of the following is a nonqualified retirement plan?

Split dollar insurance Signup and view all the answers

What will a beneficiary receive if a life insurance policy does not have a war clause?

The full death benefit. Signup and view all the answers

Which of the following is an example of a limited pay life policy?

Life paid-up at age 65 Signup and view all the answers

What is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants. Signup and view all the answers

How often must an agent complete ongoing training to sell long-term care insurance?

Every 2 years. Signup and view all the answers

Which of the following is NOT a primary way deductibles for major medical plans can be paid?

Embedded deductible Signup and view all the answers

What requirement does a $100,000 Annually Renewable Term Life policy have?

A premium increase each year. Signup and view all the answers

The spouse term rider typically offers level term insurance.

True Signup and view all the answers

How often must agents complete ongoing training for long term care insurance?

Every 2 years. Signup and view all the answers

What will the beneficiary receive from a life insurance policy without a war clause if the insured is killed during a war?

The full death benefit. Signup and view all the answers

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants. Signup and view all the answers

What is an investor buying a life policy on an elderly person to sell for life settlement an example of?

A STOLI policy. Signup and view all the answers

What defines a peril?

A specific cause of loss. Signup and view all the answers

What is required when the full premium is submitted with a life insurance application?

Coverage is effective as of the application date. Signup and view all the answers

What describes fixed period settlement options?

Liquidation will occur over a specified period. Signup and view all the answers

What do equity indexed annuities aim for?

Higher returns. Signup and view all the answers

Which of the following is a nonqualified retirement plan?

Split dollar insurance Signup and view all the answers

What will beneficiaries receive from a life policy lacking a war clause?

The full death benefit. Signup and view all the answers

What is an example of a limited pay life policy?

Life paid-up at age 65. Signup and view all the answers

Which is NOT true regarding a Certificate of Authority?

Issued to group insurance participants. Signup and view all the answers

When must agents complete ongoing training to maintain licensing for long term care insurance?

Every 2 years. Signup and view all the answers

Which of the following methods can major medical plan deductibles be paid?

All of the above Signup and view all the answers

What is required for an annually renewable term life policy?

A premium increase each year. Signup and view all the answers

The spouse term rider is typically level term insurance.

True Signup and view all the answers

How often do agents need to take training for long-term care insurance?

Every 2 years. Signup and view all the answers

What will beneficiaries receive if the insured with a war clause dies in war?

The full death benefit. Signup and view all the answers

Which is an example of a limited-pay life policy?

Life paid-up at age 65. Signup and view all the answers

What is NOT true about a Certificate of Authority?

Issued to group insurance participants. Signup and view all the answers

What is an STOLI policy?

A type of life insurance bought by investors for profit. Signup and view all the answers

What does a peril define in insurance?

The specific cause of loss. Signup and view all the answers

What is the effective date of coverage with a full premium submission?

Application date. Signup and view all the answers

What best describes fixed period settlement options?

Both principal and interest will be liquidated over a selected period. Signup and view all the answers

What do equity indexed annuities aim for?

Higher returns. Signup and view all the answers

Which of the following illustrates a nonqualified retirement plan?

Split dollar insurance. Signup and view all the answers

What will the beneficiary receive if there's no war clause when the insured dies during a war?

The full death benefit. Signup and view all the answers

Which is an example of a limited pay life policy?

Life paid-up at age 65. Signup and view all the answers

Which is NOT true regarding a Certificate of Authority?

Issued to group insurance participants. Signup and view all the answers

Study Notes

Life Insurance Key Concepts

Term Life Insurance: Temporary protection for a specific period, pays death benefit if insured dies during that term; offers maximum coverage for lowest premiums; pure death protection.
Level Term Life Insurance: Premiums remain consistent throughout the policy's life.
Increasing Term Policy: Features a level premium, but the face amount increases annually.
Face Value: Refers to the death benefit of a life insurance policy.
Decreasing Term Policy: Consists of level premiums with a decreasing death benefit, commonly used in mortgage protection.

Whole Life Insurance Features

Whole Life Insurance: Permanent protection as long as premiums are paid; death benefits and premiums are guaranteed.
Cash Value Accumulation: Premiums remain unchanged through the policy life, allowing cash value growth.
Straight Life: Continuous premium payment with a guaranteed death benefit; lowest annual premium among whole life options.
Limited Pay Whole Life: Requires premiums for a specified number of years; remains in force for the lifetime after premium payment.
Single Premium Whole Life: Requires one lump sum payment for a level death benefit, generating immediate cash value.

Special Provisions and Options

Disclosure Authorization Notice: Required when an insurer seeks information from an applicant.
One Year Term Option: Policyowner uses dividends to purchase a term policy for one year.
Nonqualified Annuity Plan: Offered selectively to certain employees, funded with before-tax corporate dollars, not government-regulated.
Accelerated Benefit Provision: Allows early payment of part of the face value due to terminal illness, paid without a premium increase.

Annuities and Benefits

Variable Annuities: Risks are assumed by the annuitant; investment performance varies.
Paid-Up Option: Dividends accumulated at interest and combined with cash value to pay off policy early.
Income Benefit Rider: Provides monthly income during a disability period while waiving policy premiums.

Retirement and Tax Considerations

ROTH IRA: Allows tax-free growth without taxes on contributions after age 70½ for non-covered individuals.
Tax Deductibility of Premiums: Premiums paid on group term life insurance plans for employees are deductible.

Beneficiary Designations and Rights

Beneficiary Designations: Beneficiaries do not need insurable interest in the insured; rights vary based on designation (revocable vs. irrevocable).
Owner's Rights: Include the ability to change beneficiaries, choose options, and receive proceeds.
Spendthrift Provision: Prevents beneficiaries from changing payment terms, borrowing, or assigning benefits.

Policy Mechanics and Regulations

Commencement of Coverage: Effective date coincides with the application date if full premium is submitted.
Fixed Period Settlement Options: Payments liquidate both principal and interest over a selected period.
Certificate of Authority: Required for insurers to operate in a state; not issued to group participants.

Special Policies and Situations

STOLI Policy: Life policies purchased by investors with no relationship to the insured for future sale.
Extended Term Nonforfeiture Option: Converts cash value to term insurance at the same face amount as the whole life policy.
Profit Sharing Plan: Contributions from employers based on company profits.

Claim Procedures and Finally

Insurance Coverage: For individuals with no war clause, beneficiaries receive the full death benefit during wartime.
Policy Summary: Includes important details like premium amounts and surrender values.
Reactivation of Lapsed Policy: Allowed with timely proof of insurability under specific policy provisions.### Reinstatement Provision
Allows policyholders to restore a lapsed policy under certain conditions, but may not apply after a cash surrender.

Tax Sheltered Annuity

A retirement plan that offers tax advantages exclusively to specific groups like nonprofit and educational employees.

Multiple Employer Trust (MET)

A collaborative agreement among similar small companies that enables them to provide a collective insurance benefit plan for their employees.

Cash Surrender Option

Termination of the policy occurs when cash value is taken; coverage cannot be reinstated afterward.

Fair Credit Reporting Act Penalty

Maximum penalty for habitual noncompliance can reach $2,500 for intentional violations.

Accelerated Benefit Provision

Reduces the total benefits available to beneficiaries when early payout is taken.

Fixed Period Benefits

Allows beneficiaries to select a guaranteed payout period, with the insurer determining installment amounts.

Extended Term Nonforfeiture Option

Provides the highest insurance protection by converting cash value into term insurance equivalent to the original policy’s face value.

Compliance with Commissioner Requests

Individuals must respond to information requests from the Commissioner within 30 days if no time frame is specified.

Deferred Anuity Use

Best utilized for accumulating retirement income or education funds; not suitable for estate creation.

Payor Benefit Rider

Waives premiums for the insured child until age 21 if the policyholder becomes disabled.

Nonforfeiture Values

Required by state law to be included in life insurance policies, with a mandatory disclosure table for the next 20 years.

Notification for Address Change

Licensed insurance producers must inform the Commissioner within 10 days of a change in address.

Insuring Clause

Details the insurer's obligation to pay death benefits and specifies the recipient of these benefits.

Keogh Plan Requirements

An individual must work at least 1,000 hours per year for the plan to be effective.

Fair Credit Reporting Act on Disputes

Disputes involving consumer information are not classified as negative information under the act.

Credit Life Insurance Structure

Issued as decreasing term insurance to align repayment with the debt owed to creditors on an installment basis.

Misrepresentation in Insurance

Involves any false, misleading, or deceptive information regarding policy benefits or terms, which can include oral statements.

Premium Payment Frequency

"Mode" refers to how often a policyholder must make premium payments.

Automatic Premium Loan

Prevents unintended policy lapse due to premium nonpayment by automatically borrowing from the policy's cash value.

Cross Purchase Plan

A buy-sell agreement where partners purchase insurance on each other's lives, serving as owner, payor, and beneficiary.

Equity Indexed Annuities

Offer higher returns with guaranteed minimum interest rates, carrying less risk than variable annuities.

Other Insurance Provision

Details the payment hierarchy among multiple insurance policies in effect.

Credit Insurance

Designed to cover the life of an individual debtor to ensure repayment of debt obligations.

Change Notification Period

Licensed producers are required to notify the Commissioner of changes in contact information within 10 days.

Insuring Clause Reiterated

Contains the insurer's promise to pay benefits under the terms of the policy.

Mutual Insurance Company

Provides dividend checks to its policyholders as a return on surplus.

Types of Insurance Assignment

Two categories exist: absolute assignment, which transfers full benefits, and collateral assignment, which secures loans against the policy.

Survivorship Benefits

Allow a surviving beneficiary to receive two-thirds of the benefits paid while both beneficiaries were alive.

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Test your knowledge of life insurance terms and concepts with these flashcards. Learn about various types of policies, such as term life insurance and level term life insurance. This quiz is perfect for anyone interested in understanding how life insurance works.